MIS chapter 14 projec management establishing the business value of system

Selecting Projects• Management structure for information systems projects • Hierarchy in large firms • Corporate strategic planning group • Responsible for firm’s strategic plan • Infor

Project Management:

Establishing the Business Value of

Systems and Managing Change

LEARNING OBJECTIVES

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

• Identify and describe the objectives of project

management and why it is so essential in developing information systems.

• Compare models for selecting and evaluating

information systems projects and methods for aligning IS projects with the firm’s business goals.

• Evaluate models for assessing the business value of

information systems.

• Analyze the principal risk factors in information

systems projects.

• Select appropriate strategies for managing project

risk and system implementation.

A.G Edwards Turns Around Its Project Management

• Problem: Competitive, information-intensive industry.

• Solutions: Identify important projects and plan and

monitor them appropriately to reduce costs and

increase revenue.

success rate of IS projects.

• Demonstrates IT’s role in reducing projects costs and completion times.

• Illustrates digital technology as a key to assessing the business value of building new systems and managing the changes that result from new technology.

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

• Runaway projects and system failure

• Runaway projects: 30-40% IT projects

• Exceed schedule, budget

• Fail to perform as specified

• Types of system failure

• Fail to capture essential business requirements

• Fail to provide organizational benefits

• Complicated, poorly organized user interface

• Inaccurate or inconsistent data

Consequences of Poor Project Management

Figure 14-1

Without proper management, a systems development project takes longer to complete and most often exceeds the allocated budget The resulting information system most likely is technically inferior and may not be able to demonstrate any benefits to the organization Great ideas for systems often flounder on the rocks of implementation

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

The Importance of Project Management

• Project management

• Activities include planning work, assessing risk, estimating

resources required, organizing the work, assigning tasks, controlling project execution, reporting progress, analyzing results

• Five major variables

Selecting Projects

• Management structure for information

systems projects

• Hierarchy in large firms

• Corporate strategic planning group

• Responsible for firm’s strategic plan

• Information systems steering committee

• Reviews and approves plans for systems in all divisions

• Project management group

• Responsible for overseeing specific projects

• Project team

• Responsible for individual systems project

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

Management Control of Systems Projects

Figure 14-2

Each level of management in the hierarchy is responsible for specific aspects of systems projects, and this structure helps give priority to the most important systems projects for the organization.

Selecting Projects

• Linking systems projects to the business plan

• Information systems plan: Road map indicating direction of

systems development, includes:

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

• Enterprise analysis and critical success

factors

• To develop effective information systems plan, organization must have clear understanding of:

• Long-term information requirements

• Short-term information requirements

• Two principal methodologies for establishing essential information requirements of organization as

a whole

• Enterprise analysis

• Critical success factors

Selecting Projects

• Enterprise analysis (business systems planning)

• Seeks to understand information requirements by examining entire organization in terms of organizational units, functions, processes, and data elements

• Helps identify key entities and attributes of firm’s data

• Central method is large survey of managers on how they use information

• Results analyzed and data elements organized into logical application groups

• Disadvantages:

• Produces enormous amount of data; expensive; time-consuming

• Focuses only on existing information

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

Process/Data Class Matrix

Figure 14-3

This chart depicts

which data classes

Selecting Projects

• Critical success factors

• Information requirements determined by small number of

critical success factors (CSFs)

• E.g Auto industry CSFs might include styling, quality, cost

• Central method:

• Interviews with top managers to identify goals and resulting CSFs

• Personal CSFs aggregated to develop firm CSFs

• Produces less data than enterprise analysis

• Suitable for building DSS and ESS

• Disadvantages:

• No clear methods for aggregation of personal CSFs into firm CSFs

• Confusion between individual CSFs and organizational CSFs

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

Using CSFs to Develop Systems

Figure 14-4

The CSF approach relies on

interviews with key managers

to identify their CSFs

Individual CSFs are

aggregated to develop CSFs

for the entire firm Systems

can then be built to deliver

information on these CSFs.

Selecting Projects

• Portfolio analysis

• Used to evaluate alternative system projects

• Inventories all of the organization’s information systems projects and assets

• Each system has profile of risk and benefit

• High-benefit, low risk

• High-benefit, high risk

• Low-benefit, low risk

• Low-benefit, high risk

• To improve return on portfolio, balance risk and return from systems investments

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

A System Portfolio

Figure 14-5

Companies should examine their portfolio of projects in terms of potential benefits and likely risks Certain kinds of projects should be avoided altogether and others developed rapidly There is no ideal mix Companies in different industries have different profiles.

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

SCORE SYSTEM B % SYSTEM B SCORE

ETC

• Information system costs and benefits

• Tangible benefits:

• Can be quantified and assigned monetary value

• Systems that displace labor and save space:

• Transaction and clerical systems

• Intangible benefits:

• Cannot be immediately quantified but may lead to quantifiable gains

in the long run

• E.g more efficient customer service or enhanced decision making

• Systems that influence decision-making:

• ESS, DSS, collaborative work systems

Establishing the Business Value of Information Systems

• Capital budgeting for information systems

• Capital budgeting models:

• Techniques to measure value of investing in long-term capital investment projects

• Rely on measures of cash flows into and out of firm

• Principal capital budgeting models for IT projects:

• Payback method

• Accounting rate of return on investment (ROI)

• Net present value

• Internal rate of return (IRR)

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

• Case example: Capital budgeting for new supply

chain management system

• Heartland Stores

• Considering upgrading SCM system to:

• Reduce inventory and inventory costs

• Reduce labor costs (fewer people to manage inventory)

• New SCM system will use existing infrastructure but requires new hardware and software

• Actual investment cost: $11,467,350 (year 0)

• Total cost over 6 years: $19,017,350

• Estimated benefits after 6 years: $32,500,000

Figure 14-6A

This spreadsheet analyzes the basic costs and benefits of implementing supply chain management system enhancements for a midsize midwestern U.S retailer The costs for hardware, telecommunications, software, services, and personnel are analyzed over a six-year period.

Selecting Projects

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

Cost and Benefits of the New Supply Chain Management System

Figure 14-6B

Cost and Benefits of the New Supply Chain Management System (cont.)

financial models helps

determine the return

on invested capital

These calculations

include the payback

period, the accounting

rate of return on

investment (ROI), the

net present value, and

the internal rate of

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

Establishing the Business Value of Information Systems

• Payback method

• Measure of time required to pay back initial investment in project

• Simple method good as initial screening

• Heartland stores: More than 2 years to pay back

• Payback method ignores:

• Time value of money

• Cash flow after payback period

Establishing the Business Value of Information Systems

• Accounting rate of return on investment (ROI)

• Calculates rate of return from investment by adjusting cash inflows produced by investment for depreciation

• Gives approximation of accounting income earned by project

• Heartland Stores: Accounting rate of ROI = 2.93%

• ROI can ignore time value of money

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

(Total benefits – Total cost – Depreciation)

Useful life

Net benefit

= ROI Total initial investment

• Net present value

• Present value: Value in current dollars of payment(s) to be

received in future

• Heartland present value: $21,625,709

• Net present value: Value of investment, taking into account

cost, earnings, and time value of money

• Heartland net present value: $10,158,359

-n

interest

Present value of expected cash flows –

Establishing the Business Value of Information Systems

• Internal rate of return (IRR)

• Rate of return or profit that an investment is expected to earn, taking into account the time value of money

• Discount (interest) rate that will equate the present value of project’s future cash flows to the initial cost of project

• Heartland stores: 33%

• Results of Heartland capital budgeting analysis:

• Investment is cash-flow positive over time period under

consideration and returns more benefits than it costs

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

• Real options pricing models (ROPM)

• Can be used when future revenue streams of IT projects are uncertain and up-front costs are high

• Use concept of options valuation borrowed from financial industry

• Initial expenditure creates right (but not obligation) to obtain benefits associated with further development and deployment of the technology as long as management has freedom to cancel, defer, restart, or expand the project

• Gives managers flexibility to stage IT investment or test the waters with small pilot projects or prototypes to gain more knowledge about risks before investing in entire implementation

• Limitations of financial models

• Do not take into account social and organizational dimensions that may affect true costs and benefits

• Cost to train end users

• Impact on productivity of learning curves for new system

• Time that managers spend overseeing system-related changes

• Benefits may also be overlooked:

• More timely decisions

• Enhanced employee learning and expertise

Establishing the Business Value of Information Systems

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

• Dimensions of project risk

• Level of project risk influenced by:

• Structured, defined requirements run lower risk

• Experience with technology

• Change management

• Required for successful system building

• New information systems have powerful behavioral and organizational impact

• Changes in how information is used often lead to new distributions of authority and power

• Internal organizational change breeds resistance and opposition

Managing Project Risk

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

• Implementation

• All organizational activities working toward adoption, management, and routinization of an innovation

• Change agent: One role of systems analyst

• Redefines the configurations, interactions, job activities, and power relationships of organizational groups

• Catalyst for entire change process

• Responsible for ensuring that all parties involved accept changes created by new system

• System implementation generally benefits from:

• High levels of user involvement

• System more likely to conform to requirements

• Users more likely to accept system

• Management support

• Positive perception by both users and technical staff

• Ensures sufficient funding and resources

• Enforcement of required organizational changes

Managing Project Risk

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

• User-designer communication gap:

• Users and information systems specialists tend to have different backgrounds, interests, and priorities

• Leads to divergent organizational loyalties, approaches to problem solving, and vocabularies

• User concerns:

• Will the system deliver the information I need for work?

• How quickly can I access the data?

• Designer concerns:

• How much disk storage space will the master file require?

• How can we cut CPU time when we run the system?

• Very high failure rate among enterprise application

and BPR projects (up to 70% for BPR)

• Poor implementation and change management practices

• Employee’s concerns about change

• Resistance by key managers

• Changing job functions, career paths, recruitment practices

• Mergers and acquisitions

• Similarly high failure rate of integration projects

• Merging of systems of two companies requires:

• Considerable organizational change

• Complex systems projects

Managing Project Risk

Management Information Systems

Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change

• Read the Interactive Session: Management, and then

discuss the following questions:

• What are some of the risks involved when one firm acquires

another firm’s IT infrastructure?

• Why do firms often fail to take the target firm’s information

systems and IT infrastructure into account when purchasing other firms?

• How would you go about assessing the value of another

firm’s IT infrastructure and operational capabilities? What questions would you ask?

Managing IT in the Merger and Acquisition Game