Strategic Planning
for Information
Systems
Third Edition
John Ward and Joe Peppard
CHAPTER 9
Managing
Investments in
Information Systems
and Technology
1
Outlines
•
•
•
•
•
Evaluating IS/IT investments
Setting priorities for applications
Benefits management
The benefits management process
Assessing and managing investment risks
2
Evaluating IS/IT Investments
• Cooke and Parrish discovered that 70% of
organizations had no formal justification and
post-implementation review process for IS/IT
investments
• Farbey found that only 50% of IS/IT project were
subject to formal preinvestment appraisal
• In less than half the cases was a recognized
financial analysis technique used, and in barely
30% was the outcome of the investment
evaluated
3
3 Types of Applications
• Substitutive – technology replacing with
economics being the main driving force, to
improve efficiency
• Complementary – improving organizational
productivity and employee effectiveness by
enabling work to be performed in new ways
• Innovative – achieving a competitive edge by
changing trading practice, creating new market,
etc.
4
5 Basic Techniques for
Evaluating Benefits
• Traditional cost-benefit analysis, which allows for
efficiency improvements in organizational processes
resulting from automation
• Value linking, which estimates the improvement in
business performance, not just saving made, from
improving the linkages b/w processes or activities; or
interactive component design with suppliers via a shared
CAD system, to reduce the number of iterations needed
• Value acceleration, which considers time dependence of
benefits and costs in other departments of system
improvements. This implies that benefits can occur in
other parts of the business, not just where the system is
actually implemented.
5
Cont…
• Value restructuring, which considers the
productivity resulting from process and
organizational change and change of job
roles
• Innovation evaluation attempts to estimate
the value to the business of new business
or new business practices levered from
IS/IT
6
Relationship b/w Benefit types
and the Application Portfolio
Substitutive Complementary
(efficiency) (effectiveness)
Cost/Benefit
Value linking
Value acceleration



Value
restructuring
Innovation
evaluation
Innovative
(competitive)









Support
High potential
Key operational
Strategic
7
Application Portfolio Approach
• It is simply not feasible to express all the
benefits of systems in financial terms
• It is no useful purpose to develop spurious
calculations to quantify the unquantifiable
• The portfolio approach can offer help in
making judgements
8
Portfolio Approach Suggestions
• Quantified, financial justification of applications
is easier in the key operational and support
quadrants, where most aspects of the
application will be better known or can be
determined, risks are lower and the rate of
change is slower.
• A singular approach to investment justification
will tend to produce one type of application to
the exclusion of others
– This argument is strong where a scare resource
approach has been adopted and pure financial return
on investment decides investment priorities - support
applications will always be easier to justify financially
9
Cont…
• The way in which applications are planned
and managed by the organization will also
affect the way in which they are justified –
whether they are customer-related
applications integral to achieving business
objectives or systems intended to save
major costs in one part of the organization
10
Investment Justification
STRATEGIC
HIGH POTENTIAL
Enable the
R&D project to
achievement of
explore potential
business objectives value and cost-fund
via explicit critical
from R&D budget
success factors
Risk money
Disadvantage/Risk
if it is not done
(critical failure
factors)
and/or quantified
performance
improvement
KEY OPERATIONAL
Net cost
reduction through
quantified
savings
SUPPORT
11
Support Applications
• Support application must show a good
economic return for the allocation of a
scare resource.
• If the project can be carried out within the
user department’s control, then it is
reasonable that the ‘go-no go’ decision is
made by local user management
12
Key Operational Applications
• Financial benefits are not the only driving force.
• Some benefits will be able to be related to CSFs, which
provide a clear link of the investment to the achievement
of business objectives.
• ‘What will happen to the business if we do not invest in
improving this key operational system?’
• ‘Can we afford the risk of not doing it?
• Monopoly works best for key operational applications =>
central control
• This enables a standard checklist of questions to be
considered in the evaluation of any new project
13
Strategic Applications
• Not estimates suitable for a discounted cashflow calculation
• Expressed as the business opportunity that is
being created or the CSFs that the application
specifically addresses.
• Application will get the ‘go-no go’ decision based
on how directly it relates to the business
objectives and particular strategies.
• The benefits will drive from achieving those
objectives by enabling the required business
changes, not from the system alone.
14
High Potential Applications
• It should be justified on the same basis an any
other type of R&D, and preferably from a general
R&D budget rather than IS/IT funds.
• High potential ideas tend to arise informally,
based on individuals’ creative thinking, rather
than from formal planning.
• Many of ideas simply will not work and some
control is essential to avoid significant waste of
resources.
15
Cont…
• Product champion is responsible for such
projects, given a budget against agreed general
terms of reference to deliver results
• When initial allocations are used up, further
sums have to be justified based on the evidence
of the possible benefits, not allocated in the
vague hope of eventual success.
• IS/IT investments should be considered just as
objectively and just as subjectively as other
business investments
16
Setting Priorities for
Applications
• The mechanisms used to decide whether or not
applications go ahead should also be used to
set priorities across applications
• Some priorities are logical, but many are largely
independent of one another
• Priorities need to be set in the short term to
enable the best use of resources within the
acquisition lead time for further resources
17
3 Factors for the Assessment of
Priorities
• What is most important to do, based on
the benefit identified.
• What is capable of being done, based on
the resources available.
• What is likely to succeed, based on the
risks of failure of each investment
18
Setting Priorities in the Support
Segment
• Setting priorities in the support segment
should not be too difficult.
• Those with the greatest economic benefit
that use the least resources should get the
highest priority.
19
Setting Priorities in the Strategic
Segment
• Give priority to those applications that will
contribute most to achieving business
objectives, and use the least resources in
the process.
20
Strategic Weighting via CSFs
APPLICATION CONTRIBUTION
LOW (1)
HIGH (3)
MEDIUM (2)
OBJECTIVE A:
CSF 1
CSF 2
CSF 3, etc.
OBJECTIVE B:
CSF 1
CSF 2, etc.
OBJECTIVE C:
CSF 1
CSF 2, etc.
OBJECTIVE D:
etc.
TOTALS
OVERALL
TOTAL
21
Setting Priorities in the Key
Operational Segment
• Arguments
–
–
–
–
Financial
CSFs
Risk to current business
Infrastructure improvement
• Each of these benefits areas must be given
some form of relative weighting based on the
current business situation, to decide the
preferred mix of benefit before looking at
resource constraints
• The costs and/or resources used by the project
should be compared against its relative
importance in each of the 4 categories to
22
establish overall priorities
Setting Priorities in the High
Potential Segment
• If the idea potentially impacts many CSFs,
it clearly stands out from others and
should be elevated above the general
scramble for R&D type resources
23
Setting Priorities Across the
Segments of the Portfolio
• The approach recommended for key
operational applications can be extended
to cover the whole portfolio.
• Strategic applications will score heavily on
CSFs, whereas support applications
should deliver a good financial return.
• Management must decide the weighting
they wish to attribute to each type of
benefit and then rank the systems.
24
Effect on Weighting of Various
Factors: Examples
Factors
Objec
tives/CSF
Business
Risks
Infra
structure
Econo
mics
All types of investment have
to be cost- justified to meet
strict ROI hurdles
L
L
L
H
Business is in weak position
or in decline – short-term
profitability
L
M
L
H
Business is in a high-growth
market and satisfying the
market demand is paramount
H
H
M
L
Environment is very
competitive and business
performance must be
improved
H
H
L
M
25
Cont…
Objec
tives/CSF
Business
Risks
Infra
structure
Econo
mics
Need for redevelopment of
old systems. Systems and/or
technology are out of date
compared with competitors
or peer organizations
L
H
H
M
New systems are required to
support major
business/organization change
or rationalization
M
H
M
L
Technology cost
performance enables lower
costs for existing systems if
redeveloped
L
L
H
H
Factors
26
Benefits Management
• A number of factors that differentiated success
from failure were identified.
• While some were already well known, the
successful investments were characterized by a
deliberate, comprehensive approach to
managing the benefit delivery.
• In highly-successful projects, management
treated the IT investment as a component of
organizational change and were able to use
existing change management processes to
ensure the business maximized the value of the
investment through associated changes to
business practices
27
Factors Increasing the Degrees
of Success in SIS
High
success
- initiation of the SIS in the context
of the need for business change
Life-cycle role of
senior executive
Benefits exceeded
expectation
- Allocation of responsibility for
benefit delivery
Existence of an
organizational
change method and a
willingness to invest
in strategic benefits –
different evaluation
emphasis
Success
Benefits met
expectation
Comprehensive
approach to benefit
management initiated
in the planning phase
that has a stronger
business
involvement and
emphasis
- Involvement in
implementation as well
as planning/evaluation
Moderate
success
Some benefits
achieved
Planning approach,
method and output,
and implementation
roles of IS/IT and
business managers
Unsuccess
No Benefits
delivered
28
The Context of Benefits
Management
• Benefit Management: the process of
organizing and managing such that
potential benefits arising from the use of IT
are actually realized.
• The ability to achieve benefits from a
particular investment will depend largely
on the organization’s experience and
knowledge of what types of benefit IS/IT
investments can or cannot deliver and how
they can be obtained.
29
Cont…
• Based on the different objectives and
rationale for the applications in each
segment of the application portfolio, it can
be seen that the mix of activities and their
criticality to success will vary
30
Generic Sources of Benefits for
Different Applications
STRATEGIC
Business innovation
and change
HIGH POTENTIAL
(R&D projects)
Business process
restructuring
Business
effectiveness
Business efficiency
Business
rationalization and
integration
Process elimination
and cost reduction
KEY OPERATIONAL
SUPPORT
31
The Context of Benefits
Management
• Inputs to the benefits management process
– Why is the investment being made – what is causing
the organization to change and how critical to its
future is the successful management of the changes?
(the benefit drivers)
– What types of benefit is the organization expecting
from the investment overall – to reduce costs,
improve operational performance, gain new customer,
etc..
– How will other activities, strategic initiatives, business
developments or organizational issues affect the
particular investment either to facilitate or inhibit its
progress and outcome? (the organizational context)
32
Benefits Management Context
Benefit drivers
IT process and
products
Types of
benefits
Benefits
management
process
Organizational
context
Organizational
changes
Benefits
33
The Benefits Management
Process
•
•
•
•
•
Identification and structuring of benefits
Planning benefits realization
Executing the benefits plan
Reviewing and evaluating results
Potential for further benefits
34
A Process Model of Benefits
Management
Identify and
structure
benefits
Potential for
further
benefits
Review and
evaluate
results
Plan benefits
realization
Execute
benefits plan
35
Identification and Structuring of
Benefits
• The overall business rationale for a new or
improved system will have been identified
– The nature of the types of target benefit and
– Extent of change involved to obtain them will depend
on their impact and criticality for the business strategy
which in turn determines whether the system is
strategic, key operational or support
– If the nature of the benefits and/or how to obtain them
is unclear, then the system should be put through the
R&D stage implied by the high potential segment until
they are better known
– The whole benefit management process does not
really apply to the high potential segment
36
Cont…
• Identifying the target benefits implies an iterative
process of establishing the investment
objectives and the potential business
performance improvements that the system and
associated changes should or could deliver.
• The achievement of each objective could well
deliver a variety of different benefits across the
organization and also to trading partners and
customers.
• The process is iterative since objectives may be
modified and new benefits identified as ideas
and options are considered in the creative stage
of discussion, or perhaps rejected after more
careful scrutiny.
37
Cont…
• The benefits should be tested against the
‘benefit drivers’ in the organization (the business
strategy), to ensure they are relevant and that
investment to achieve them will be endorsed by
senior management.
• Every target benefit should be expressed in
terms that can be measured, even if the
measure will be subjective.
• The final part is the determination of where in
the business each benefit should occur and who
in the organization should be responsible for its
delivery.
38
Planning Benefits Realization
• Determine the changes required for
delivery of each benefit and how the IS/IT
development will enable the changes and
benefits to occur => benefit dependency
network.
• The network relates the IS/IT functionality
via the business and organizational
changes to the benefit identified.
39
Benefits Dependency Network
How new ways of working can deliver the
benefits, and how to make that happen.
The benefits and why we want them
D
R
I
V
E
R
S
IS/IT
enablers
Enabling
changes
Business
changes
Business
benefits
Investment
objectives 40
2 Types of Changes
• Business changes are those changes to working
practices, processes and/or relationships that
will cause the benefits to be delivered.
– They cannot normally be made until the new system
is available for use and the necessary enabling
changes have been made.
• Enabling changes are those changes that are
prerequisites for making the business changes
and/or are essential to bring the new system into
effective operation.
– These often evolve defining and agreeing new
working practices, redesigning processes, changes to
job roles and responsibilities, new incentive or
performance management schemes, training in new
business skills, etc.
– They can often made before the new system is
41
introduced.
Stakeholder Analysis
• Stakeholder analysis is required to check
the feasibility of achieving all the changes
on the network.
• The purpose of the analysis is to
understand those organizational factors
that will affect the organization’s ability to
achieve the required improvements.
42
Stakeholder Analysis
Stakeholder
group
Perceived
benefits
(disbenefits)
Commitment
Changes
needed
Perceived
resistance
Anti
Customers
Configuration
None
tailored exactly to
needs – no testing/
reject
None
Sales and
marketing
managers
Improved customer
service and
product quality
image
New incentives
to get sales reps
to use system
with customers
Reluctance to
change reps
reward
systems
(Extra work in
Sales
representatives preparing
requirements and
quotes)
To use system
and improve
quality/accuracy
of quotes
No time
available to
use/learn
system. Loss
of autonomy
C
Manufactoring/ Remove need for
configuration
logistics
checking. Less
returns/queries
Stop current
checks to put
onus on reps to
get it right
Do not trust
sales reps’
accuracy in
requirements/
quote
C
IT developers
Skills in expert
system
development
None
New advanced
system- remove
old difficult to
maintain system
None
(Current and Required)
Allow it to Help it Make it
happen happen happen
C
Action
required?
Action
required?
Action
required?
R
R
R
43
Stakeholder Analysis
• Each stakeholder group is considered in
terms of the extent to which they perceive
the project produces benefits for them,
relative to the amount of change they will
have to undergo or endure before they see
the benefits.
44
Benefits Dependency Network
Campaign
planning &
mgt. system
Customer
prospect
database
Contact mgt.
system
Enquiry
quotation &
response
tracking
system
Portable PCs
for sales
staff
IS/IT
enablers
Introduce
project mgt.
for all A&P
campaigns
Reduce
marketing staff
time on admin
activities
Redefine
customer
segments
Introduce
new account
mgt.
processes
Release sales
time from post
sales activity
to pre sales
Enabling
changes
Measure
outcome of
campaigns
reobjectives
Use database to
improve targeting
in segments
Realign sales
activity with new
customer
segments
New sales
staff
incentives
Identify most
appropriate
communication
medium for target
customers
Reduced cost by
avoiding waste on
irrelevant customers
Coordinate sales &
marketing activity
in follow-up
Increased response
rare from A&P
campaigns
Allocate sales time
to potential highvalue leads
Increased rate of
follow-up of leads
Use system to
target sales
activity/contact
time
Business
changes
Increase sales
time with
customers
Increased
conversion rate of
leads to orders
Business
benefits
To improve the
effectiveness of
advertising &
promotion (A&P)
spend
To increase sales
value and volume
from new
customers
Investment
45
objectives
Dimensions of Benefit
Management
Why do we want
improvement?
What improvement do
we want/could we get?
Where will it occur?
Can it be
measured?
Can it be
quantified?
Can a financial
value be put on it?
Who is responsible for
its delivery?
What changes are
needed?
Who will be affected?
How and when can
changes be made?
BENEFIT DELIVERY PLAN
Benefits achieved? More benefits possible? Further actions?
46
Presenting the Business Case
1. Drivers for change giving rise to
2. Investment objective which result in
3. Benefits by
and incur 4. Costs:
(a) Development
(b) One-off
(c) Infrastructure
(d) Business change
(e) Ongoing
Degree of
Degree of Doing things Stop doing
etc.
explicitness explicitness better
things
How much
Financial
Quantifiable
5. Risks associated with
the investment that may
prevent full benefit
realization, etc.
Measurable
Objective
measures
Observable
47
Subjective assessments
Stage 3: Executing the Benefits Plan
• To carry it out and adjust it as necessary, as
issues arise affecting its achievement.
• Monitoring progress against the activities and
deliverables of the benefits plan is just as
important as for the IS/IT development plan.
• It may be necessary to establish interim targets
and measures to evaluate progress toward key
milestones or the final implementation.
• During this stage, further benefits may also be
identified, and again the business project
manager should decide on appropriate action to
plan for the benefit or defer it until stage 5.
48
Stage 4: Reviewing and
Evaluating Results
• 2 purposes of evaluation
– To maximize the benefits of the particular investment
– To learn how to improve benefits delivery from further
investment.
• The results
– Provide explanations for the non-delivery of intended
benefits
– Provide knowledge to improve the management of
future projects or system design.
– Identify any unexpected benefits that have arisen and
understand how they came about.
49
Cont…
• Post implementation reviews tend to be
held behind the closed doors of the IS
function and are reviews of the
implementation process rather than the
investment outcome
50
Stage 5: Potential for Further
Benefits
• Further benefits often become apparent
only when the system has been running
for some time and the associated business
changes have been made.
• IS/IT planning should be driven by the
delivery of a benefit stream that improves
business performance at the optimum
manageable rate.
51
Assessing and Managing Investment
Risks: 5 Failure Domains
• Technical failure – this is clearly the domain of
IT, who are responsible for the technical quality
of the system and the technology it uses.
Technical failure is increasingly less common
and is often the cheapest to overcome.
• Data failure – this is a shared responsibility b/w
IS/IT professionals and the users who input the
data.
• Use failure – while some blame for the users
misunderstanding the system may accrue to the
IS/IT professionals, the primary responsibility for
ensuring users are trained to use the system
appropriately
52
Cont…
• Organizational failure – systems may
satisfactory in meeting particular functional
needs, but may fail because they do not satisfy
the organizational overall, due to inadequate
understanding of how the system relates to the
other processed and activities.
• Failure in the business environment – the
systems are or become inappropriate to external
or internal business requirements due to
changing business practices instigated by
others, or by not supporting the business
strategy adequately, or simply by not coping with
the volume and speed of business process
needs effectively or economically.
53
Assessing and Managing
Investment Risks
• Major investment failure is due to lack of
understanding of the contextual factors that
produce project risks, or the inability to identify
or address emergent issues that introduce risks
of not achieving the required outcome.
• The more strategic IS/IT investments become,
the greater the consequence of failure and the
more difficult it is to foresee and deal with the
range of risks involved.
54
Cont…
• The risks of each development need to be
assessed in order to improve the chances
of success, but management need to
understand the relative risks of all the
developments in the portfolio in order to
set sensible priorities.
55
Cont…
HIGH POTENTIAL
STRATEGIC
Very risky
Business innovation
and change
Very risky
(R&D projects)
Business process
restructuring
Business
effectiveness
Business efficiency
Business
rationalization and
integration
Process elimination
and cost reduction
KEY OPERATIONAL
SUPPORT
Low risk
56
Assessing and Managing
Investment Risks
• The assessment address the risk factors that are
due to the nature and degree of change
involved, as well as the organization’s ability to
achieve those changes.
• 4 categories potential factors
– What kind of change will be involved?
– How ready is the organization to accommodate the
change?
– How will the organization react to the change?
– How dynamic is the context within which the change
is to be effected?
57
Potential Risk Factors
• Kind of change (A)
–
–
–
–
–
Business impact
Degree of change
Pace of change
Technology innovation
Novelty of business
solution
– Clarity of vision of
intended outcome
• Likely reaction (C )
– Stakeholder
commitment to
benefits
– Stakeholder
willingness to change
– Stakeholder
willingness to
contribute resources
– Process and system
interfaces
58
Potential Risk Factors
• State of readiness (B)
– Level of dissatisfaction
with the status quo
– Strength of drivers &
constraints – balance
– Business sense of
ownership
– Agreement on project
objectives by key
stakeholders
– Senior management
stance
– History of success or
failure- track record
– Change management
capability
– Technology
competency and
experience
– Project management
competency and
experience
59
Potential Risk Factors
• Contextual change (D)
– Dependence of objectives on current
commercial environment
– Susceptibility to regulatory and legislative
changes during project
– Dependence on current management
structure
– Dependence on other projects
– Dependence on key personnel
– Appropriateness of internal control
mechanisms
60
Potential Risk Factors
• Any individual factor scoring 4 or 5 should cause
relevant aspects of the project to be reviewed in
order to:
– Identify the possibility of changing its scope or the
development approach to reduce the risk; or
– Agree actions that can address the underlying
cause(s) if the weakness; or
– Establish appropriate contingencies to accommodate
problems; or
– Perhaps all three, in the case of a 5!
• If the average for any category is 4 or 5 or 50%
or more of the category factors are 4 or 5, there
is cause for considering whether the investment
as intended will succeed.
61
Potential Risk Factors:
Strategic Investment
• Score is highly in categories A and D
• Action can be identified per high-risk factor
• Actions should focus on reducing risk factors in
B and C by reviewing the change components of
the benefits dependence network to reduce the
scale, severity or speed of change to make it
more manageable
• Some benefits may have to be forgone or
postponed by accepting that not all the changes
are achievable at present.
62
Potential Risk Factors:
Strategic Investment
• If the project scores highly in category C,
but low in category B, careful attention
should be paid to particular stakeholders’
issues to reduce the potential resistence
63
Potential Risk Factors:
Key Operational Investment
• Similar to the strategic projects, except
that a high score in A is more serious.
• Unless all other categories are low, the
nature and scope of the proposed solution
should be considered carefully, with the
objective of finding a lower-risk, alternative
way of delivering the set of benefits.
64
Potential Risk Factors:
Support Investment
• A high score in category A, C, or D
suggests that the project is not support!
and its expected contribution should be
reconsidered.
• The main risk category is C and if this
scores highly, it implies that essential
changes will be resisted.
65