Assignment: R Y
Assignment: R Y
Net Present Value (NPV) Discount the costs and benefits for each year of the
system’s lifetime using present value factor 1
Economic Value Added (EVA) EVA = net operating profit after taxes
(capital x cost of capital)
Payback Analysis Time that will lapse before accrued benefits overtake
accrued and continuing costs
Internal Rate of Return (IRR) Return of the IT investment compared to the corporate
policy on rate of return
Weighted Scoring Methods Costs and revenues/savings are weighted based on their
strategic importance, accuracy/confidence, other
Financial Valuation Methods
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IT Investment Monitoring
• Old saying: “If you can’t measure it, you can’t manage it”
• Management needs to achieve organizational benefits from IT investments
• Must agree upon a set of metrics for monitoring IT investments.
• Often financial in nature (ROI, NPV, etc.).
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The Balanced Scorecard
• Focuses attention on the organization’s value drivers (which include financial performance).
• Assesses the full impact of corporate strategies on customers and workforce, as well as financial performance.
• Allows managers to look at a business from four related perspectives:
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How do our customers see us?
At what must we excel?
Can we continue to improve and create value?
How do we look to shareholders?
The Four Balanced Scorecard perspectives
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The IT Balanced Scorecard
• Using it within the MIS department helps senior IS managers • Understand their organization’s performance
• Measure it in a way that supports its business strategy
• Linked to the corporate scorecard • By ensuring that the measures used by IT are those that
support the corporate goals.
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• Snapshot of metrics at a given point in time (often “right now”)
• Offer “at a glance” idea of how things are going
• Often colors depict conditions: • Areas with problems (red) • Areas in good shape (green) • In-between or average (yellow)
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Sample Black & White Dashboard
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Architecture for Dashboards
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Funding the IT department
• How are costs of design, development, delivery and maintenance of IT systems recovered (or simply covered)?
• Chargeback • Allocation • Corporate budget
• The first two are done for management reasons
• The latter covers costs using corporate coffers
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Description Why do it? Why not do it?
Chargeback Charges are
on actual usage
Fairest method for
since it is based on
details on usage;
Allocation Expenditures are
divided by non-
(revenues, headcount, etc.)
question rates &
basis of allocation
allocates funds to
IT in annual
budget – to
No billing to the
No rates to compute.
Encourages use of
Have to compete
with all other
Comparison of IT funding methods
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How to Determine Cost
• Basic method: add up costs of hardware, software, network, and people involved in IS.
• Real cost is not always easy to determine • Remains a mystery for many firms
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Total Cost of Ownership (TCO)
• Has become the industry standard.
• Looks beyond initial capital investments to include costs often forgotten. For example: • technical support
• Estimates total annual costs per user for each potential infrastructure choice.
• Provide the best foundation for comparing to other IT and non-IT investments.
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TCO Component Breakdown
• Shared components (servers and printers): • TCO divided among all users who access each
• When only certain groups of users possess certain components, segment the hardware analysis by platform.
• Soft costs, such as technical support, administration, and training are important to include
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Soft Cost Areas Example Components of Cost Source
Technical support Hardware phone support Call center In-person hardware troubleshooting IT operations
Hardware hot swaps IT operations Physical hardware repair IT operations Total cost of technical support
Administration Hardware setup System administrator
Hardware upgrades/modifications System administrator
New hardware evaluation IT operations Total cost of administration
Training New employee training IT operations Ongoing administrator training Hardware vendor
Total cost of training Total soft costs for hardware
Figure 8.13 Soft cost considerations
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Managing and Using Information Systems:
A Strategic Approach – Sixth Edition
You must proofread your paper. But do not strictly rely on your computer’s spell-checker and grammar-checker; failure to do so indicates a lack of effort on your part and you can expect your grade to suffer accordingly. Papers with numerous misspelled words and grammatical mistakes will be penalized. Read over your paper – in silence and then aloud – before handing it in and make corrections as necessary. Often it is advantageous to have a friend proofread your paper for obvious errors. Handwritten corrections are preferable to uncorrected mistakes.
Use a standard 10 to 12 point (10 to 12 characters per inch) typeface. Smaller or compressed type and papers with small margins or single-spacing are hard to read. It is better to let your essay run over the recommended number of pages than to try to compress it into fewer pages.
Likewise, large type, large margins, large indentations, triple-spacing, increased leading (space between lines), increased kerning (space between letters), and any other such attempts at “padding” to increase the length of a paper are unacceptable, wasteful of trees, and will not fool your professor.
The paper must be neatly formatted, double-spaced with a one-inch margin on the top, bottom, and sides of each page. When submitting hard copy, be sure to use white paper and print out using dark ink. If it is hard to read your essay, it will also be hard to follow your argument.