Assignment: R Y

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Assignment: R Y

Assignment: R Y

Net Present Value (NPV) Discount the costs and benefits for each year of the

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system’s lifetime using present value factor 1

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

© 2016 John Wi ley & Sons, Inc. 21
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.).

© 2016 John Wi ley & Sons, Inc. 22
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:

© 2016 John Wi ley & Sons, Inc. 23
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

© 2016 John Wi ley & Sons, Inc. 24
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.

© 2016 John Wi ley & Sons, Inc. 25
IT Dashboards

• 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)

© 2016 John Wi ley & Sons, Inc. 26
Sample Black & White Dashboard

© 2016 John Wi ley & Sons, Inc. 27

© 2016 John Wi ley & Sons, Inc. 28
Architecture for Dashboards

© 2016 John Wi ley & Sons, Inc. 29
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

© 2016 John Wi ley & Sons, Inc. 30


Description Why do it? Why not do it?

Chargeback Charges are

calculated based

on actual usage

Fairest method for

recovering costs

since it is based on

actual usage

Must collect

details on usage;

often expensive

and difficult

Allocation Expenditures are

divided by non-

usage basis

(revenues, headcount, etc.)

Less bookkeeping

for IT

Users can

question rates &

basis of allocation

Free riders




allocates funds to

IT in annual

budget – to

general P&L

No billing to the


No rates to compute.

Encourages use of

new technologies.

Have to compete

with all other

budgeted items

for funds.

Potential for


Comparison of IT funding methods

© 2016 John Wi ley & Sons, Inc. 31
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

© 2016 John Wi ley & Sons, Inc. 32
Total Cost of Ownership (TCO)

• Has become the industry standard.

• Looks beyond initial capital investments to include costs often forgotten. For example: • technical support

• administration

• training

• Estimates total annual costs per user for each potential infrastructure choice.

• Provide the best foundation for comparing to other IT and non-IT investments.

© 2016 John Wi ley & Sons, Inc. 33
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

© 2016 John Wi ley & Sons, Inc. 34
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

© 2016 John Wi ley & Sons, Inc. 35
Managing and Using Information Systems:

A Strategic Approach – Sixth Edition

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