IS 483
Information Systems Management
James Nowotarski
5 June 2003
Today’s Objectives
• Review for the core knowledge exam
Today’s agenda
Topic
Duration
• Last week’s quiz
5 minutes
• Recap and quiz on
45 minutes
– Procurement
– Financial analysis
• *** Break
10 minutes
• Core Exam Logistics
10 minutes
• Core Exam Review
???
Today’s agenda
Topic
Duration
• Last week’s quiz
5 minutes
• Recap and quiz on
45 minutes
– Procurement
– Financial analysis
• *** Break
10 minutes
• Core Exam Logistics
10 minutes
• Core Exam Review
???
IT Outsourcing - Technical Considerations
(9.1)
9.1 Discuss how the maturity of a system’s technology and
its degree of integration with other systems affect the
choice of outsourcing approaches.
Technical Considerations
High
Insource
Degree of
Technology
Integration
Outsource
Low
Low
High
Degree of Technology Maturity
Selective Outsourcing - What is it? (9.5)
9.5 Describe selective outsourcing with at least two
advantages and two disadvantages
What is it
• Select the best-of-breed for an activity
Advantages
• Creates a competitive environment
• Enables staff to be retained and redeployed
• Provides flexibility to adapt to changes
• Less risky than total outsourcing
Disadvantages
• Overhead associated with multiple evaluations,
multiple contract negotiations, and multiple vendors to
manage and coordinate
• Dividing up pieces of infrastructure (e.g., help desk and
network management) can lead to trouble since the pieces
are integrated
Today’s agenda
Topic
Duration
• Last week’s quiz
5 minutes
• Recap and quiz on
45 minutes
– Procurement
– Financial analysis
• *** Break
10 minutes
• Core Exam Logistics
10 minutes
• Core Exam Review
???
Procurement - Process
RFP Process
1. Pre-RFP
2. RFP
3. Proposal
Submissions
4. Proposal
Evaluations
5. Vendor
Selection
6. Procurement
Method
7. ROI Analysis
8. Negotiate
Contract
6. Procurement Methods
• Purchase
– not that popular because of fear of obsolescence
– longest-term commitment of these 3 methods
• Rent
– usually less than 1 year in duration
– only need to give 30 days’ notice to cancel
– more expensive than purchase or leasing
• Lease
– usually 12-36 months in duration
– often done with an option to buy
– middle of the pack in terms of cost and ability to get out
8. Contract Negotiation
The way you interact at the negotiating table may
foreshadow ongoing relationship dynamics
• Do’s
– Include vendor responses to RFP in the contract
– Keep lawyers at bay until Statement of Work is
complete
– Leverage outside expertise in negotiations
– Provide incentives/penalties
• Don’ts
– Buy vaporware instead of proven solutions
– Purchase low bid unless the value is there
– Settle on final offer prematurely
8. Contract Negotiation
Statement of Work
• Agreement between firm and vendor
• Was outlined in the RFP, now it gets finalized
• Includes
– Software characteristics
– Implementation plan
– Technical architecture
– Training strategy
– Maintenance and support
– Service levels (SLA items)
– Cost schedule
Approach to quality
Definition of quality metrics
Statement of Work
Approach to Quality and Measurement
1. Identify quality standards and goals
Plan
6. Eliminate
Act
causes of
deficient
performance
- fix defects
- fix root causes
Do
2. Measure project
performance
Check
3. Compare metrics against goals
4. Conduct quality reviews, e.g., peer reviews
5. Test for defects
Statement of Work
Quality Metrics
Progress
Measures the amount of work accomplished by the development
team in each phase
Quality Evaluation Effort
Measures the percentage of the development effort spent on
internal quality evaluation efforts
Test Coverage
Measures the amount of the software system covered by the
testing process
Defect Detection
Efficiency
Measure percentage of the actual defects originating in a stage of
the project that were actually detected in that stage
Requirements Traceability
Measures the percentage of the requirements that have been
addressed by the system
Defect Removal Rate
Measures the number of defects detected and removed over time
Defect Density
Identifies defect-prone components of the system
Customer Satisfaction
Measures customer satisfaction using objective surveys.
RFP Software Products
1) APES with INFORequestorTM Series – Completely integrated
database system enabling pre-loaded or user-defined automated use
requirements surveys. Business needs priority scoring, pre-loaded or
user-defined RFQ, RFI, RFP preparation. Automatic generation of detail
shortlist based on actual RFI responses. It is re-usable tool that will help
over and over in the future. Cost is $698.00.
2)HyperRFPTM Series – Distribute RFPs by email or by Web, receive
formatted vendor responses back to your designated E-Mail address &
eliminate tedious copying, packaging, and mailing. Cost is $229.00.
3) On-Line Consultant - Software tool to make the process more
efficient and objective. Linkage vendors’ responses with RFP questions.
Quickly and easily compare and score vendors. Cost is varying
RFP Software Products
“Wilmington Trust Co. uses collaboration technology to manage
the request-for-proposal process with its vendors. Most recently it
used software from eRoom technology to evaluate 20 competitors
vying to be the company’s sole temporary-staffing vendor, posting
a set of questions in a single format.”
- InformationWeek, 7 October 2002
RFP Software Products
Network Computing web site’s RFP Builder
* http://www.networkcomputing.com/1202/1202sp3.html
RFP Software Products
For those preparing proposals (www.pragmatech.com):
The RFP Machine®
The RFP Machine® enables Knowledge Managers to build, edit, and maintain a
central repository of company, product, and service information required for
automated RFP and RFI creation. The software brings consistency and accuracy
to the RFP response process by providing you with the tools to produce
persuasive, professional documents in dramatically reduced time.
The RFP Tracking System™
The RFP Tracking System™ allows users to track proposal activity, including
information pertaining to the issuer of the RFP or RFI, the person responsible for
the response, document turnaround time, the win/loss status, and any other
important information
Financial Analysis
Costs and Benefits Review
• Costs
– One-time vs. recurring
– Fixed vs. variable
– Tangible vs. intangible
o
Tangible - Accurately projected
o
Intangible - Difficult to estimate or
hidden
Financial Analysis
Costs and Benefits Review (cont.)
• Benefits
– One-time vs. recurring
– Fixed vs. variable
– Tangible vs. intangible
o
Tangible - Measurable
o
Intangible - Important but difficult to
measure or translate into $$$
Financial Analysis
Tangible vs. Intangible Benefits
Tangible benefits
• Can be measured and
expressed in $$$
• Examples:
– increase sales
– reduce labor costs
 reduce headcount
 increase productivity
– reduce inventory costs
Intangible benefits
• Difficult to translate into $$$
• Perceived gains
• Examples:
– improve reputation
– provide better information for
decision-making
– offer services that
competitors currently offer
• When to use:
– When the tangible costs
exceed the tangible benefits,
look at the deficit and decide
if the intangibles are worth
that amount.
Financial Analysis
There are four common methods of costbenefit analysis:
1. Break-even analysis
2. Payback analysis
3. Cash-flow analysis
4. Net present value analysis
Financial Analysis
1. Break-even analysis
Definition
Breakeven point is when total cost of current system and proposed
system intersect
Example
Current payroll systems costs $1.25 per employee
New system costs $20,000 to implement and $0.35 per employee
Let x = number of employees
.35 x + 20000 = 1.25 x
x = 22,222 employees
If 1,000 employees processed per week, breakeven point is reached in
the 23rd week of the system’s life
Financial Analysis
1. Break-even analysis
When to use
Project justified in terms of cost savings, not benefits
Advantages
Useful when business is growing, volume is key variable in cost
Disadvantages
Benefits are ignored
Financial Analysis
2. Payback analysis
Definition
Payback period is the amount of time it takes to recover an initial
investment
Example
New B2B system costs $300,000 to develop.
System handles 1,000 sales per month.
Cash inflow is $50 per sale after paying variable costs.
Payback period
= initial investment / annual cash inflow
= 300,000 / (1,000 * 50)
= 300,000 / 50,000
= 6 months
Financial Analysis
2. Payback analysis
When to use
Project justified in terms of tangible benefits
Advantages
Simple to use
Disadvantages
Ignores the time value of money
Does not consider total return beyond the payback period
Financial Analysis
3. Cash Flow Analysis
Definition
Examines the direction, size, and pattern of cash flow associated with
the proposed system
Example
Revenue
Costs
Cashflow
Cum
Q1
5
(26)
(21)
(21)
Q2
20
(27)
(7)
(28)
Q3
25
(17)
8
(20)
Q4
50
(19)
31
11
Q5
75
(20)
55
66
Financial Analysis
3. Cash Flow analysis
When to use
Project is expensive relative to firm size
Advantages
Simple to use
Disadvantages
Ignores time value of money
Financial Analysis
4. Net present value analysis
Definition
Present value - $1 received today is more valuable than $1 a year
from today, which is more valuable than $1 two years from today, etc.
NPV considers the time value of both the investments and cash flows
Let p = current amount, r = interest rate
Future amount in n periods (Fn) = p(1+r)n
p = Fn / (1+r)n
Example
Revenue
r = .01
NPV
Q1
5
Q2
20
Q3
25
Q4
50
Q5
75
4.95
19.61
24.26
48.05
71.36
Financial Analysis
4. Net present value analysis
When to use
Payback period is long or cost of borrowing money is high
Advantages
Can adjust interest rate to reflect greater risk in far future versus near
future
Relatively simple to explain
Disadvantages
Longer the time frame, more uncertain on what NPV is
Slightly more complex than other methods
Capital Budgeting
Objective
•
Determine if a depreciable asset will provide a
return that will meet or exceed the original
investment in the asset's acquisition
Screening vs. Preference Decisions
•
Screening - Look at one proposed project
•
Preference - Select from among several
alternatives
Capital Budgeting
Question:
•
When do you consider intangible benefits in
capital budgeting decisions?
Answer:
•
When tangible costs exceed tangible benefits, look
at intangible benefits and decide if they are worth
the deficit amount
•
When selecting from multiple alternatives that are
ranked even (tie-breaker)
Financial Analysis
Describe a situation where a project may not meet
minimum cost-benefit requirements and still be
approved.
Financial Analysis
When is cost-benefit analysis done during the
procurement process? Why is this the most desirable
1. Pre-RFP
time to do it?
range of potential costs/benefits
2. RFP
3. Proposal
Submissions
4. Proposal
Evaluations
preliminary cost/benefit analysis
5. Vendor
Selection
in-depth cost/benefit analysis
6. Procurement
Method
update cost/benefit analysis
7. ROI Analysis
update cost/benefit analysis
8. Negotiate
Contract
update cost/benefit analysis
Today’s agenda
Topic
Duration
• Last week’s quiz
5 minutes
• Recap and quiz on
45 minutes
– Procurement
– Financial analysis
• *** Break
10 minutes
• Core Exam Logistics
10 minutes
• Core Exam Review
???
Today’s agenda
Topic
Duration
• Last week’s quiz
5 minutes
• Recap and quiz on
45 minutes
– Procurement
– Financial analysis
• *** Break
10 minutes
• Core Exam Logistics
10 minutes
• Core Exam Review
???
Core Knowledge Exam Logistics
•
•
•
•
Deadline for registration is . . . today!!!
Exam is June 17, 2003 beginning at 6pm
Exam lasts 75 minutes
Loop campus
– “Specific building and room locations will be posted
on the CTI web site the day before the exam”
COL Recordings
• Tonight’s session being recorded
• Recordings not available after 6/13, noon
Core Knowledge Exam Questions
The Core Exam will have two parts:
Part A
• Answer all 4 questions (mandatory)
• Taken from study guide topics:
8. Procurement
9. Outsourcing
10. Financial Analysis
Core Knowledge Exam Questions
The Core Exam will have two parts (cont.):
Part B
• Five pairs of questions
• Answer three of the five pairs
• Each half of a pair comes from a different topic
• Questions taken from remaining study guide topics:
1. Major IT eras
2. IT Human Resources Management and Organizational
Transformation
3. Distributed IT Architecture and Infrastructure
4. Network Management
5. Operations Management
6. End User Training
7. Help Desk
Anatomy of Core Knowledge Exam
A1.
A2.
A3.
A4.
Topics 8,9,10
B1a.
B1b.
B2a.
B2b.
B3a.
B3b.
B4a.
B4b.
B5a.
B5b.
Topics 1-7
Anatomy of Core Knowledge Exam
A1.
A2.
A3.
A4.
A1.
A2.
A3.
A4.
B1a.
B1b.
B2a.
B2b.
B3a.
B3b.
B4a.
B4b.
B5a.
B5b.
Select 3 pairs
Anatomy of Core Knowledge Exam
A1.
A2.
A3.
A4.
A1.
A2.
A3.
A4.
Topics 8,9,10
B1a.
B1b.
B2a.
B2b.
B3a.
B3b.
B1a
B1b
Select 3 pairs
B4a
B4b
B4a.
B4b.
B5a.
B5b.
Topics 1-7
B5a
B5b
Totals
10 questions
<= 9 topics
Anatomy of Test Bank
Lecture
# Questions in
Date(s)
Test Bank
3-Apr
8
#
1
Description
IT Eras
2
IT Human Resource
Management
10-Apr
8
3
Distributed Architecture
17-Apr
8
4
Network Management
24-Apr
8
5
Operations Management
1-May
8
6
1-May
8-May
8
7
Organizational Transformation
(BRP, ERP)
End User Training
Help Desk
8-May
8
8
Procurement
15-May
29-May
16
9
Outsourcing
22-May
8
10
Financial Analysis
29-May
8
Today’s agenda
Topic
Duration
• Last week’s quiz
5 minutes
• Recap and quiz on
45 minutes
– Procurement
– Financial analysis
• *** Break
10 minutes
• Core Exam Logistics
10 minutes
• Core Exam Review
???
End of slides