MIS 301 Information Systems in Organizations

1
MIS 301Information Systems in Organizations

• Dave Salisbury
• salisbury_at_udayton.edu (email)
• http//www.davesalisbury.com/ (web site)

2
Planning, Justifying Paying for IT/IS

• Explain the four-stage model of information
  systems planning, and discuss the importance of
  aligning information systems plans with business
• plans.
• Describe information requirement analysis,
  project payoff and portfolios, resource
  allocation, and project planning.
• Discuss the meaning and importance of IT
  alignment.
• Identify the different types of IT architectures
  and outline the processes necessary to establish
  an information architecture.
• Discuss the major issues addressed by information
  systems planning.
• Distinguish the major Web-related IT planning
  issues and understand application portfolio
  selection.
• Identify the major aspects of the economics of
  information technology.
• Explain and evaluate the productivity paradox
• Describe approaches for evaluating IT investment
  and explain why it is difficult to do it.
• Explain the nature of intangible benefits and the
  approaches to deal with it.
• List and briefly describe the traditional and
  modern methods of justifying IT investment.
• Identify the advantages and disadvantages of
  approaches to charging end users for IT services
  (chargeback).
• Identify the advantages and disadvantages of
  outsourcing.
• Describe the economic impact of EC.
• Describe economic issues related to web-based
  technologies including e-commerce.
• Describe causes of systems development failures,
  the theory of increasing returns, and market
  transformation through new technologies.

3
Four Stages of IT/IS Planning

• Strategic IT Planning
• Information Requirements Analysis
• Resource Allocation
• Project Planning

4
IT Planning A Critical Issue for Organizations

• Business-led approach The IT investment plan is
  defined on the basis of the current business
  strategy.
• Method-driven approach The IS needs are
  identified with the use of techniques and tools.
• Technological approach Analytical modeling and
  other tools are used to execute the IT plans.
• Administrative approach The IT plan is
  established by a steering committee.
• Organizational approach The IT investment plan
  is derived from a business-consensus view of all
  stakeholders in the organization

5
IT Planning A Critical Issue for Organizations
Continued

• Strategic IT planning Establishes the
  relationship between the overall organizational
  plan and the IT plan.
• Information requirements analysis Identifies
  broad, organizational information requirements to
  establish a strategic information architecture
  that can be used to direct specific application
  development.
• Resource allocation Allocates both IT
  application development resources and operational
  resources.
• Project planning Develops a plan that outlines
  schedules and resource requirements for specific
  IS projects.

6
Applications Portfolio
7
Stage 1-Planning

• 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.

8
Planning Models

• Business Systems Planning (BSP)
• Business processes
• Data classes
• Stage Model
• 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 business development

9
Stage Model
10
Planning Models

• 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
  categoriesmanufacturing, service, or
  governmentand 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 compiles as many as possible future events
  that may influence the outcome of each scenario.

11
Critical Success Factors
12
Stage 2-Requirements Analysis

• The second stage of the model is the information
  requirements analysis, which is an analysis of
  the information needs of users and how that
  information relates to their work. The goal of
  this second stage is to ensure that the various
  information systems, databases, and networks can
  be integrated to support the requirements
  identified in stage 1.
• Information requirements analysis in stage 2 is a
  more comprehensive level of analysis. It
  encompasses infrastructures such as the data
  needs (e.g., in a data warehouse or a data
  center), requirements for the intranet, extranet,
  and corporate partners are established.
• Identifies high payoffs IT projects which will
  produce the highest organizational payoff.
• Provides an architecture that leads to a
  cohesive, integrated systems that offers the most
  benefit

13
Stage 3-Resource Allocation

• Developing plans for
• Hardware, software, data networks and
  communications
• Facilities, personnel, and financial plans
• Difficult and in many cases a political process.
• opportunities and requests for spending far
  exceed the available funds.
• some projects and infrastructures are
  necessities, and therefore not negotiable
• Do we outsource some of this?

14
Stage 4-Project Planning

• Specific applications can be planned, scheduled,
  and controlled.
• Vendor management and control
• Outsourcing decisions
• Specific Requirements
• We have to understand precisely what we are going
  to do
• We need to know start and end dates
• We need to know resources and authority
• We need to know specific tasks responsibilities
• Tools exist for planning and control
• PERT CPM
• Gantt Charts

15
IT Architectures Infrastructure

• Information technology architecture refers to the
  overall structure of all information systems in
  an organization.
• Applications for management levels
• Applications for functions
• Infrastructure
• Factors that influence use of IT infrastructure
  levels
• information intensity
• strategic focus
• Industry. Manufacturing firms use less IT
  infrastructure services than retail or financial
  firms.
• Market volatility. Firms that need to change
  products quickly use more IT infrastructure
  services.
• Business unit synergy. Firms that emphasize
  synergies (e.g., cross-selling) use more IT
  infrastructure services.
• Strategy and planning. Firms that integrate IT
  and organizational planning, and track or monitor
  the achievement of strategic goals, use more IT
  infrastructure services.

16
IT Architectures

• Architectural choices are
• Centralized computing puts all processing and
  control authority within one computer to which
  all other computing devices respond.
• Distributed computing gives users direct control
  over their own computing by providing a
  decentralized environment
• Blended computing a blend of the two models
• End-user configurations (workstations)
• Centralized computing with the PC functioning as
  dumb terminals or not smart thin PCs.
• A single-user PC that is not connected to any
  other device.
• A single-user PC that is connected to other PCs
  or systems, using a telecommunications
  connections.
• Workgroup PCs connected to each other in a small
  P2P network.
• Distributed computing with many PCs fully
  connected by LANs via wireline or Wi-FI.

17
IT Planning Challenges

• Interorganizational Systems (IOS)
• Involve several organizations - may be complex
• IT planners should focus on groups of customers,
  suppliers, and partners
• Multinational Corporations
• Different laws, politics and society
• Tend to decentralize IT planning and operations
• Other Problems for IT Planning
• Cost, ROI justification
• Time-consuming process
• Obsolete methodologies
• Lack of qualified personnel
• Poor communication flow
• Minimal top management support
• Turbulent, uncertain environments

18
Managerial Issues

• Sustaining competitive advantage
• Importance
• Organizing for planning
• Ethical and legal issues
• IT strategy

19
Managerial Issues

• Fitting the IT architecture to the organization.
  Management of an organization may become
  concerned that its IT architecture is not suited
  to the needs of the organization. In such a case,
  there has likely been a failure on the part of
  the IT technicians to determine properly the
  requirements of the organization. Perhaps there
  has also been a failure on the part of management
  to understand the type and manner of IT
  architecture that they have allowed to develop or
  that they need.
• IT architecture planning. IT specialists versed
  in the technology of IT must meet with business
  users and jointly determine the present and
  future needs for the IT architecture. In some
  cases, IT should lead (e.g., when business users
  do not understand the technical implications of a
  new technology). In other cases, users should
  lead (e.g., when technology is to be applied to a
  new business opportunity). Plans should be
  written and published as part of the
  organizational strategic plan and as part of the
  IT strategic plan. Plans should also deal with
  training, career implications, and other
  secondary infrastructure issues.
• IT policy. IT architectures should be based on
  corporate guidelines or principles laid out in
  policies. These policies should include the roles
  and responsibilities of IT personnel and users,
  security issues, cost-benefit analyses for
  evaluating IT, and IT architectural goals.
  Policies should be communicated to all personnel
  who are managing or directly affected by IT.

20
IT/IS Economics

21
Computing Power vs. Benefits

• Enables most organizations to decrease costs
  thereby enhancing efficiency
• Enables creative organizations to find new uses
  for information technology and enhance their
  effectiveness
• What is the payoff from IT investments?
• How can it be measured?
• Productivity
• Benefits
• Costs
• Other economic aspects of IT

22
Moores Law

23
 Measuring Benefits and Costs

• Infrastructure versus specific applications
• IT infrastructure provides the foundations for IT
  applications
• data center
• Networks
• data warehouse
• knowledge base
• Long-term, shared investments, spread across
• IT applications are specific systems and programs
  for specific tasks
• Payroll
• inventory control
• order taking
• Some departments, not others
• Evaluating IT investments
• Value of information in decision-making
• Traditional Cost-Benefit analysis (tangibles)
• Scoring Matrix or Scorecard (intangibles)

24
 Evaluating the value of information

• Difference between the net benefits (benefits
  adjusted for costs) of decisions made using
  information and the net benefits of decisions
  made without information
• Assumption Systems that provide relevant
  information to support decision making will
  result in better decisions, and therefore they
  will contribute toward ROI. However, this may not
  always be the case.

25
How to justify IT economically

• Financial Cost-benefit analyses
• Net Present Value (NPV)
• convert future values of benefits to their
  present-value eqivalent
• Discounted at the organizations cost of funds
• Compare the present value of the figure benefits
  to the cost required to achieve these benefits
• Return on Investment (ROI)
• measures the effectiveness of management in
  generating profits with its available assets
• Calculated by dividing net income attributable to
  a project by the average assets invested in the
  project
• How do you decide the costs and benefits,
  particularly of options not taken?

26
Cost-Benefit Analyses - evaluating
27
Costing IT Investments - evaluating

• Placing a dollar value on the cost of IT
  investments is not simple. 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. Such
  costs can accumulate over many years, and
  sometimes they are not even anticipated when the
  investment is made.
• There are multiple kinds of values (tangible and
  intangible)
• Improved efficiency
• Improved customer relations
• The return of a capital investment measured in
  dollars or percentage
• etc.
• Probability of obtaining a return depends on the
  probability of implementation success

28
Intangible benefits evaluating

• Intangible benefits
• increased quality
• faster product development
• greater design flexibility
• better customer service
• improved working conditions for employees.
• Difficult to quantify them with a monetary value
• Complex but potentially substantial
• Evaluating Intangible Benefits
• Make rough estimates of monetary values for all
  intangible benefits, and then conduct a NVP or
  similar financial analysis.
• Scoring Matrix or Scorecard

29
Handling Intangible Benefits (Sawhney)

• Think broadly and softly.Supplement hard
  financial metrics with soft ones.
• Pay your freight first.Think carefully about
  short-term benefits that can pay the freight
  for the initial investment in the project.
• Follow the unanticipated. Keep an open mind
  about where the payoff from IT and e-business
  projects may come.

30
Business Case Approach evaluating

• A business case is a written document used by
  managers to garner funding for specific
  applications or projects
• Its major emphasis is the justification for the
  required investment
• It also provides the bridge between the initial
  plan and its execution by incorporating the
  foundation for tactical decision making and
  technology risk management. The business case
  helps
• to clarify how the organization will use its
  resources
• justifying the investment
• to manage the risk
• determine the fit of an IT project with the
  organizations mission

31
Investment justification - evaluating
32
Evaluating and Justifying IT Investments

• IT investments pose different problems
• Though the relationship between intangible IT
  benefits and performance is not clear, some
  investments are better than others
• Appraisal methods
• Financial (NPV ROI) methods consider only
  impacts that can have monetary value. They focus
  on incoming and outgoing cash flows.
• Multi-criteria (information economics and value
  analysis) appraisal methods consider both
  financial and non-financial impacts that cannot
  be expressed in monetary terms. These methods
  employ quantitative and qualitative
  decision-making techniques.
• Ratio (IT expenditures v. total turnover) methods
  used several ratios to assist in IT investment
  evaluation.
• Portfolio methods apply portfolios (or grids) to
  plot several investment proposals against various
  decision-making criteria.

33
Total cost of ownership Value analysis

• Total cost of ownership (TCO) includes
• Acquisition cost (hardware software)
• Operations costs (maintenance, training,
  operations, etc.)
• Control cost (standardization, security, central
  services)
• Value analysis evaluates intangible benefits on a
  low-cost, trial basis before deciding whether to
  commit to a larger investment in a complete
  system.

34
Total Cost of Ownership PCs

• Desktop hardware
• Software
• Servers
• Systems management
• Storage management

• Operations labor
• Help desk costs
• Communications
• Development
• End user costs
• Hidden costs

35
One representative sample

• Thin clients versus thick clients
• Thin clients (minimal storage, a.k.a. networked
  PC) - 3,787 per year
• Thick clients (traditional PC) - 6,880 per year
• Multiply that difference by say, 500-1000, and I
  think you see a trend developing

36
Information economics

• Organizational objectives
• Intangible benefits
• Scoring methodologies
• Evaluate alternatives by assigning weights and
  scores
• Identifies all key performance issues
• Assigns weights
• Scores each issue
• Multiply score by weighting factor and totaled
• Highest weighted score is judged best

37
Real Option Valuation of an IT Investment

• Recognizes IT investments can increase future
  performance
• Looks for opportunities embedded in capital
  projects
• If taken, these may enable the organization to
  alter future cash flows in a way that will
  increase profitability
• Looks at opportunity cost
• Common types of real options
• The option to expand a project (so as to capture
  additional cash flows)
• The option to terminate a project that is doing
  poorly (to minimize losses)
• The option to accelerate or delay a project
• Appropriate when
• most decisions based on the assumption that
  investments are strategic
• expected returns cannot be readily measured in
  monetary terms
• A lot of web-based systems might fit into this
  category

38
Balanced Scorecard, Activity-Based Costing
Expected Value

• The balanced scorecard method evaluates the
  overall health of organizations and projects. It
  advocates that managers focus not only on
  short-term financial results, but also on four
  other areas
• finance, including both short- and long-term
  measures
• customers (how customers view the organization)
• internal business processes (finding areas in
  which to excel)
• learning and growth (the ability to change and
  expand)
• Activity-based costing (ABC) views the value
  chain and assigns costs and benefits based on the
  activities.
• Expected value (EV) of possible future benefits
  by multiplying the size of the benefit by the
  probability of its occurrence.

39
Balanced Scorecard Logic
40
Tracking/allocating the costs of IT/IS

• Accounting systems should provide an accurate
  measure of total IT costs for management control
• Users should be charged for shared IT investments
  and services in a manner that is consistent with
  the achievement of organizational goals
• Chargeback
• All expenses go into an overhead account. With
  this approach, IT is free and has no explicit
  cost, so there are no incentives to control usage
  or avoid waste.
• Cost recovery is an approach where all IT costs
  are allocated to users as accurately as possible,
  based on cost and usage levels.
• Behavior-oriented chargeback systems set IT
  service costs in a way that meets organizational
  objectives, even though the changes may not
  correspond to actual costs.

41
Costing IT Economic Strategies

• Outsourcing
• A strategy for obtaining the economic benefits of
  IT and controlling its costs by obtaining IT
  services from outside vendors rather than from
  internal IS units within the organization.
• Offshore outsourcing of software development
• ASPs Utility Computing Application service
  providers manage and distribute software-based
  services and solutions from a central, off-site
  data center via the Internet.
• Management service provider a vendor that
  remotely manages and monitors enterprise
  applications.

42
Outsourcing Benefits Concerns

• Benefits
• Avoid heavy capital investment, flexibility
• Improve cash flow and cost tracking
• Economies of scale
• Better access to latest technologies skillsets
• More choice of platforms and software
• Faster development
• Focus on own knitting
• Less IT/IS staffing issues
• Clearly defined service levels
• Load balancing

• Concerns
• No strategic advantage from IT/IS
• Control over application development
• Dependent on vendor viability
• Creates potential redundancies
• Provider will service other companies (maybe
  competition), diluting their interest in you
• The loss of talent generated internally in IT/IS
• Employees may react badly
• Security concerns

43
Managerial Issues

• Constant growth and change
• Shift from tangible to intangible benefits.
• Not a sure thing
• Chargeback
• Risk
• Outsourcing
• Increasing returns
• What happens when it fails?