Matakuliah
Tahun
: A0814/Investment Analysis
: 2009
IMPLEMENTING IT PAYOFF INITIATIVES :
A FRAMEWORK
Pertemuan 17-20
Identify Investment
Stage
Exploration
Plan Approach and
Technique
Ensure Customer
Involvement
Involvement
Identify Tangible and
Intagible Metrics
Make Business Case for
IT Payoff Measurement
Conduct Analyses
Feedback
Analysis
Interpret Data for
Constituents
Communication
Feedback
Feedback
Provide Feedback and
Actionable Steps
Institutionalize Bias for IT
Payoff Measurement
The 4-phase EIAC model for intituting IT payoff initiatives
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Phase 1 : Exploration
The exploration phase has two purposes :
(1) To develop a basic understanding of what is to be
measured depending upon the company’s stage of
investment
(2) The approach taken to analyze the data matched with
the analytical technique
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• Identify investment stage
– An example of the stage of IT lifecycle in the organization is its
investment in the infrastructure
– The infrastructure investment of a new organization is likely to be
measured differently than an investmen in upgrading legacy
system to web-based technologies. Intrastructure investments
payoff, over a longer term, generally manifest through other IT
investments and therefore is difficult to measure.
– It is important to assess the stage because it points us to the
relevan metrics.
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• Plan approach and techniques
– An investment in an upgrade of the existing infrastructure can be
measured through net present value of the total investment.
– NPV can be utilized to calculate the real cost in today’s dollars
after the implementation is complete.
– Infrastructure, investment can be in high risk opportunites.
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Examples (1):
Implementation of an integrated ERP system by a pharmaceutical
manufacturer in preparation for the impeding expansion of a retail
pharmacy chain customer. In the event that the retail drug chain fails
in implementing the enterprise-wied ERP system, it constitutes a
high risk. Yet, there are other opportunities the manufacturer can
seek to collaborate with other retail chains or its own suppliers. In
doing so, it can improve its own operations through better
forecasting and opportunities (or risks) of the investment stage can
be explored and exploited at each stage of the investment as the
project proceeds from year 1 to year 2, from year 2 to year 3, and so
on, by matching it with an appropriate technique.
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Examples (2):
Frito Lay Inc., the leading snack foods manufacturer, implemented a
handheld computer system that initially saved several hours a week
of delivery persons’ time in completing paperwork. However, as the
implementation progressed, additional advantages of continued
investment became clear and the company began to use daily sales
data to plan production, forecast sales, track the effects of
promotional campaigns, and eventually plan organizational
redesign.
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Phase 2 : Involvement
• This phase addresses organizational issues more than
the technical or analytical aspects of IT payoff.
• More precisely, it has to do with involving the
stakeholders in an attempt to thwart what could become
a political issue.
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• Ensure customer involvement
– If going to measure the business value of IT investment, it is
critical to involve the businesspeople in agreeing upon what is to
be measured.
– Jim Elert, CIO for Trinity Health : “IT shoud enter into a
negotiation with the business side of the company on what
constitutes value and how it will measured.”
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• Identify tangible and intangible metrics
– Metrics can take the shape of measring something as
straightforward as the time it takes to execute a customer service
call or to fill an order.
– Intangible metrics can be hard to identify, let alone measure.
• Incrasing market share : company is getting customers that
the competition does not want
• Reduction in customer complaints : dissatisfied customers
are not speaking up because they chose not to come back.
• Reduced reject rate : more defectve parts are getting
through.
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• Make the business case for IT payoff measurement
– One of the most challenging issues in IT payoff is demonstrating
to the organization that it is worth the company’s time and
expense to conduct the analysis.
– “the company is doing well financially so we must be doing
something right. Why waste time in measuring IT payoff?
– Why take away resources from doing the work when there are
no problems?
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• The payoff measurement areas should be clearly
outlined, the measures agreed upon, and the actions
expected as a result of the findings should be
understood.
• Management should clearly state how actions taken
would result in organizational improvements such as
better working conditions, increased competitiveness,
further investment, or redesigned processe.
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• The business case for IT payoff measurement is easier
to make if the company is feeling the “pain”, such as in a
general dissatisfaction with information systems, threat
of loss of market share, customer complaints, or a
difficult choice of investing in IT or other initiatives.
• Relating payoff measurement to these reasons can help
employees understand and subsequently offer buy-in to
the project.
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Phase 3 : Analysis
• In the analysis phase data are collected, analyzed, and
interpreted for meaningful action.
• IT payoff analysts leaping to data collection and analysis
without spending adequate time in the exploration and
involvement phase.
• The analysis phase is preceded by significant
preparation, careful attention to which is likely to be
rewarded by accurate results that customers will accept
and act upon.
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• Conduct analysis
– The analyst should choose from the various techniques
mentioned in the earlier chapters and find one or more that are
suitable to the objectives of the customers.
– The prevailing issues in conducting IT payoff analysis are lag
affects, control variables, and adjustment factor.
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• Interpret data for constituents
– The result of a statistical analysis have little meaning if they are
not translated into business terms.
– A regression equation with a set of coefficient values has turned
off many customers who believe that the complex analysis is an
academic exercise.
– The results of the analysis should be validated for
reasonableness and translated into business terms.
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The reason : the results of the analysis were common
knowledge and therefore the business case for the
analysis could not be made.
Typically, the results of the analyses are first presented to
the sponsors of the IT payoff initiative in a report or a
presentation prior to dissemination to the entire endcustomer base.
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Some questions the data interpretation should address are:
1. Is IT investment paying off?
2. If so, what is the extent of the payoff? If none, why?
3. How much increased revenue or profit can be attributed
to a unit amount invested, for example, in the ERP
system?
4. Are some investments paying off more than other
investments? Why or why not?
5. What are the factores that facilitate/inhibit payoff?
6. Is continued IT investment recommended?
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Phase IV : Communication
• The communication phase can appear to some as
intuitive or even redundant.
• An indicator of good communication is when constituents
see the value of measurement of IT payoff and make it a
part of the work plans
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• Provide feedback and actionable steps
– The communication of the findings should be useful to the
customer.
– Analysts find this transition form results to actionable steps as
the most challenging. It requires customization for each fnctional
area and a deep understanding of the nature of the business, as
well as some creativity in suggesting innovative ways to exploit
payoff.
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• Institutionalize bias for IT payoff measurement
– Performance measurement is critical to organization success
because of the reasoning that what you cannot measure, you
cannot improve.
– Payoff measurement should become a bias within the
organization. The payoff exercise should lead people to think of
their work in measurement terms and encourage them to aks
questions such as :
Do we have the data to know that the technology investment
does what it is supposed to do ? How do we collect this data?
What can it inform us?
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