Chapter 13 / 14 / 16 / 17
IT Strategy and Planning /
Managing IT Projects/
Acquiring IT Applications
and Infrastructure / IT
Economics
Information Technology For Management 6th Edition
Turban, Leidner, McLean, Wetherbe
Based on lecture slides by L. Beaubien, Providence College
John Wiley & Sons, Inc.
1
IT Strategic Alignment
 Most
important topic for IT management: IT and
business alignment
 Aligning IT strategy with business strateg


IS priorities, decisions, processes in line with strategy
Failure might result in huge expenditure without
busines value
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IT Strategic Alignment
3
IT Planning
 Organized
planning of IT infrastructure and
applications portfolios at various levels
 Evolution of IT planning


First steps were operational planning (per project)
Later on, managerial (resource allocation control)
 Levels



of IT planning
Strategic (long range): not concerned with specific
applications, sets overall direction for 5-10 years
Medium-term: identifies application portfolio, ranks projects,
several years
Short-term: one year, concerned with budgeting current
projects
4
Strategic Information Technology
Planning
The first stage of the IT planning model identifies the applications portfolio
through which an organization will conduct its business. This stage can also
be expanded to include the process of searching for strategic information
systems (SIS) that enable a firm to develop a competitive advantage. This
involves assessing the current business environment and the future
objectives and strategies.



IT Alignment with Organizational Plans: The primary task of IT planning
is to identify information systems applications that fit the objectives and
priorities established by the organization.
Analyze the external environment (industry, supply chain, competition) and
the internal environment (competencies, value chain, organizational
structure) then relate them to technology (alignment).
Alignment is a complex management activity whose complexity increases
in accordance with the complexity of organization.
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Strategic Information Technology
Planning
Several methodologies exist to facilitate IT planning.

The business systems planning (BSP) model, developed by IBM, deals with
two main building blocks which become the basis of an information architecture.



Business processes
Data classes
Stages Of IT Growth Model, indicates that organizations go through six stages
of IT growth (can also be seen in the budget growth rates).






Initiation. When computers are initially introduced.
Expansion (Contagion). Centralized growth takes place as users demand more
applications.
Control. In response to management concern about cost versus benefits,
systems projects are expected to show a return.
Integration. Expenditures on integrating (via telecommunications and
databases) existing systems.
Data administration. Information requirements rather than processing drive the
applications portfolio.
Maturity. The planning and development of IT are closely coordinated with
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business development.
Strategic Information Technology
Planning

Critical success factors (CSFs) are those few things that must go right in
order to ensure the organization's survival and success. Critical success
factors vary by industry categories—manufacturing, service, or
government—and by specific industries within these categories. Sample
questions asked in the CSF approach are:

What objectives are central to your organization?

What are the critical factors that are essential to meeting these
objectives?

What decisions or actions are key to these critical factors?

What variables underlie these decisions, and how are they
measured?

What information systems can supply these measures?

Scenario planning is a methodology in which planners first create several
scenarios, then a team compile possible future events that may influence
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the outcome of each scenario.
Critical Success Fatcors
Critical success factors (CSFs)
8
Resource Allocation
 Main


task in all planning processes
Choose between projects (prioritize them)
Allocate resources (money, manpower etc.)
 Approaches



Financial (evaluate projects according to Net Present Value,
Real Options, ROI,...)
Portfolio approaches (based on strategic considerations, or
even optimized according to risk exposures)
Multi-criteria approaches (projects are rated according to
several criteria which are then aggregated)
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Portfolio Approaches - Example
10
Evaluating IT Investments
 For
resource allocation, we need to evaluate IT
investments


What value do they give to the company (financially,
strategically,...)?
What will the costs be?
 Productivity


Paradox
Studies on national level on impact of IT expenditure on
productivity
First studies did not show positive impact, but several
problems with these studies (time lag, measurement,...)
11
Evaluation of IT Benefits
12
Rationalization of Procedures
 Information
Systems most effective if way of
doing things is changed, not only automated
 Refers to streamlining of standard operating
procedures, eliminating obvious bottlenecks,
so that automation makes operating
procedures more efficient.
 Improves efficiency and effectiveness.
13
Some Definitions



A process is a structured, measured set of activities
designed to produce a specific output.
A business process is a set of logically related tasks
performed to achieve a defined business outcome.
Core business processes are the ones that are
critical for success in the industry in which the
company operates (e.g. order processing, new
product development,...).
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Business Process Analysis
 Process
of modeling and analysing business
processes




Understand current processes (interviews,...)
Model current processes (modeling techniques
include Petri net or EPCs)
Propose different solutions (again using modeling
technique)
Implement new solution for business process
(using training, different information systems,...)
15
Event-Driven-Process Chains
 Developed
by A.-W. Scheer
 Used by ARIS toolset, SAP ERP System,...
 Nodes





Event (passive, something happens)
Function (active, something is done)
Connector (logical, AND, OR, XOR)
Organisational Units
Inputs & outputs
XOR
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Event-Driven-Process Chains
 Edges


Directed (flows)
Undirect (organizational units)
 Rules


Functions and events alternate
Start and end is an event
17
Event-Driven-Process Chains
Order came in
 Example
Logistics
Check order
Stock data
XOR
Product not available
Product available
Logistics
Produce product
Pack product
Stock data
18
Event-Driven-Process Chains
 Exercise


Prepare an EPC for the following situation:
An instructor is assigned a course. He prepares
the syllabus, and puts it on the web. Then he
checks the registration list. If there are not enough
students, the course is cancelled. Otherwise the
course is held, and after it is finished, the
instructor submits the grades. The grades are
then put on the transcript by the registrar's office.
19
Event-Driven-Process Chains
 Exercise


Prepare an EPC for the following situation:
After a claim has arrived at an insurance company, it is handled by an agent, who accesses the customer information in doing so. Then, if the claim is acknowledged, it is paid out by the finance department. If the claim is not acknowledged, it is checked by management. If management approves, the claim is also paid out by the finance department, if not, a letter is written to the customer by the customer relations 20
department.
Benefits of IT
21
Benefit Quantification Methods
 “Better”
Information - Value of (Perfect) Information
Model
Probability
State A
(0.2)
State B
(0.3)
State C
(0.4)
State D
(0.1)
Alternative 1
5
7
2
3
Alternative 2
3
5
5
6
Alternative 3
4
5
3
6
Result
22
Benefit Quantification Methods

Decision based on expected value
E(A1) = 0.2*5 + 0.3*7 + 0.4*2 + 0.1*3 = 4.2
E(A2) = 4.7
E(A3) = 4.1 -> choose A2


Perfect information means we know at each decision
which state is to be realized
Expected value with perfect information: best
alternative outcome for each state
0.2*5 + 0.3*7 + 0.4*5 + 0.1*6 = 5.7

Value of information is difference
23
Benefit Quantification Methods
 “Less


5% less work means 5% less personnel costs
Only usable for layoffs, not for change in work profiles
 “Less


work” - TSTS model
work, different work” - Hedonic model
Hedonic models are concerned with what different
attributes or parts contribute to value of product or
basket (example supermarket with only baskets of
different quantity, cars etc.)
In this case, basket is an employee which offers
several activities to the company (e.g. 10%
management, 20% administration, 5% slack,..)
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Benefit Quantification Methods





For this, the price equals the salary
If we have different employees, we can compute the
hedonic price per activity, which is the value for the
company (what would somebody with 100%
management earn?)
New IT system will change percentages for activitities
(work profile), e.g. less slacks, less administration
New profile is valuated at hedonic prices, difference is
benefit of the IT system (work is now worth more to
company)
Several assumptions (motivation, skills,...)
25
Costs of IT Investments


One of the major issues is to allocate fixed costs among
different IT projects. Fixed costs are those costs that
remain the same in total regardless of change in the
activity level.
Another area of concern is the Life Cycle Cost; costs for
keeping it running, dealing with bugs, and for improving
and changing the system, transaction costs,... Such
costs can accumulate over many years, and sometimes
they are not even anticipated when the investment is
made.
 Approach of Total-Cost-of-Ownership (TCO): costs for
acquisition, operation and control
26
Risks of IT Investments


IT projects also have risks which should be included in
an evaluation
 Inherent risks (risk of failure)
 Technological risks
 Market risks
 ...
Portfolio methods can be used to optimize a portfolio of
IT projects also according to risks
27
Specific Evaluation Methods
28
Strategies for Acquiring IT
Applications
 Buy
the applications (off-the-shelf approach)
 Lease
the applications
 Developing
the applications in-house
(Insourcing)
29
The Five Major Steps of Acquisition
30
Buying IT Applications
31
Vendor and System Selection
Determine candidates
Determine factors and weights
–
–
–
–
–
–
Costs
Functionality
Support
GUI
Market standing
....
Assess and grade candidates
Aggregate by grade x factor and choose
Negations (licencing, service-level agreement,...)
32
Selection of Vendors
33
Leasing IT Applications



The first way is to lease the application from an
outsourcer and install it on the company’s premises. The
vendor can help with the installation and frequently will
offer to also contract for the operation and maintenance
of the system. Many conventional applications are
leased this way.
The second way, using an application system provider
(ASP), is becoming more popular.
 Assembles, operates, maintains, supports,...
Software as a Service: software is rented, based on
subscription
34
Outsourcing
35
ASP
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In-House Development
 Build
from scratch. This option should be
considered only for specialized applications for
which components are not available. It is an
expensive and slow process, but it will provide the
best fit.
 Build from components. Companies with
experienced IT staff can use standard components
(e.g., a secure Web server), some software
languages (e.g., Java, Visual Basic, or Perl), and
third-party subroutines to create and maintain
applications on their own.
37
Traditional Systems Development
Life Cycle
 Software
development life cycle is the
traditional systems development method that
organizations use for large-scale IT projects.
 SDLC processes are systems investigation,
systems analysis, systems design,
programming, testing, implementation, operation
and maintenance.
 Waterfall approach is when tasks in one phase
are completed before the work proceeds to the
next stage.
38
System Development Teams



Users are employees from all functional areas and levels
of the organization who interact with the system, either
directly or indirectly.
System analysts are IS professionals who specializing
in analyzing and designing ISs.
Programmers are IS professionals who modify existing
computer programs or write new computer programs to
satisfy user requirements.
39
System Development Teams


Technical specialists are experts on a certain type of
technology, such as databases or telecommunications.
System stakeholders are all people affected by
changes in the information systems.
40
SDLC – Systems Investigation


Begins with the business problem (or opportunity)
followed by the feasibility analysis.
Feasibility study





Technical
Economic
Behavioral
Organizational
Go/No-Go Decision
41
SDLC – Systems Analysis
 Is
the examination of the business problem that
the organization plans to solve with an
information system.
 Main purpose is to gather information about
existing system to determine requirements for
the new or improved system.
 Deliverable is a set of system requirements.
42
SDLC – Systems Design
 Describes
how the system will accomplish this
task.
 Deliverable is the technical design that
specifies:



System outputs, inputs, user interfaces;
Hardware, software, databases, telecommunications,
personnel & procedures;
Blueprint of how these components are integrated.
43
SDLC – Systems Design
 Logical
system design states what the system
will do, using abstract specifications.
 Physical system design states how the system
will perform its functions, with actual physical
specifications.
 Scope creep is caused by adding functions after
the project has been initiated.
44
SDLC – Programming & Testing
 Programming
involves the translation of a
system’s design specification into computer
code.
 Testing check to see if the computer code will
produce the expected and desired results under
certain conditions.
 Testing is designed to delete errors (bugs) in
the computer code. These errors are of two
types . Syntax errors ( e.g., misspelled word or
a misplaced comma) and logic errors that
permit the program to run but result in incorrect
output.
45
SDLC – Systems Implementation
 Implementation
or deployment is the process of
converting from the old system to the new
system. Organizations use four major
conversion strategies ; parallel , direct , pilot and
phased.
 Parallel conversion. Implementation process in
which the old system and the new system
operate simultaneously for a period of time.
 Direct conversion. Implementation process in
which the old system is cut off and the new
system turned on at a certain point in time.
46
SDLC – Systems Implementation
 Pilot
conversion. Implementation process that
introduces the new system in one part of the
organization on a trial basis, when new system
is working property, it is introduced in other parts
of the organization.
 Phased conversion. Implementation process
that introduces components of the new system
in stages, until the entire new system is
operational.
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SDLC – Operation & Maintenance


Audits are performed to assess the system’s capabilities
and to determine if it is being used correctly.
Systems need several types of maintenance.
 Debugging: A process that continues throughout the
life of the system.
 Updating: Updating the system to accommodate
changes in business conditions.
 Maintenance: That adds new functionally to the
system –adding new features to the existing system
without disturbing its operation.
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SDLC
 Major



Control
Accountability
Error detection
 Major




advantages
drawbacks
Relatively inflexible
Time-consuming and expensive
Discourages changes once user requirements are
done
Changes in requirements, markets, competition can
not be included
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Alternative Methods & Tools for
Systems Development

General aims: reduce time and costs, reduce time to
market, increase flexibility, allow for learning,...
 Spiral- and prototyping approaches (several cycles of
development, each with more detail, every time
including analysis, design, implementation and testing)
 Agile approaches (short cycles of 1-2 months with
certain functionality to be added, very informal in setup, huge emphasis on continous testing to have a
product which is always “finished”, examples include
eXteme Programming or SCRUM)
 RAD (Rapid Application Development), RUP (Rational
Unified Process),...
50
Alternative Methods & Tools for
Systems Development
51
Case Studies
 Prepare
the Mini Case of Chapter 13 (American
Apparel) from the textbook for next class session.
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