Business Information
Systems & Return on
Investment
Instructor: Michael Curry

Outline
• Review How BIS are used within an organization
• Lifecycle of BIS and costs associated with BIS
• The need for IT Controls and COBIT
• Exercise: use COBIT to help with a BIS acquisition
• Calculating project viability (CBRA)
– Cost
– Benefit
– Confidence
– Analysis and Recommendations

Review: How IS are Used in
Organizations
• Productivity Paradox has been discredited
• Today organizations use heavily depend on
functional IS systems
– Many (legacy) are still isolated functional systems
– BUT the trend is towards cross functional systems
• Cross functional systems though more expensive
and more complex, help business run more
efficiently
– You should be able to explain how/why & give
examples

Pros & Cons of IS in Business
₊ Faster calculations − Must be well planned in
advance
₊ Large data storage
− Difficult to engineer
₊ Simplifies working at a
distance − Brittle: requires ongoing
support
₊ Business rules can be
programmed − Inflexible
₊ Less error (some things) − Vulnerable to threat
₊ Cheaper than labor − Complex
(some things) − Expensive

Lets Consider Just Cost
• Implementing a system is expensive
– Example
• Recent SAP implementations at Oracle & Nike ran$500M each
• High profile SAP failures for State of California, Fujitsu & Waste
Management
• Profitability is uncertain and difficult to predict

IT Controls & COBIT
• Increased dependence in organizations on IT and
unpredictability of costs are two reasons for effective
IT Controls
• COBIT is a business oriented framework for managing
IT that seeks to reduce risks and increase performance
COBIT: A framework for
reducing risk and increasing
performance
A need for controls to link IT with Business
Goals and Objectives
Increased Dependence
Predictability of Costs
on IT in Business

COBIT: Control Objectives for
Information and related Technology
• COBIT is a process-oriented, business-goal
focused, systematic framework for evaluating the IT
operations within an organization. It is designed for:
– Managers who need IT,
– IT Providers
– “Auditors” concerned with
risk, security, privacy, compliance, and assurance
• You may not know how to evaluate an organizations
use of IT, but COBIT can help guide the process

COBIT Example
• What to do if you plan to undertake an IT initiative for
your business?
• COBIT Process AI1: Identify Automated Solutions
– “The need for a new application or function requires
analysis to ensure business requirements are satisfied
– Completing these steps minimize costs while ensuring the
business will achieve its objectives”
– The AI1 process covers
1. Defining the needs
2. Review of technological and economic feasibility
3. Risk analysis and
4. Cost-benefit analysis
Today Our Focus is the Cost-Benefit Analysis

Who should be Accountable and Responsible for
analyzing costs of a project to determine feasibility?
Executive, CIO, Business Process Owner, & Project Manager

Add Confidence to Analysis
• Confidence is a variable in any project and
should be factored into the analysis to create
a more accurate view of the costs & benefits

Confidence Estimates
• Adjust a CBA with confidence estimates based
on the information you have available to you
• This is not an exact science, but should be
based on estimates, quotes and similar efforts
• Throughout the project, work hard to increase
confidence of all estimates as high as possible
• A spreadsheet is helpful to model different
scenarios as confidence increases/decreases

How to Account for Confidence
• For COSTS, increase to account for worst case
Cost w/ Conf = (1+ (1- conf)) x Cost
– Estimated cost = $1000
– Confidence in a cost = 80%
– Adjusted Cost (with confidence) = $1200
• For BENEFITS, decrease to account for worst case
Benefit w/ conf = conf x Benefit
– Estimated benefit = $1000
– Confidence in benefit = %80
– Adjusted Benefit (with confidence) = $800
• Compensates for a tendency of positive bias in benefits
and negative bias in costs

Analysis & Recommendations
• AI1.3 Feasibility Study … “assess the feasibility and
make a recommendation to the business sponsor”
• Make a clear business case as to why a project should
be undertaken (or not)
• You should have high confidence in all your estimates
• Avoid absolutes! Instead, express in % confidence
– Even w/ high confidence, projects fail due to factors
outside of your control
– “Under promise & over deliver”
• Provide additional documentation of your analysis
especially your assumptions

Take Away
• Discuss the lifecycle of BIS in terms of cost
• Explain the need for IT Controls such as COBIT
and how they help businesses manage costs
• Explain how COBIT: AI6 recommends a careful
analysis of costs and benefits
• Understand how to perform a CBA and how to
factor in confidence
• Make a recommendation on the feasibility of a
project from a cost benefit perspective