1242.2219
Information System Economics
IT ACQUISITION
IT ACQUISITION
What is acquired?
 Hardware:
computers
communications
 Software:
applications
operating systems
communications
Personnel:
management
development
operating
IT ACQUISITION
How is it acquired?
 insourcing - DYI
 outsourcing
IT ACQUISITION
The growing importance of outsourcing
"ComNet 2000 Packed With Outsourcing Options"InfoWorld.com (01/25/00);
Jones, Jennifer; Moore, Cathleen
This week's ComNet 2000 show will feature a number of new products and
services aimed at capitalizing on the growing corporate demand
for network outsourcing. AT&T plans to announce outsourcing services for
large clients that do not want to manage their own network operations. ...
Nortel plans to establish a group that will design and manage networking
technology for large customers .... The rising interest in outsourcing stems
from a lack of trained technical workers and the need for IS departments
to devote time to mission-critical programs, experts say.
http://www.networkworld.com/news/2000/0125comnetout.html
IT ACQUISITION
The Process
 determine needs
 insource/outsource decision
 collect information
 evaluate
 select
 contract
IT ACQUISITION
Insourcing vs. Outsourcing:
Hardware
ACQUISITION RESOURCES
Insource
Internal resources for
analysis & capacity planning
planning requirements analysis,
selection etc.
Vendor performs
installation installation &
maintenance
Outsource
Vendor performs
capacity planning,
requirements analysis,
selection, etc.
Vendor performs
installation &
maintenance
Adapted from: Nelson, Paul, William Richmond, & Abraham Seidmann. “Two Dimensions of Software Acquisition.”
Communications of The ACM 39, 7 (July 1996):29-44.
IT ACQUISITION
Insourcing vs. Outsourcing:
Software
ACQUISITION RESOURCES
Insource
Outsource
ACQUISITION
SOURCE
Internal resources for Vendor performs
needs analysis,
custom needs analysis,
coding, etc.
coding, etc.
Internal resources for Vendor performs
package package selection,
package selection,
installation, etc.
installation, etc.
Adapted from: Nelson, Paul, William Richmond, & Abraham Seidmann. “Two Dimensions of Software Acquisition.”
Communications of The ACM 39, 7 (July 1996):29-44.
IT ACQUISITION
Insourcing vs. Outsourcing:
Operations
RESOURCES
LOCATION
Insource
Own hardware,
in-house software, and
personnel
Outsource
Own hardware, in- or
outsource software
& personnel
Vendor’s hardware &
at vendor’s Vendor’s hardware,
location own personnel, in- or personnel, in- or
outsource software
outsource software.
Adapted from: Nelson, Paul, William Richmond, & Abraham Seidmann. “Two Dimensions of Software Acquisition.”
Communications of The ACM 39, 7 (July 1996):29-44.
IT ACQUISITION
Evaluation
Evaluation purposes
 selection evaluation (system exists elsewhere)
 new hardware
 new software
 performance projection (system does not exist elsewhere)
 design new software
 design new hardware
 performance monitoring (system in operation)
 reconfigure hardware
 change software
IT ACQUISITION
Evaluation
Evaluation methods
 kernel programs
 analytic models
 benchmarks
 synthetic programs
 simulation
 performance monitoring
IT ACQUISITION
Evaluation
Evaluation methods – kernel programs
A kernel program is a typical program that has been partially or
completely coded and timed. The timings are based on the
manufacturer’s stated execution times for the instructions that
comprise the kernel program.
Uses: for evaluating machines which do not yet exist;
for time-critical procedures
Disadvantages:
require machine language code;
cannot adequately represent I/O and operating system
interactions
IT ACQUISITION
Evaluation
Evaluation methods – analytic models
An analytic model is a mathematical representation of a
computing system. These are frequently based on queueing
theory.
Uses: for evaluating machines which do not yet exist;
for specific machine components (e.g. a disk drive)
Disadvantages:
cannot capture all aspects of a computer’s functions;
are most effective for higher level analyses – e.g. CPUs or
complete systems
IT ACQUISITION
Evaluation
Evaluation methods - benchmarks
A benchmark is an existing program that is coded in a specific
language and executed on the machine being evaluated.
Uses: esp. for evaluating and comparing potential replacement
machines;
for comparing overall performance of different machines
and architectures
Disadvantages:
expensive;
interpretation problems
IT ACQUISITION
Evaluation
Evaluation methods – benchmark interpretation problems
 suboptimal machine setup
 “tailing”
Machine A
Job I
Job II
Job III
Machine B
Job I
Job II
Job III
time
IT ACQUISITION
Evaluation
Evaluation methods – synthetic programs
Synthetic programs are coded and executed, but differ from
benchmarks in that they do not necessarily exist beforehand.
Like kernel programs, they are not real applications, but they are
coded and they do include I/O considerations and interactions
with the OS environment. Thus, they combine some of the
attributes of benchmarks and of kernel programs.
IT ACQUISITION
Evaluation
Evaluation methods – synthetic programs
Uses: selection – can be designed to include any measurement
parameter of interest;
good for before and after tests before executing changes
Disadvantages:
expensive to prepare;
interpretation problems as with benchmarks;
difficult to develop for online, terminal-based systems
IT ACQUISITION
Evaluation
Evaluation methods - simulation
A simulation is a program which computes the results of
running a real system, based on the characteristics of that
system. It provides insight into the functioning of the system
simulated.
IT ACQUISITION
Evaluation
Evaluation methods - simulation
Uses: projecting outcomes of new designs;
selection – but cost frequently prohibitive
for comparing overall performance of different machines
and architectures
Disadvantages:
expensive;
validation problems – unless real results available for a
similar machine;
need to be adapted for each machine simulated
IT ACQUISITION
Evaluation
Evaluation methods – performance monitoring
Consists of collecting data on an existing machine in order to
locate bottlenecks or to improve system performance.
 hardware monitors
 software monitors
Uses: evaluating and analyzing performance of existing systems;
Disadvantages:
the measurement problem (Heisenberg’s Uncertainty
Principle);
quantities of data generated;
IT ACQUISITION
Evaluation methods – Summary
Purpose of evaluation
Selection
evaluation
Synthetic
Programs,
Benchmarks
primary use
pecondary use
Projected
Design
Simulation,
Analytic
Models
Evaluation Techniques
Performance
Evaluation
Monitors
IT ACQUISITION
Selection
Selection problems:
 multiple alternatives
 “apples vs. oranges”
 approximate measurements
 intangible economics
 human factors
 time
 subjectivity
IT ACQUISITION
Selection
Selection methods:
 ad hoc
 weights and scores
 cost-value
 efficient frontier
 sensitivity analysis
IT ACQUISITION
Selection Methods
weights and scores
1.
determine criteria (ci)
2.
assign a weight to each criterion (wi)
3.
assign score to each criterion (si)
4.
total score = S si wi
IT ACQUISITION
Selection Methods
Weights and scores – major problems
1.criteria set to predetermine solution
2. manipulation of scores
3. meaning of the final result
Partial solutions:
 separate setting criteria and weights from evaluation
 sensitivity analysis
IT ACQUISITION
Selection Methods
Weights and scores – an example
criterion
weight
score
Si Wi
H/W
.25
80
20.0
S/W
.40
75
30.0
Service
.10
85
8.5
Cost
.35
60
21.0
total
1.00
79.5
IT ACQUISITION
Selection Methods
Cost-value: cost is the sole basis for selection
1. determine and evaluate mandatory and
desirable criteria
2. build value templates for “rewarding” or
“fining” over and under performance
3. apply fines and bonuses
4. select lowest cost bid after corrections
IT ACQUISITION
Selection Methods
Cost-value: example of a value template
Criterion: laptop computer weighs 2.5 kg
Over/under weight
value
3.5 kg
+$250
3.0 kg
+$100
2.5 kg
0
2.0 kg
-$150
1.75 kg
-$300
IT ACQUISITION
Selection Methods
Efficient Frontier as a Winnowing Method
Criterion 1
A
B
C
D
G
F
E
Criterion 2
IT ACQUISITION
Selection Methods
Importance of Sensitivity Analysis