Session 12 it investment

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Session 12 it investment

  1. 1. Managing IT Investment
  2. 2. 2 • Hardware cost • Software cost • Network cost • People cost • Transition cost • Opportunity cost and risk cost • Maintenance and Support cost • $1 of initial development cost --> $4 maintenance cost over the life time of the system • Don’t forget the intangible cost Understand What It Takes!
  3. 3. 3 • Tangible Benefits • Intangible Benefits • Efficiency gains • Effectiveness gaines • Transformation effects • Make concrete connection to your firm’s strategy • Total value of ownership Understand the Benefits
  4. 4. 4 Facts, Faith, Fear! Three Bases of Argument
  5. 5. 5 • “The system will eliminate the need for hiring two positions for an annual savings of $100K.” • Justify using hard data, quantitative, structured feasibility assessment • Target Audience:“Sensing” Arguments of Fact
  6. 6. 6 • “IS is infrastructure.We need it to support our growth and stability.” • Justify by vision. Investment X will lead to benefitY. • Target Audience:“iNtuitives” Arguments of Faith
  7. 7. 7 • “If we don’t do this we may be eaten alive by our competition.” • Justify by perception of events. • Target Audience:“iNtuitives” Arguments of Fear
  8. 8. 8  New System or Modification?  Enabling Infrastructure  Networks, Servers, backup systems, etc.  Support Activities (process re- engineering)  Accounting, HR, etc.  Business Applications  Sales Tools, Inventory Mgmt, etc. Increased Funding Difficulty Types of IT Projects
  9. 9. 9 Short-term Profitability Long-term Profitability Shared Infrastructure Business Application Process Improvements (Discounted cash flow) Standardization (Discounted cash flow) Experiments (Options) Transformation (Options) Manage your IT resources
  10. 10. 10 • Costs are easy to establish, but benefits are often elusive. • Technology superiority does not necessarily lead to business value. • Emphasis on intangible benefits are hard to sell after dot.com bust. • IT governance structure is not clearly established. Why is IT Investment Decision Hard?
  11. 11. 11 • IT investment decision is not a simple technical decision. • IT investment decision is not a simple financial decision. • IT investment decision is related to the firm’s (or it’s senior executives’) IT value frame. • IT investment decision is related to the firm’s IT governance structure. What isYourValue Frame?

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