Matakuliah : A0824/IT Investment Portfolio
Tahun
: 2009
IT INVESTMENT MANAGEMENT
FRAMEWORK
Pertemuan 3-4
When written in Chinese, the word “crisis” is composed of two
Characters – one represents danger, and the other represents
Opportunity. ~ Peter Drucker ~
Nature of IT as an Investment
Relationship to Traditional Investment Planning
• Whether to add, discontinue, or change a specific
product or service
• Whether to acquire additional capacity and whether it
should be purchased or leased
• Which of competing proposal for the use of capital
(funds) should be selected because it will have the best
net return for the organization over its investment life
cycle
Nature of IT as an Investment
Defining the IT Investment
An investment consists of the total life cycle cost of an
entire project or project chunk that involves IT, including
the post-project operating cost of the system that was
implemented. The investment ceases to exist when it is
replaced or eliminated for any reason.
Nature of IT as an Investment
Advantages to entering comprehensive information about
an IT investment into the IT portfolio :
• It makes it easier to compare a proposed project with
other proposed projects, ongoing projects, in place
systems, and performance improvement needs.
• It makes it easier to track important aspects of existing
projects and in place systems and to periodically
reevaluate them to make sure they remain a good use of
investment funds.
• It helps to prevent undesired duplication or overlaps of IT
investments (projects, systems)
• It provides comprehensive data for portfolio analysis in
support of executive decision making and enterprise
performance management
Nature of IT as an Investment
• Determining Investment Cost
Elements of the Total IT Investment
Total Investment Amount
The amount of the IT investment is the costs of the project plus
the costs of operating the IT enabled change over its useful life
Project
Life of IT Enabled Change
Time
Nature of IT as an Investment
• Accuracy of Investment Cost Forecasts
– Cost estimates are made by persons who have little training or
experience in estimating methods, such as in using the threepoint estimation method
– Overhead costs is incorrectly allocated to business activities,
resulting in erroneous cost and benefit figure.
– It is common for calculations of cost and financial benefit to fail to
take into account the time value of money or be adjusted for the
risk that the expected financial return will not be realized.
– The costs of capital is often ignored when calculating investment
returns.
Phases of IT Investment Management
Evaluate
Implemented IT systems
and decide whether
to keep funding them
Select
The best IT Project
Control
IT projects to insure
they deliver the
expected benefits
Phase One : Select
Which proposals, if any, should be selected?
1.
2.
3.
4.
Screen IT proposals
Evaluate projected risks, benefits and costs
Prioritize projects based on results of analysis
Considering IT portfolio balance, select projects to be
funded
5. Document management decisions
Phase Two : Control
Which on going projects should continue to be
funded?
1. Evaluate performance of projects, including risks,
benefits and costs
2. Considering new proposals and IT portfolio, decide to
continue, modify, replace or cancel
3. Look for possible patterns
4. Document management decisions
Phase Three: Evaluate
Which systems should be continued, modified,
replaced, or phased out?
1. Evaluate system performance, including risks, benefits,
and costs
2. Considering new proposals, and the IT portfolio, decide
to continue, modify, replace or cancel each systems
3. Look for patterns of decision making that helped or hurt
performance
4. Document management decisions
5. Identify and document lessons learned
Proposal Team Assessments of Proposals
• Proposal Team and Select Phase Assessments
• Proposal Team and Control Phase Assessment
• Proposal Team and Evaluate Phase Assessment
Investment Review Board Assessment
• Select the proposal for funding without change. In the
case of an ongoing project or implemented system, this
is a continuation of funding
• Require that the proposal be modified as a condition of
approval so that it will better meet priority requirements
and goals, including new requirements and goals that
arose since the last assessment of the investment
• Reject the proposal, which means the board believes
there is a better use for the funds
Role of Board’s Staff Group
• The board has a staff that performs an independent
assessment of each business case submitted to the
board
• The staff includes specialists in management and
technology and strives to verify the claims made in the
business case.
• Ensures that benefits, costs, and risks have been
properly addressed, and otherwise ascertains if a
business case/proposal is ready for review by the board.
Impact of Investment Decisions on IT
Portfolio
Investment Management Phases and
the IT Investment Portfolio
Proposed
IT-Based
Projects
Selected
IT-Based
Projects
Select Phase
Ongoing
IT-Based
Projects
Completed
IT-Based
Projects
Control Phase
Evaluate Phase
Timely Portfolio Decisions
• Effective IT investment management
• Technology available can change frequently
• Dynamic markets and competitors
Analogy to Managing a Mutual Fund
• Mutual fund is a portfolio of financial investments.
• Invest in a mutual fund because it will enable to achieve
a specific objective.
Measuring Portfolio Performance
Web Portal, Financial Systems
Business Process Systems
Human Resources Systems
Management Decision Systems
Knowledge Management
Customer Relationship Management
E-Business Systems
IT Infrastructure
Other
Measurable
Contributions to
Goals & Objectives
W
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