Information Systems Project Management—David Olson
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Information Systems Project Management—David Olson
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Chapter 4: Project Selection &
Approval
Important factors
Selection Methods
Value Analysis, Optimization
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Information Systems Project Management—David Olson
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IS Project Growth
• Corcoran (1997): billions spent on technology every year
• Sources
– users
– top management
– within information systems
• Process
– idea
– estimate benefits, costs
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Information Systems Project Management—David Olson
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IS Project Motivation
• Cost cutting/avoidance
• Revenue maintenance/enhancement
• Entering new markets
– data mining
• Gaining market share
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Information Systems Project Management—David Olson
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Estimation Pitfalls
• INTANGIBLES
– nebulous benefits
• better decision making
• HIDDEN OUTCOMES
– time, budget subject to great error
• CHANGE
– technology changes rapidly
• outdating many good project ideas
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Information Systems Project Management—David Olson
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Organizational Treatment of IS
Projects
• Hinton & Kaye (1996) - survey of 50 organizations
CAPITAL: rigid cost-benefit analysis
REVENUE: need to invest to keep up
Investment
training
marketing
info tech
operations
Capital
0%
4%
39%
58%
Mix
1%
9%
41%
31%
© McGraw-Hill/Irwin 2004
Revenue
99%
87%
20%
11%
Information Systems Project Management—David Olson
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Initial Risk Evaluation
•
•
•
•
•
•
•
•
Project manager ability
experience with project type, environment, language
familiarity with modern programming practice
availability of critical equipment, software
completeness of project team
personnel turnover
project team size
relative control of project manager over project team
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Information Systems Project Management—David Olson
4-8
Evaluation Techniques
• Economic & Financial
– payback
– cost-benefit
– npv/irr
68%
63%
40%
• Multifactor
–
–
–
–
checklist
project profile
scoring/rating models
multicriteria
38%
26%
26%
11%
• Mathematical Programming
• Expert Systems
18%
6%
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Information Systems Project Management—David Olson
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Criteria
• Financial
– net present value/internal rate of return
– payback
– profitability index/budgetary constraint
• Management
–
–
–
–
support business objectives
respond to competition
better decision making
satisfy legal requirements
• Development
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Information Systems Project Management—David Olson
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SCREENING
• Eliminate proposals not meeting minimum
requirements
• GOOD: quick
• BAD: tradeoffs disregarded
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Information Systems Project Management—David Olson
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CHECKLIST
• Factors
Minimum Standards
a way to implement screening
assure implementation of policy limits
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Information Systems Project Management—David Olson
4-12
PROJECT PROFILE
• Display project features with standards
• Compares strengths, weaknesses
Project Cost
A265 230,000
A801 370,000
A921 790,000
B622 480,000
B837 910,000
C219 410,000
NPV/Cost
0.43
0.51
0.46
0.11
0.22
0.41
Strategic?
no
yes
no
yes
yes
no
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Information Systems Project Management—David Olson
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Cost-Benefit Analysis
• Accurately estimate all benefits
– identify overall profit impact
– in net present terms
• Accurately estimate all costs
– overall profit impact, in net present terms
• RATIO: benefits/costs
<=1, don’t adopt
>1, profitable
can adopt by highest ratio
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Information Systems Project Management—David Olson
4-14
Payback
• Identify the time needed for costs to be
recovered
• simple
• doesn’t consider NPV
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Information Systems Project Management—David Olson
4-15
Value Analysis
• Keen (1981)
• DSS benefits usually very nebulous
• Unfair to apply cost-benefit analysis
– benefit estimates unreliable
• Costs - identify as in cost-benefit
• Benefits - leave in subjective terms
• Managerial decision: are you willing to pay
this much for that set of benefits?
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Information Systems Project Management—David Olson
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Multicriteria analysis
• SMART - multiattribute analysis
– identify criteria (including subjective)
– measure utilities of alternatives over each
criterion
– elicit preference weights
• swing weighting - reflect range of options
value = S of weights times utilities
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Information Systems Project Management—David Olson
4-17
Optimization
• 0-1 linear programming
• each project a 0-1 variable
– can take on value of 0 (not selected)
– or 1 (selected)
• optimize expected return to firm
• subject to constraints
– budget
– scarce resources
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Information Systems Project Management—David Olson
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Summary
• Initial evaluation of projects is where most
are eliminated
• Companies need to avoid nonprofitable
– if budget scarce, select most profitable
• Many risks need to be considered
• ideally identify net present costs, benefits
• practically need to consider intangibles
© McGraw-Hill/Irwin 2004