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Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
Information Systems Management
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Information Systems Management

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    • 1. IS 483 Information Systems Management James Nowotarski 22 May 2003
    • 2.
      • Recap risk management and RFP
      • Understand IT Outsourcing
      Today’s Objectives
    • 3.
      • Topic Duration
      • Recap risk management/RFP 15 minutes
      • Assignment 2 reports 20 minutes
      • Quiz 15 minutes
      • *** Break 15 minutes
      • IT Outsourcing 90 minutes
      • Assignment 2 reports 20 minutes
      Today’s agenda
    • 4.
      • Topic Duration
      • Recap risk management/RFP 15 minutes
      • Assignment 2 reports 20 minutes
      • Quiz 15 minutes
      • *** Break 15 minutes
      • IT Outsourcing 90 minutes
      • Assignment 2 reports 20 minutes
      Today’s agenda
    • 5. IT Risk Management
      • Economic
      • Technical
      • Organizational
      • Legal
      • Terrorism
      Major Categories of Risk
      • Risks that can potentially affect the business
      • business environment changes
      • financial performance
    • 6. IT Risk Management
      • Economic
      • Technical
      • Organizational
      • Legal
      • Terrorism
      Major Categories of Risk
      • Risks that can affect the development, implementation, and operation of a system
      • integrating technology with legacy
      • applying unproven technology
      • conversion may uncover “dirty” data
      • management inexperienced with projects of this size
    • 7. IT Risk Management
      • Economic
      • Technical
      • Organizational
      • Legal
      • Terrorism
      Major Categories of Risk
      • Risks that can potentially result from lack of acceptance of a system
      • low morale
      • decline in effectiveness/efficiency
    • 8. IT Risk Management
      • Economic
      • Technical
      • Organizational
      • Legal
      • Terrorism
      Major Categories of Risk
      • Risks arising from potential lawsuits and liabilities associated with implementation of a project
      • shareholder lawsuits
      • data privacy
      • Foreign Corrupt Practices Act (FCPA)
    • 9. IT Risk Management
      • Economic
      • Technical
      • Organizational
      • Legal
      • Terrorism
      Major Categories of Risk
      • Risks arising from intentional destruction or malevolent modification of:
      • physical equipment
      • data
      • software
      • network
    • 10. IT Risk Management The process in which potential risks to a business are identified , analyzed and mitigated , along with the process of balancing the cost of protecting the company against a risk vs. the cost of exposure to that risk. Risk Management
    • 11. Risk Frameworks Fidelity’s Risk Cube
    • 12. Risk Frameworks Risk Awareness Risk Management Risk Measurement ---------- Fidelity Risk Cube ---------- Identify Analyze Mitigate Measure
    • 13. Risk Frameworks RISK Cube - Key Questions
      • R is for R eturn
        • Are we achieving an appropriate return for the risks we take?
      • I is for I mmunization
        • Do we have controls and limits in place to limit downside risk?
      • S is for S ystems
        • Do we have systems in place to measure and report risk?
      • K is for K nowledge
        • Do we have the right people, skills, culture, and incentives for effective risk management?
    • 14. Risk Management Approaches Risk Management Approaches
      • Interdisciplinary Approach
      • Portfolio Approach
      • Options Thinking
      • Chaos Theory
    • 15. Risk vs. Technology Maturity Impact of Technology Maturity Risk Early Adopter Mid Adopter Late Adopter hands-on implementation experience little exper / high risk more exper / mid risk much exper / low risk vendor survival for project after shake-out high risk mid risk low risk sudden changes in direction of technology high risk mid risk low risk integrating technology with existing portfolio high risk mid risk low risk Benefits Period for Start of Payoff  Short term Mid term Long term Size of Returns per period Biggest Bigger  Big 
    • 16. Risk Management at Project Level Steps Taken by Prudent Managers
      • List the risks that could occur and when they could occur
      • Determine what detection method can alert IS that risk occurred
      • Establish detection method
      • Estimate each risk’s probability of occurring
      • Formulate plans that can mitigate each risk
      • Establish teams that will monitor and mitigate the risk
    • 17. Procurement - Process RFP Process Objective : Identify best solution to meet stated business need while minimizing cost and risk 1. Pre-RFP 2. RFP 3. Proposal Submissions 4. Proposal Evaluations 5. Vendor Selection 6. Procurement Method 7. ROI Analysis 8. Negotiate Contract
    • 18.
      • Topic Duration
      • Recap risk management/RFP 15 minutes
      • Assignment 2 reports 20 minutes
      • Quiz 15 minutes
      • *** Break 15 minutes
      • IT Outsourcing 90 minutes
      • Assignment 2 reports 20 minutes
      Today’s agenda
    • 19.
      • Topic Duration
      • Recap risk management/RFP 15 minutes
      • Assignment 2 reports 20 minutes
      • Quiz 15 minutes
      • *** Break 15 minutes
      • IT Outsourcing 90 minutes
      • Assignment 2 reports 20 minutes
      Today’s agenda
    • 20.
      • Topic Duration
      • Recap risk management/RFP 15 minutes
      • Assignment 2 reports 20 minutes
      • Quiz 15 minutes
      • *** Break 15 minutes
      • IT Outsourcing 90 minutes
      • Assignment 2 reports 20 minutes
      Today’s agenda
    • 21. IT Outsourcing
      • On average, commercial organizations outsource 40% of their IT budgets
      • “ Outsourcing is one of the greatest organizational and industry structure shifts of the [20th] century” -- James Brian Quinn, Amos Tuck School, Dartmouth
      Information technology (IT) outsourcing is widely accepted by most commercial organizations
    • 22. IT Outsourcing
      • Cost reduction -- Perception of IT as a cost burden coupled with availability of cheaper sources of services (e.g., near-shore and offshore)
      • Cost predictability
      • Require improved performance levels (e.g., speed of delivery, customer satisfaction, quality, etc.)
      • Refocus on corporate core competencies
      • Desire to have in-house IT resources focus on strategic systems and/or technology
      • Lack of ability and/or willingness to hire/retain IT skills
      Information technology (IT) outsourcing is the use of a third party to provide services rather than using those in-house. Drivers
    • 23. IT Outsourcing “ [g]et rid of context and focus on core” - Billy McCarter, former CIO of Fireman’s Fund, who reduced IT staff from 1,100 to 600 with much of the work outsourced to offshore workers A desire to focus on core competencies is frequently the strongest driver to outsource “ [a]llows me and my staff to focus on fun areas . . . be more productive, more visible to the business, understand what the business needs versus worrying about whether one of the servers needs additional RAM” - Daniel Sheehan, CIO at Advo, Inc. (infoweek, 4/14/03)
    • 24. IT Outsourcing IT is often viewed as a commodity and, thus, not “core”
      • IT is like electric power -- a commodity that is required by all but provides distinction to none
      • IT capability is broadly accessible and affordable
      • New or proprietary technologies offer opportunity for companies to gain a step, but this advantage is short-lived
      • Further evidence of IT commoditization:
        • overcapacity
        • price drops
        • vendors positioning selves as “utilities”
        • bursting of the investment bubble
      Carr, N. “IT Doesn’t Matter.” Harvard Business Review. May 2003.
    • 25. IT Outsourcing
      • Chipmakers no longer make chips
      • Pharmaceuticals outsource new drug research
      • Government outsources prisons
      • Apparel firms outsource apparel manufacturing
      Processes once considered core are now candidates for outsourcing. Examples
    • 26. IT Outsourcing
      • Data center operations
      • Network operations
      • Application maintenance
      • Desktop workstations
      • Help desk/Support
      • Application development
      • Business process execution
      What parts of IT to outsource? most common IT activities to outsource
    • 27. IT Outsourcing
      • Transitional Outsourcing
      • Selective Outsourcing
      • Total Outsourcing
      To what extent should you outsource? most common approaches
    • 28. IT Outsourcing
      • What is it
      • Outsource legacy systems
      • Focus in-house staff on development of “new world”
      • Outsourced activity may return in house at some point
      Transitional Outsourcing
      • Advantages
      • Legacy systems are well-understood, facilitates specifying outsourcing contract terms
      • In-house organization moves on to next new thing (Tarzan grabbing the next rope in the IT jungle)
      • Contract may be shorter term
      • Disadvantages
      • Vulnerable to loss of vendor support if new system is delayed
      • More vulnerable to vendor manipulation of pricing, maintenance costs
    • 29. IT Outsourcing
      • What is it
      • Select the best-of-breed for an activity
      Selective Outsourcing
      • 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
    • 30. IT Outsourcing Selective Outsourcing “ Global access to Enterprise Service Providers (ESPs) with low cost structures is accelerating outsourcing adoption rates, leading to the proliferation of mixed-sourcing delivery models in which the ‘best’ provider of a particular service wins.” (Gartner 2003)
    • 31. IT Outsourcing Selective Outsourcing “ Today, businesses look to "selective sourcing & services" for their IT infrastructure, operations and management needs. With selective sourcing the focus is on securing services for very specific needs. Using managed contracts, selective sourcing has proved very successful in limiting risk, motivating vendor performance and achieving goals. With selective sourcing/services organizations have the best of both worlds with the flexibility to select a best practice supplier while maintaining overall control of their IT practices.” -- Strategic Sourcing Advisory Council, http://www.ssacouncil.org/
    • 32. IT Outsourcing Selective Outsourcing “ I don’t believe you should have a dozen partners, because then it’s not a real relationship” -- Mukesh Mehta, VP of IT at Metropolitan Life, InformationWeek, 23 December 2002
    • 33. IT Outsourcing
      • What is it
      • Use one vendor for many activities
      • Extreme outsourcing: At least 50% of IT functions outsourced
      Total Outsourcing
      • Advantages
      • Consistency and stability with same vendor for many activities
      • Lower overhead because there is only one vendor
      • Disadvantages
      • More vulnerable to vendor manipulation and loss of vendor support
      • Lack of competition between suppliers
      • One vendor cannot be best across the whole spectrum
      • Needs can change dramatically after 1-2 years
    • 34. IT Outsourcing Survey Results Type of sourcing Success Failure Mixed Total outsourcing 38% 35% 27% Selective outsourcing 77% 20% 3% In house 76% 24% 0% Source: Study of 116 companies by college professors Mary Lacity and Leslie Willcocks, Computerworld, 10 May 1999
    • 35. IT Outsourcing Consider business, economic, and technical factors in deciding whether to outsource Business Considerations Outsource Insource Commodity Differential Critical Useful Strategic Importance Potential for Differentiation
    • 36. IT Outsourcing Consider business, economic, and technical factors in deciding whether to outsource (cont.) Economic Considerations Outsource Insource Subcritical Critical Leading Lagging Managerial Practices In-House Economies of Scale
    • 37. IT Outsourcing Consider business, economic, and technical factors in deciding whether to outsource (cont.) Technical Considerations Low High High Low Degree of Technology Integration Degree of Technology Maturity Outsource Insource
    • 38. IT Outsourcing Give examples of applications that would be good candidates for insourcing and outsourcing based on technical considerations Technical Considerations Low High High Low Degree of Technology Integration Degree of Technology Maturity Outsource Insource
    • 39. IT Outsourcing: Offshore
      • IT organizations and solutions providers are increasing their offshore capabilities for both maintenance and development
      • JP Morgan
      • Merrill Lynch
      • Lehman Brothers
      • Ford
      • NY Stock Exchange
      • Motorola
      • Boeing
      • Household
      • Many unpublicized
      IT organizations
      • Accenture
      • IBM
      • HP
      • Offshore firms, typically with local presence
      Solutions providers
      • Legacy maintenance
      • New development
      • Projects requiring specialized expertise, e.g.,
        • Embedded software
        • ERP
      Types of projects
    • 40.
      • Reduce cost
        • 40-50% savings, according to Merrill Lynch CTO
      • Higher quality/capability
        • Approximately 50 out of 70 CMM Level 5 systems development organizations are in India
      IT Outsourcing: Offshore Cost and quality are the two main reasons for going offshore
    • 41.
      • Highly capable workforce
      • Focus on process and product quality
      • Low labor and infrastructure costs
      • Government commitment and support
      • English language skills
      India is the leading location for offshore sourcing Reasons IT Outsourcing: Offshore
    • 42.
      • North American brokerage firms spent $417 million on offshore contracts in 2002 and will spend $1.31 billion by 2005 (a compound annual growth rate of 46.4 percent)
      • In cumulative terms, 8,150 U.S. Wall Street IT jobs (or 15 percent of the four-year moving average IT headcount) will head offshore between 2002 and 2005.
      • India's share of outsourced work from U.S. securities firms will rise in 2003 to 94 percent, but will settle at 84 percent by 2004 as other offshore locations (including China) gain ground
      • Reasons cited for India’s success:
        • Low labor costs
        • Sophisticated processes to manage offshore projects
        • Highly certified staff
      • (Source: Intelligent Outsourcing Strategies, March 24, 2003)
      Wall Street’s top firms are investing heavily in offshore outsourcing of IT and operations IT Outsourcing: Offshore
    • 43.
      • U.S. financial-services companies plan to transfer 500,000 jobs, or 8% of total industry employment, to foreign countries in the next 5 years
      • Involves a wide range of work, including financial analysis, regulatory reporting, accounting, and graphic design
      • Example of cost savings: A Wall Street researcher with a college business degree and a few years experience can earn as much as $250K, compared with $20K in India.
      • Corporate chiefs list India as the most attractive country, followed by China, Philippines, Canada, Czech Republic, Mexico
      • Among the most aggressive U.S. companies: GE Capital, Citicorp, American Express.
      • Wall Street Journal, 1 May 2003
      Wall Street’s top firms are investing heavily in offshore outsourcing of IT and operations (cont.) IT Outsourcing: Offshore
    • 44. IT Outsourcing
      • High costs associated with white collar labor
      • Heavy data processing that financial firms face
      • Not only IT services
        • Outsourcing business processes such as check processing ($7-8/hour vs. $12-16 for U.S. worker)
      • U.S. and Indian services firms are pairing up to provide onshore/offshore model to financial services companies
      - InformationWeek, 12 May 2003 Wall Street’s top firms are investing heavily in offshore outsourcing of IT and operations (cont.)
    • 45.
      • Salary costs in India are going up
      • Undervalued currency (rupee) could gain 20-30% against the dollar
      • Vietnam, China, and Philippines are training armies of programmers to compete with India
      India’s advantage is beginning to erode Reasons IT Outsourcing: Offshore
    • 46.
      • English or language difficulties
      • Lack of industry-specific knowledge
      • Distrust
      • Communication/Coordination
        • “ Outsourcing is prone to failure because of breakdowns in communications between outsourcing providers and their clients, according to Gartner” (InformationWeek, 3/31/03)
      Need to manage risks of offshore outsourcing Potential Risk Areas IT Outsourcing: Offshore
    • 47.
      •   Which statement do you agree with and why? 
      Discuss Outsourcing strips a company of an important core competence -- IT know-how.  Outsourcing offloads a burdensome technical responsibility and allows management to focus on its core business.
    • 48.
      •   Some industry watchers believe that certain functions ought always to be retained in-house. For instance, “application maintenance is the most dangerous thing to take out. This is very subtle, but it’s the glue that sticks everything together. If you outsource it, you lose the ability to understand and change your environment.”
            • Peter Bendor-Samuel, president of Everest Software Corp., Dallas-based outsourcing consulting company, Software Magazine, July 1998 
      Discuss
    • 49.
      •   “ Outsourcers are good with day-to-day repetitive tasks, but not with implementing bleeding-edge technology. Those who are successful ‘focused on infrastructure, which is 80% of an IT operating budget. Infrastructure is a lot easier to outsource than application development.’ ”
            • Mary C. Lacity, associate professor of management information systems at the University of Missouri in St. Louis, Computerworld, 10 May 1999. 
      Discuss
    • 50.
      • Losing skills in functions/processes that are outsourced
      • Internal backlash from staff who fear outsourcing
      • Loss of control over quality and timing of outputs
      • Provider may sell or leak buyer’s solutions to competitors
      • Lack of face-to-face communication can hinder applications development
      IT Outsourcing There are several risks to be managed Risks
    • 51.
      •   What are the implications of all this on IT managers?
      Discuss
    • 52. IT Outsourcing Trends
      • More outsourcing of things that were traditionally mission-critical, such as billing services (optimize, 12/02)
      • It takes 3-6 months for offshore IT project managers to gain authorization to visit the [client] company’s US offices . . . last year the typical waiting period was 1 month (InformationWeek, 3/31/03)
      Trends
    • 53. IT Outsourcing Trends
      • Technology Business Research analyst Humberto Andrade says he expects revenue generated by IT outsourcing deals to increase 12% to 15% this year compared with last year (Source: InformationWeek, 11 April 2003)
      • Almost one in five companies plan to increase their spending on IT outsourcing in 2003 (Source: Internet World, 23 December 2002)
      A Growing Market
    • 54. IT Outsourcing Trends
      • HP will manage IT infrastructure, data center, desktop, and user support, network management, and application development at Procter & Gamble Co. operations worldwide. It sealed the $3billion, 10-year deal last week (InformationWeek, 14 April 2003)
      • Motorola farming out much of its IT infrastructure to Computer Sciences Corp. in a deal valued at $1.6B . . . CSC will run desktop and midrange technology, including global help-desk and network operations. IT will also acquire some of Motorola’s physical IT infrastructure and network assets (InformationWeek, 14 April 2003)
      Recent News
    • 55.
      • End of slides
    • 56. 5. Vendor Selection
      • Vendor site visits
      • Weighted score method
      • Final cost, value, and risk analysis
        • Costs
          • -- one-time vs. recurring
          • -- fixed vs. variable
        • Benefits
        • -- tangible vs. intangible
    • 57. 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
    • 58. 7. ROI Analysis
      • Must be able to calculate the income stream in $
      • Not usually able to calculate for:
        • Strategic investments
        • Informational investments
        • Infrastructure investments
      • Usually able to calculate for:
        • Transactional investments
    • 59. 8. Contract Negotiation
      • 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
    • 60. 8. Contract Negotiation
      • 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
      Statement of Work Approach to quality Definition of quality metrics
    • 61.
      • “ Incentives can bring vendor behavior in line with a client's expectations, thereby improving performance, but they can also distort it, causing performance to drop”
      You Get What You Measure
    • 62. Statement of Work Approach to Quality and Measurement Plan Do Check Act 1. Identify quality standards and goals 2. Measure project performance 3. Compare metrics against goals 4. Conduct quality reviews, e.g., peer reviews 5. Test for defects 6. Eliminate causes of deficient performance - fix defects - fix root causes
    • 63. Statement of Work Quality Metrics Measures customer satisfaction using objective surveys. Customer Satisfaction Identifies defect-prone components of the system Defect Density Measures the number of defects detected and removed over time Defect Removal Rate Measures the percentage of the requirements that have been addressed by the system Requirements Traceability Measure percentage of the actual defects originating in a stage of the project that were actually detected in that stage Defect Detection Efficiency Measures the amount of the software system covered by the testing process Test Coverage Measures the percentage of the development effort spent on internal quality evaluation efforts Quality Evaluation Effort Measures the amount of work accomplished by the development team in each phase Progress
    • 64. 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

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