Lecture 9 - Evaluating AIS Investments & PM for AIS Flashcards
(!) Describe considerations to IT projects
Reason to evaluate IT projects:
- Req. much capital: Scarce
- Select one hinder other
- Change often affect other part of firm
Capital budgeting techniques:
General:
- Systematic evaluate investments
Considerations:
- Why?
- How it address issues?
- Costs & time
- Calculation
- Risk: And if not
- Alternatives
- Success measure?
(!) Describe the economic justification process
- Assess business req.
- Identify poss. solutions
- Benefit, cost & risk pr solution
- Value proposition pr solution from all info. Team recommend
(!) Describe step 1 in the economic justification process: Assess business req:
General:
- Ref. til BSC
IT functionality:
- Must reduce gaps btw. current & desired performance
- Indicated by strategy map
- IT not sufficient alone
- Link all tech to min. 1 CSF
- Ask people on needed system req.
- Eg. By using interviews
- Eg. By using survey
Complementary changes:
- Train employees
- Redefine job descriptions
- Reconfigure tasks
- Offer incentives for change: Since reluctant to change. Eg. TM support
(!) Describe step 2 in the economic justification process: Estimate benefits
General:
- Req. Financially measurable
- More behavioral than cost step: Less factual
- Revenue enhancement:
- Create new sales opport.
- Eg. E-commerce expand market - Revenue protection:
- Protect current revenue
- Eg. Encryption: Encourage sharing - Cost savings:
- Modify business processes
- Reduce non value-adding activities
- Reduce manual activities
- Improve cap. to manage efficiency & error
- Eg. Improve inventory management info - Cost avoidance:
- Modify business processes: Avoid future cost increases
- Eg. New software
(!) Describe step 3 in the economic justification process: Estimating costs
Acquisition Costs:
Direct costs:
- To acquire & implement:
Costs:
- Hardware
- Software
- Networking
- Development
- Project Management
- Consulting
- Training
Indirect costs:
- Disrupt current operations
___________
Operation Costs:
Direct costs:
- Req. to operate, maintain & administer tech
Costs:
- Hardware replacements
- Software upgrades
- Maintenance contracts
- Help desk support
- Ongoing training
- Administration
- Decommissioning
Indirect costs:
- User downtime
- Lost productivity
- Eg. Self-training
- Eg. Support
- Eg. End user data management
(!) Describe step 4 in the economic justification process: Assessing risk
Alignment risk:
- Solution not strategy
- Use BSC
Solution risk:
- Solution not exp. benefit
- Use sensitivity analysis
Financial risk:
- Solution not exp. financial performance
- Interview others w. same IT
- Follow structured BS management process
Project risk:
- Project done within time: Increase budget.
- Ensure TM support
Change risk:
- Firm part not able to change?
- Conduct training
- Create employee incentives
- Eg. Lack of knowledge
Technological risk:
- Delivering expected benefit?
- Req. hard- & software vendors demonstrate system meet req.
(!) Describe step 5 in the economic justification process: Develop value proposition
General:
- Combine benefit, costs & risks
- Not equal to term in chapter 16
- Remember time value of money
- Sensitivity test: Assumptions may change. Ref. Risk assessment
- Holistic evaluate if good or bad decision
Fully understand financial implications of investment:
- Determine relevant timeframe for cost & benefit
- Select decent discount rate
- Prepare capital budgeting financial metrics
- Assess result sensitivity to assumptions
Select best alternative:
- Reasoning of choice
(!) Describe different capital budgeting techniques & their strengths & weaknesses
Payback period:
General:
- # Periods recover invest.
- CALC: Investment / period CF
- Only for even cashflows: Else cumulative CF
Strengths:
- Easy calc
- Easy understanding
- Widely used
Weaknesses:
- Ignore time value of money
- Ignore cost & benefit after period
____________
NPV:
General:
- Net present value
- Each CF discount to PV
- Sum PV inflows - PV outflows
Strengths:
- Incl. time value of money
- Compare dollar value to investment
- Incl. life time
Weaknesses:
- Larger project = Larger NPV
- Dont show rate of ROI
- Sensitive to discount rate
____________
Accounting rate of return:
General:
- Monthly vs. overall benefit
- CALC: ARR = Average annual income from IT / investment
Strengths:
- Relate estimate to standard accounting ratio
- Show OI impact
Weaknesses:
- Ignore time value of money
- Assume similar CF’s
____________
IRR:
General:
- Internal rate of return
- Discount rate where NPV = 0
Strengths:
- Incl. time value of money
- Incl. life time
- Calc unique discount rate
- Not sensitive to discount rate
Weaknesses:
- Dont consider project size
- Sensitive to CF timing
(!) Describe the systems development life cycle / SDLC
General:
- Process to create & modify IS to meet user needs
- Foundation for all syst. dev.
Planning Phase:
- Need better IS
- Eg. Interview
Analysis Phase:
- Needs from end user
- The req. process
- Eg. Functions & operations
Design Phase:
- Desired features
- May have arrow back to analysis
- Eg. Layout, process diagram
Implementation Phase:
- Not always equal to design
- Dev., test, implementation of new proposed system
Maintenance Phase:
- Changes, corrections, additions & upgrades
(!) Describe project management, different terms & rules
Terms:
Project management:
- Plan, organize, supervise & direct IT projects
- More projects fail nowadays
Projects:
- Series of tasks
- Defined sequence
- Predefined output
Project manager:
- Lead member project team
- Responsible for project
- Coordinate project
- Must analyze project charter: Doc. w. objectives & req.
Project sponsor:
- Often senior executive
- Responsible for success
- Sometimes same as project manager
- Support manager
- Advocate for project in- & external: Dansk. Fortaler
- Obtain ress. for successful completion
- Monitor scope: No scope creep
- Responsible for issues & problems manager can’t handle alone
____________
Useful rules:
100% Rule:
- Plan all tasks
- Both internal, external & temporary
- Waterfall approach
15-15 rule:
- 15% above budget or off planned schedule = Not success
(!) Describe project management tools
PERT chart
- PERT = Program evaluation review technique
- Identify all tasks: 100% rule
- Note task sequence
- Note task dependence
- Note critical path: Longest path w. minimum time for completion. Improve by reducing
- Number btw. nodes = Given time for task
- Dependent task = Task before need completed
- Parallel or concurrent task: Can be done while other
- Dummy tasks = Task needed within special sequence but no add. ress. or completion time
- Difficult on complex projects
- Clearly illustrate dependence
Gantt chart:
- Graphic representation of project schedule
- Map tasks to calendar
- Include slack
- Some show dependency btw. tasks
- Show current status
Describe the principles of the planning phase of SDLC
General:
- System or software development life cycle
- To ensure effective IT planning
Alignment
- Support strategy
Relevant scope:
- For effective addressing firm needs
Relevant timeframe:
- Should align both short, medium & long term strategy
Benefit realization:
- Benefit > costs: Both tangible & intangible
Achievability:
- Capability & capacity to deliver solution within timeframe
Measurable performance:
- Mean to measure & monitor perf.
- Mean to comm. success
Reassessment:
- Periodically reassess to ensure its relevance
Awareness:
- Comm. widely the final plan
Accountability:
- Clearly identify who responsible
Commitment:
- Clear & evident management commitment
(!) Describe the technology acceptance model
Perceived usefulness:
- Better if comm. w. system builder & user: Meet their needs
Ease of use:
- Need much training for employees to feel comfortable
(!) Describe the triple constraints of project management
Triple constraints:
General:
- Quality in center: Eg. Min. specifications
- Balance three constraints
Scope:
- Size or scope
- Often expand later on
- Risk scope creep: Broader scope than initial
- Involve project sponsor to hinder cost > benefit
Costs:
- Share info w. project sponsor if above budget
- Sometimes project manager reconfigure ress. or tasks
Time:
- Poss. First mover advantage
- Ref. PERT & Gantt chart
