13.1 © 2004 by Prentice Hall Management Information Systems 8/e Chapter 13 Understanding the Business Value of Systems and Managing Change 13 UNDERSTANDING

13.1 © 2004 by Prentice Hall

Management Information Systems 8/eManagement Information Systems 8/eChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing Change1313

UNDERSTANDINGUNDERSTANDING

THE BUSINESSTHE BUSINESS

VALUE OF SYSTEMSVALUE OF SYSTEMS

AND MANAGINGAND MANAGING

CHANGECHANGE

Chapter


Management Information Systems 8/eManagement Information Systems 8/eChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing Change

• How can our company measure the How can our company measure the business benefits of our information business benefits of our information systems? What models should be used to systems? What models should be used to measure that business value?measure that business value?

• Why do so many system projects fail? Why do so many system projects fail? What are the principal reasons for system What are the principal reasons for system failures?failures?

OBJECTIVES



• How should the organizational change How should the organizational change surrounding a new system be managed to surrounding a new system be managed to ensure success?ensure success?

• What strategies can our organization use to What strategies can our organization use to manage the system implementation process manage the system implementation process more effectively?more effectively?

OBJECTIVES



• Determining benefits and costs of a system Determining benefits and costs of a system when they are difficult to quantifywhen they are difficult to quantify

• Dealing with the complexity of large-scale Dealing with the complexity of large-scale systems projectssystems projects

MANAGEMENT CHALLENGES



Capital budgetingCapital budgeting

• Process of analyzing and selecting Process of analyzing and selecting various proposals for capital expendituresvarious proposals for capital expenditures

UNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMS

Traditional Capital Budgeting Models



• Do not express the risks and uncertainty Do not express the risks and uncertainty of own cost and benefits estimatesof own cost and benefits estimates


Limitations of Financial Models



The ProblemThe Problem

• No automated way of tracking billable No automated way of tracking billable hourshours

• No secure method for communicationNo secure method for communication

• No client databaseNo client database

• No system to track costsNo system to track costs


Case Example: Primrose, Mendelson, and Hansen



The SolutionThe Solution

• Local area networkLocal area network

• Lotus Notes to handle client accounting, Lotus Notes to handle client accounting, document management, group document management, group collaboration, and e-mailcollaboration, and e-mail






Costs and Benefits of the Legal Information System

Figure 13-1




Financial Models

Figure 13-2



The Payback MethodThe Payback Method

• Measure of time required to pay back the initial Measure of time required to pay back the initial investment on a projectinvestment on a project

Accounting Rate of Return on Investment Accounting Rate of Return on Investment

(ROI)(ROI)

• Approximates the accounting income earned Approximates the accounting income earned by the investmentby the investment





Present valuePresent value• Value in current dollars of a payment or Value in current dollars of a payment or

stream of payments to be received in the stream of payments to be received in the futurefuture

Net present valueNet present value• Amount of money an investment is worth Amount of money an investment is worth

after considering its cost, earnings and after considering its cost, earnings and the time value of money the time value of money





Cost-benefit ratioCost-benefit ratio

• Divides total benefits by total costsDivides total benefits by total costs

Profitability indexProfitability index

• Compares profitability of alternative Compares profitability of alternative investments by dividing the present value investments by dividing the present value of total cash inflow by initial costof total cash inflow by initial cost





Internal Rate of Return (IRR)Internal Rate of Return (IRR)

• Rate of return or profit an investment is Rate of return or profit an investment is expected to earnexpected to earn





Portfolio AnalysisPortfolio Analysis

• Analysis of portfolio of potential Analysis of portfolio of potential applications within a firm applications within a firm

• Determines risks and benefitsDetermines risks and benefits

• Selects among alternatives for information Selects among alternatives for information systemssystems


Strategic Considerations




A System Portfolio

Figure 13-3



Scoring ModelsScoring Models• Method for deciding among alternative Method for deciding among alternative

systems based on a system of ratings systems based on a system of ratings

Real Options Pricing ModelsReal Options Pricing Models• Models using techniques for valuing Models using techniques for valuing

financial options to evaluate information financial options to evaluate information technology investments with uncertain technology investments with uncertain returns returns





Knowledge Value–Added ApproachKnowledge Value–Added Approach

• Focuses on knowledge input into a Focuses on knowledge input into a business process business process

• Determines costs and benefits of changes Determines costs and benefits of changes in business processes from new in business processes from new information systemsinformation systems





Productivity Productivity

• Measure of firm’s efficiency in converting Measure of firm’s efficiency in converting inputs to outputsinputs to outputs

Information TechnologyInformation Technology

• Contribution to productivity difficult to Contribution to productivity difficult to measuremeasure


Information Technology Investments and Productivity



System failureSystem failure• Information system does not perform as Information system does not perform as

expected, is not operational at a specified expected, is not operational at a specified timetime

• Problem areas: Poor design, inaccurate Problem areas: Poor design, inaccurate data, excessive expenditure, breakdown in data, excessive expenditure, breakdown in operationsoperations

IMPORTANCE OF CHANGE MANAGEMENT IN INFORMATION SYSTEM SUCCESS AND FAILURE

Information System Problem Areas




Information System Problem Areas

Figure 13-4



ImplementationImplementation

• Organizational activities working towards Organizational activities working towards adoption, management, and routinization adoption, management, and routinization of innovationof innovation

Change agentChange agent

• Individual acting as catalyst to ensure Individual acting as catalyst to ensure successful organizational adaptation to a successful organizational adaptation to a new system or innovationnew system or innovation

Change Management and the Concept of Implementation




• Role of users in implementation processRole of users in implementation process

• Degree of management support for Degree of management support for implementation effortimplementation effort

• Level of complexity and risk of Level of complexity and risk of implementation projectimplementation project

• Quality of management of implementation Quality of management of implementation processprocess

Causes of Implementation Success and Failure




Factors in Information System Success or Failure

Figure 13-5




User–designer communications gapUser–designer communications gap

• Different backgrounds, interests, and Different backgrounds, interests, and priorities priorities

• Impedes communication and problem Impedes communication and problem solving among end users and information solving among end users and information systems specialistssystems specialists

User Involvement and Influence




• Project requires backing and commitment Project requires backing and commitment of management at various levels of management at various levels

• Helps project to be perceived positively by Helps project to be perceived positively by both users and technical information both users and technical information services staffservices staff

Management Support and Commitment




• Project size:Project size: Larger project has greater Larger project has greater riskrisk

• Project structure:Project structure: Clear and Clear and straightforward requirements help define straightforward requirements help define outputs and processes outputs and processes

• Experience with technology:Experience with technology: Project Project risk rises if project team and information risk rises if project team and information system staff lack required technical system staff lack required technical expertiseexpertise

Level of Complexity and Risk




Improper management leads to:Improper management leads to:

• Cost overruns Cost overruns

• Unexpected time slippageUnexpected time slippage

• Technical shortfalls Technical shortfalls

• Failure to obtain anticipated benefitsFailure to obtain anticipated benefits

Management of the Implementation Process




Consequences of Poor Project Management

Figure 13-6




System Challenges of Mergers and System Challenges of Mergers and

AcquisitionsAcquisitions

• Integrating systemsIntegrating systems

• Organizational characteristics Organizational characteristics

• Information technology infrastructuresInformation technology infrastructures

Change Management Challenges




• High failure rates: High failure rates: enterprise system, enterprise system, BPR, CRM, and SCM BPR, CRM, and SCM implementationsimplementations

• Hurdles:Hurdles: Extensive change required in Extensive change required in organizational culture and business organizational culture and business processesprocesses

Change Management Challenges




• Managing Technical Complexity:Managing Technical Complexity: Usage of internal integration tools to Usage of internal integration tools to ensure operation of implementation team ensure operation of implementation team

• Formal Planning and Control Tools:Formal Planning and Control Tools: Structures and sequences tasks, monitors Structures and sequences tasks, monitors progress towards fulfillment of goals progress towards fulfillment of goals

MANAGING IMPLEMENTATION

Controlling Risk Factors



• Increasing User Involvement and Increasing User Involvement and Overcoming User Resistance:Overcoming User Resistance: External integration toolsExternal integration tools l linking work of inking work of implementation team to that of users at all implementation team to that of users at all organizational levels organizational levels

• Counterimplementation:Counterimplementation: Deliberate Deliberate strategy to thwart an implementation effortstrategy to thwart an implementation effort

Controlling Risk Factors




Formal planning and control tools help to manage information systems projects successfully

Figure 13-7




Allowing for the Human FactorAllowing for the Human Factor

• Ergonomics: interaction of people and Ergonomics: interaction of people and machines in work environmentmachines in work environment

Sociotechnical DesignSociotechnical Design

• Produces information system blending Produces information system blending technical efficiency with sensitivity to technical efficiency with sensitivity to organizational and human needsorganizational and human needs

Designing for the Organization




• Project planning is an enterprise-wide Project planning is an enterprise-wide focusfocus

• Managers focus on solving problems as Managers focus on solving problems as they arise and meeting challenges they arise and meeting challenges

Fourth-Generation Project Management



Management Information Systems 8/eManagement Information Systems 8/eChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing Change1313

UNDERSTANDINGUNDERSTANDING

THE BUSINESSTHE BUSINESS

VALUE OF SYSTEMSVALUE OF SYSTEMS

AND MANAGINGAND MANAGING

CHANGECHANGE

Chapter

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13.1 © 2004 by Prentice Hall Management Information Systems 8/e Chapter 13 Understanding the Business Value of Systems and Managing Change 13 UNDERSTANDING