Matakuliah : A0824/IT Investment Portfolio
Tahun
: 2009
EVALUATING AND SELECTING IT
INVESTMENT
Pertemuan 5-6
The problems of today will not be solved by the same thinking
that produced the problems in the first place . ~ Albert Einstein ~
Corporate Governance and the ITPM Approach
Corporate governance is the system by which business
corporations are directed and controlled. The corporate
governance structure specifies the distribution of rights
and responsibilities among different participants in the
corporation, such as the board, managers, shareholders
and other stakeholders, and spells out the rules and
procedures for making decisions on corporate affairs. By
doing this, it also provides the structure through which
the company objectives are set, and the means of
attaining those objectives and monitoring performance.
IT Investment Management Process
(1) Executive
Committee decides on
strategic goals and
performance measures and
targets
Portfolio
Information
Strategic Plan
(2) Executive
Committee approves
investment criteria for use
organization-wide
Investment
Board
IT Investment
Decision
(5) Board uses organization
performance, investment
criteria, and portfolio
information to evaluate
proposed investments and
make funding decisions
(4) Business cases are
submitted to and defended
before the Board
Team
Team
Team
(3) Sponsors and teams prepare business cases and proposals that
meet investment criteria while solving performance problems.
Investment Review Board
Board members
• Staff executives, such as the Chief Operating Officer,
Chief Financial Officer and Chief Information Officer.
• Customer
• Supplier representatives
• Technical executives
• others
Investment Review Board
• Review objectives
– Assess the value and risk of alternative solutions to
organizational performance problems and develop business
cases for the recommended solutions.
• Cross functional Investment Review Board helps create
understanding and buy-in among the different parts of
the organization that its members represent.
– It keeps stakeholders informed about IT plans and why certain
proposals were approved while others were not.
– A cross functional view is valuable for accurately assessing a
proposal’s benefits, costs, and risks from the standpoint of each
line of business.
– Makes decisions on all capital investment
Organization Wide Use of Same Investment
Criteria
• The board considers how well the proposal responds to
the criteria and its likely net contribution to the IT
portfolio.
• The objective is to use the criteria and portfolio
information to select only the best IT investments,
regardless of the positions of the proposal sponsors.
Link to Organizational Performance
Measures
• Provide a way to measure the contributions of individual
IT investments to organizational performance.
• Provide information for determining the net contribution
of the IT portfolio and for making decisions on improving
the portfolio.
Assessing the Worth of IT
• Approaches to assessing IT Investments
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Return on Investment (ROI)
Quantification Method
Multiple Attribute Decision Model
Return on Management
Stakeholder Perceptions
Value Analysis
Real Options
Critical Success Factors
Delphi Technique
Balance Scorecard
Cost Benefit Analysis
Economic Value Added (EVA)TR
Information Economics
Portfolio Management
Use of Comprehensive Investment Criteria
• Refers to a practical number.
• Practicality is achieved by having one high level criterion
represent a category of related criteria or sub-criteria.
• All of the sub-criteria are used in assessing proposed or
in-place investment.
Use of Comprehensive Investment Criteria
High Level Criteria as Categories of Criteria
In the research on Information Economics, the high-level
criteria were determined by grouping large numbers of
related criteria into six value and four risk categories.
The names of these categories became the names of
the ten high level investment criteria, each with many
“sub-criteria.” additional high level criteria have since
been added respond to new needs.
Value and Risk Assessment Criteria
• Value Criteria
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Return on Investment
Strategic Match
Competitive Advantage
Management Information
Quality of work life
Competitive response
Enterprise architecture
Value and Risk Assessment Criteria
• Risk Criteria
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Organizational Risk
Definitional Uncertainty
Technical Uncertainty
Technical Uncertainty
Information Security Risk
Infrastructure Risk
External Risk
See: supporting material
IT Investment Assessment Worksheet
Variations Among Organizations in Criteria
Selection
• Many organizations use criteria with names similar to
those used by other organizations
• Although organizations may use the same name for a
criterion, the definition of the criterion will likely differ in
each organization
High Level Criteria vs Problem Specific
Criteria
• Problem-Specific Criteria
• High Level Proposal Selection Criteria
• Another View of the Two Classes of Criteria
Screen-Out Criteria
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Decision Making Level
Project Length
Credibitility of Benefits
Risk Threshold
Technical Aspects
Sponsorship and Buy-In
Cost
Complexity
Standards
Alignment of IT Investment Boards
Corporate
Investment
Review Board
Approves IT investment of
enterprise-wide important
Group
Investment
Board
BU
Investment
Board
BU
Activities
Group
Investment
Board
BU
Investment
Board
BU
Activities
BU
Investment
Board
BU
Activities
Approves IT investments that
affect more than one
business unit
BU
Investme
nt
Board
BU
Activities
Approves IT investments
for a business unit (BU)
Each activity sends
proposals to its own
investment board