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Strategic Planningfor Information
Systems
John Ward and Joe Peppard
Third Edition
CHAPTER 9Managing Investments in Information Systems and Technology
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Outlines
• Evaluating IS/IT investments
• Setting priorities for applications
• Benefits management
• The benefits management process
• Assessing and managing investment risks
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Evaluating IS/IT Investments
• Cooke and Parrish discovered that 70% of organizations had no formal justification and post-implementation review process for IS/IT investments
• Farbey found that only 50% of IS/IT project were subject to formal preinvestment appraisal
• In less than half the cases was a recognized financial analysis technique used, and in barely 30% was the outcome of the investment evaluated
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3 Types of Applications
• Substitutive – technology replacing with economics being the main driving force, to improve efficiency
• Complementary – improving organizational productivity and employee effectiveness by enabling work to be performed in new ways
• Innovative – achieving a competitive edge by changing trading practice, creating new market, etc.
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5 Basic Techniques for Evaluating Benefits
• Traditional cost-benefit analysis, which allows for efficiency improvements in organizational processes resulting from automation
• Value linking, which estimates the improvement in business performance, not just saving made, from improving the linkages b/w processes or activities; or interactive component design with suppliers via a shared CAD system, to reduce the number of iterations needed
• Value acceleration, which considers time dependence of benefits and costs in other departments of system improvements. This implies that benefits can occur in other parts of the business, not just where the system is actually implemented.
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Cont…
• Value restructuring, which considers the productivity resulting from process and organizational change and change of job roles
• Innovation evaluation attempts to estimate the value to the business of new business or new business practices levered from IS/IT
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Relationship b/w Benefit types and the Application Portfolio
Substitutive (efficiency)
Complementary (effectiveness)
Innovative (competitive)
Cost/Benefit Value linking Value acceleration Value restructuring
Innovation evaluation
Support
Key operational
High potential
Strategic
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Application Portfolio Approach
• It is simply not feasible to express all the benefits of systems in financial terms
• It is no useful purpose to develop spurious calculations to quantify the unquantifiable
• The portfolio approach can offer help in making judgements
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Portfolio Approach Suggestions
• Quantified, financial justification of applications is easier in the key operational and support quadrants, where most aspects of the application will be better known or can be determined, risks are lower and the rate of change is slower.
• A singular approach to investment justification will tend to produce one type of application to the exclusion of others– This argument is strong where a scare resource
approach has been adopted and pure financial return on investment decides investment priorities - support applications will always be easier to justify financially
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Cont…
• The way in which applications are planned and managed by the organization will also affect the way in which they are justified – whether they are customer-related applications integral to achieving business objectives or systems intended to save major costs in one part of the organization
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Investment Justification
STRATEGIC HIGH POTENTIAL
KEY OPERATIONAL SUPPORT
Enable the achievement of
business objectives via explicit critical success factors
R&D project to explore potential
value and cost-fund from R&D budget
Risk money
Disadvantage/Risk if it is not done (critical failure
factors) and/or quantified
performance improvement
Net cost reduction through
quantified savings
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Support Applications
• Support application must show a good economic return for the allocation of a scare resource.
• If the project can be carried out within the user department’s control, then it is reasonable that the ‘go-no go’ decision is made by local user management
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Key Operational Applications
• Financial benefits are not the only driving force.• Some benefits will be able to be related to CSFs, which
provide a clear link of the investment to the achievement of business objectives.
• ‘What will happen to the business if we do not invest in improving this key operational system?’
• ‘Can we afford the risk of not doing it?• Monopoly works best for key operational applications =>
central control• This enables a standard checklist of questions to be
considered in the evaluation of any new project
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Strategic Applications
• Not estimates suitable for a discounted cash-flow calculation
• Expressed as the business opportunity that is being created or the CSFs that the application specifically addresses.
• Application will get the ‘go-no go’ decision based on how directly it relates to the business objectives and particular strategies.
• The benefits will drive from achieving those objectives by enabling the required business changes, not from the system alone.
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High Potential Applications
• It should be justified on the same basis an any other type of R&D, and preferably from a general R&D budget rather than IS/IT funds.
• High potential ideas tend to arise informally, based on individuals’ creative thinking, rather than from formal planning.
• Many of ideas simply will not work and some control is essential to avoid significant waste of resources.
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Cont…
• Product champion is responsible for such projects, given a budget against agreed general terms of reference to deliver results
• When initial allocations are used up, further sums have to be justified based on the evidence of the possible benefits, not allocated in the vague hope of eventual success.
• IS/IT investments should be considered just as objectively and just as subjectively as other business investments
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Setting Priorities for Applications
• The mechanisms used to decide whether or not applications go ahead should also be used to set priorities across applications
• Some priorities are logical, but many are largely independent of one another
• Priorities need to be set in the short term to enable the best use of resources within the acquisition lead time for further resources
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3 Factors for the Assessment of Priorities
• What is most important to do, based on the benefit identified.
• What is capable of being done, based on the resources available.
• What is likely to succeed, based on the risks of failure of each investment
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Setting Priorities in the Support Segment
• Setting priorities in the support segment should not be too difficult.
• Those with the greatest economic benefit that use the least resources should get the highest priority.
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Setting Priorities in the Strategic Segment
• Give priority to those applications that will contribute most to achieving business objectives, and use the least resources in the process.
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Strategic Weighting via CSFsAPPLICATION CONTRIBUTION
HIGH (3) MEDIUM (2) LOW (1)
OBJECTIVE A: CSF 1 CSF 2 CSF 3, etc.
OBJECTIVE B: CSF 1 CSF 2, etc.
OBJECTIVE C: CSF 1 CSF 2, etc.
OBJECTIVE D: etc.
TOTALS
OVERALL TOTAL
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Setting Priorities in the Key Operational Segment
• Arguments– Financial– CSFs– Risk to current business– Infrastructure improvement
• Each of these benefits areas must be given some form of relative weighting based on the current business situation, to decide the preferred mix of benefit before looking at resource constraints
• The costs and/or resources used by the project should be compared against its relative importance in each of the 4 categories to establish overall priorities
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Setting Priorities in the High Potential Segment
• If the idea potentially impacts many CSFs, it clearly stands out from others and should be elevated above the general scramble for R&D type resources
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Setting Priorities Across the Segments of the Portfolio
• The approach recommended for key operational applications can be extended to cover the whole portfolio.
• Strategic applications will score heavily on CSFs, whereas support applications should deliver a good financial return.
• Management must decide the weighting they wish to attribute to each type of benefit and then rank the systems.
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Effect on Weighting of Various Factors: Examples
Factors Objectives/CSF
Business
Risks
Infrastructur
e
Economics
All types of investment have to be cost- justified to meet strict ROI hurdles
L L L H
Business is in weak position or in decline – short-term profitability
L M L H
Business is in a high-growth market and satisfying the market demand is paramount
H H M L
Environment is very competitive and business performance must be improved
H H L M
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Cont…Factors Objec
tives/CSF
Business
Risks
Infrastructur
e
Economics
Need for redevelopment of old systems. Systems and/or technology are out of date compared with competitors or peer organizations
L H H M
New systems are required to support major business/organization change or rationalization
M H M L
Technology cost performance enables lower costs for existing systems if redeveloped
L L H H
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Benefits Management• A number of factors that differentiated success
from failure were identified.• While some were already well known, the
successful investments were characterized by a deliberate, comprehensive approach to managing the benefit delivery.
• In highly-successful projects, management treated the IT investment as a component of organizational change and were able to use existing change management processes to ensure the business maximized the value of the investment through associated changes to business practices
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Factors Increasing the Degrees of Success in SIS
High success
Benefits exceeded expectation
SuccessBenefits met expectation
Moderate success
Some benefits achieved
UnsuccessNo Benefits
delivered
Existence of an organizational change method and a willingness to invest in strategic benefits – different evaluation emphasis
Comprehensive approach to benefit management initiated in the planning phase that has a stronger business involvement and emphasis
Planning approach, method and output, and implementation roles of IS/IT and business managers
- initiation of the SIS in the context of the need for business change
- Allocation of responsibility for benefit delivery
- Involvement in implementation as well as planning/evaluation
Life-cycle role of senior executive
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The Context of Benefits Management
• Benefit Management: the process of organizing and managing such that potential benefits arising from the use of IT are actually realized.
• The ability to achieve benefits from a particular investment will depend largely on the organization’s experience and knowledge of what types of benefit IS/IT investments can or cannot deliver and how they can be obtained.
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Cont…
• Based on the different objectives and rationale for the applications in each segment of the application portfolio, it can be seen that the mix of activities and their criticality to success will vary
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Generic Sources of Benefits for Different Applications
STRATEGIC HIGH POTENTIAL
KEY OPERATIONAL SUPPORT
Business innovation and change
(R&D projects)
Business process restructuring
Business effectiveness
Business rationalization and integration
Business efficiency
Process elimination and cost reduction
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The Context of Benefits Management
• Inputs to the benefits management process– Why is the investment being made – what is causing
the organization to change and how critical to its future is the successful management of the changes? (the benefit drivers)
– What types of benefit is the organization expecting from the investment overall – to reduce costs, improve operational performance, gain new customer, etc..
– How will other activities, strategic initiatives, business developments or organizational issues affect the particular investment either to facilitate or inhibit its progress and outcome? (the organizational context)
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Benefits Management Context
Benefit drivers Types of benefits
Organizational context
Benefits
Benefits management
process
IT process and products
Organizational changes
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The Benefits Management Process
• Identification and structuring of benefits
• Planning benefits realization
• Executing the benefits plan
• Reviewing and evaluating results
• Potential for further benefits
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A Process Model of Benefits Management
Potential for further
benefits
Identify and structure benefits
Plan benefits realization
Review and evaluate results
Execute benefits plan
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Identification and Structuring of Benefits
• The overall business rationale for a new or improved system will have been identified– The nature of the types of target benefit and – Extent of change involved to obtain them will depend
on their impact and criticality for the business strategy which in turn determines whether the system is strategic, key operational or support
– If the nature of the benefits and/or how to obtain them is unclear, then the system should be put through the R&D stage implied by the high potential segment until they are better known
– The whole benefit management process does not really apply to the high potential segment
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Cont…• Identifying the target benefits implies an iterative
process of establishing the investment objectives and the potential business performance improvements that the system and associated changes should or could deliver.
• The achievement of each objective could well deliver a variety of different benefits across the organization and also to trading partners and customers.
• The process is iterative since objectives may be modified and new benefits identified as ideas and options are considered in the creative stage of discussion, or perhaps rejected after more careful scrutiny.
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Cont…
• The benefits should be tested against the ‘benefit drivers’ in the organization (the business strategy), to ensure they are relevant and that investment to achieve them will be endorsed by senior management.
• Every target benefit should be expressed in terms that can be measured, even if the measure will be subjective.
• The final part is the determination of where in the business each benefit should occur and who in the organization should be responsible for its delivery.
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Planning Benefits Realization
• Determine the changes required for delivery of each benefit and how the IS/IT development will enable the changes and benefits to occur => benefit dependency network.
• The network relates the IS/IT functionality via the business and organizational changes to the benefit identified.
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Benefits Dependency NetworkHow new ways of working can deliver the benefits, and how to make that happen.
The benefits and why we want them
IS/IT enablers
Enabling changes
Business changes
Business benefits
Investment objectives
D
R
I
V
E
R
S
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2 Types of Changes• Business changes are those changes to working
practices, processes and/or relationships that will cause the benefits to be delivered.– They cannot normally be made until the new system
is available for use and the necessary enabling changes have been made.
• Enabling changes are those changes that are prerequisites for making the business changes and/or are essential to bring the new system into effective operation.– These often evolve defining and agreeing new
working practices, redesigning processes, changes to job roles and responsibilities, new incentive or performance management schemes, training in new business skills, etc.
– They can often made before the new system is introduced.
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Stakeholder Analysis
• Stakeholder analysis is required to check the feasibility of achieving all the changes on the network.
• The purpose of the analysis is to understand those organizational factors that will affect the organization’s ability to achieve the required improvements.
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Stakeholder AnalysisStakeholder
group
Perceived benefits
(disbenefits)
Changes needed
Perceived resistance
Commitment (Current and Required)
Customers Configuration tailored exactly to needs – no testing/reject
None None
Sales and marketing managers
Improved customer service and product quality image
New incentives to get sales reps to use system with customers
Reluctance to change reps reward systems
Sales representatives
(Extra work in preparing requirements and quotes)
To use system and improve quality/accuracy of quotes
Manufactoring/logistics
Remove need for configuration checking. Less returns/queries
Stop current checks to put onus on reps to get it right
No time available to use/learn system. Loss of autonomy
Do not trust sales reps’ accuracy in requirements/quote
IT developers New advanced system- remove old difficult to maintain system
Skills in expert system development
None
Anti NoneAllow it to
happenHelp it happen
Make it happen
C Action required? R
C RAction
required?
C RAction required?
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Stakeholder Analysis
• Each stakeholder group is considered in terms of the extent to which they perceive the project produces benefits for them, relative to the amount of change they will have to undergo or endure before they see the benefits.
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Benefits Dependency Network
IS/IT enablers
Enabling changes
Business changes
Business benefits
Investment objectives
Campaign planning &
mgt. system
Customer prospect database
Contact mgt. system
Enquiry quotation &
response tracking system
Portable PCs for sales
staff
To improve the effectiveness of
advertising & promotion (A&P)
spend
To increase sales value and volume
from new customers
Release sales time from post sales activity to pre sales
Introduce new account
mgt. processes
Redefine customer segments
Reduce marketing staff time on admin
activities
Introduce project mgt. for all A&P campaigns
Increase sales time with
customers
Allocate sales time to potential high-
value leads
Coordinate sales & marketing activity
in follow-up
Identify most appropriate
communication medium for target
customers
Use system to target sales
activity/contact time
New sales staff
incentives
Realign sales activity with new
customer segments
Use database to improve targeting
in segments
Measure outcome of campaigns
reobjectives
Increased conversion rate of
leads to orders
Increased rate of follow-up of leads
Increased response rare from A&P
campaigns
Reduced cost by avoiding waste on
irrelevant customers
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Dimensions of Benefit ManagementWhy do we want
improvement?
What improvement do we want/could we get?
Where will it occur?
Who is responsible for its delivery?
What changes are needed?
Who will be affected?
How and when can changes be made?
Can a financial value be put on it?
Can it be quantified?
Can it be measured?
BENEFIT DELIVERY PLAN
Benefits achieved? More benefits possible? Further actions?
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Presenting the Business Case
Degree of explicitness
Degree of explicitness
Doing things better
Stop doing things
Financial
Quantifiable
Measurable
Observable
1. Drivers for change giving rise to2. Investment objective which result in3. Benefits by
and incur 4. Costs: (a) Development (b) One-off (c) Infrastructure (d) Business change (e) Ongoing
etc.
5. Risks associated with the investment that may prevent full benefit realization, etc.
Subjective assessments
Objective measures
How much
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Stage 3: Executing the Benefits Plan• To carry it out and adjust it as necessary, as
issues arise affecting its achievement.• Monitoring progress against the activities and
deliverables of the benefits plan is just as important as for the IS/IT development plan.
• It may be necessary to establish interim targets and measures to evaluate progress toward key milestones or the final implementation.
• During this stage, further benefits may also be identified, and again the business project manager should decide on appropriate action to plan for the benefit or defer it until stage 5.
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Stage 4: Reviewing and Evaluating Results
• 2 purposes of evaluation– To maximize the benefits of the particular investment– To learn how to improve benefits delivery from further
investment.
• The results– Provide explanations for the non-delivery of intended
benefits– Provide knowledge to improve the management of
future projects or system design.– Identify any unexpected benefits that have arisen and
understand how they came about.
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Cont…
• Post implementation reviews tend to be held behind the closed doors of the IS function and are reviews of the implementation process rather than the investment outcome
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Stage 5: Potential for Further Benefits
• Further benefits often become apparent only when the system has been running for some time and the associated business changes have been made.
• IS/IT planning should be driven by the delivery of a benefit stream that improves business performance at the optimum manageable rate.
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Assessing and Managing Investment Risks: 5 Failure Domains
• Technical failure – this is clearly the domain of IT, who are responsible for the technical quality of the system and the technology it uses. Technical failure is increasingly less common and is often the cheapest to overcome.
• Data failure – this is a shared responsibility b/w IS/IT professionals and the users who input the data.
• Use failure – while some blame for the users misunderstanding the system may accrue to the IS/IT professionals, the primary responsibility for ensuring users are trained to use the system appropriately
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Cont…• Organizational failure – systems may
satisfactory in meeting particular functional needs, but may fail because they do not satisfy the organizational overall, due to inadequate understanding of how the system relates to the other processed and activities.
• Failure in the business environment – the systems are or become inappropriate to external or internal business requirements due to changing business practices instigated by others, or by not supporting the business strategy adequately, or simply by not coping with the volume and speed of business process needs effectively or economically.
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Assessing and Managing Investment Risks
• Major investment failure is due to lack of understanding of the contextual factors that produce project risks, or the inability to identify or address emergent issues that introduce risks of not achieving the required outcome.
• The more strategic IS/IT investments become, the greater the consequence of failure and the more difficult it is to foresee and deal with the range of risks involved.
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Cont…
• The risks of each development need to be assessed in order to improve the chances of success, but management need to understand the relative risks of all the developments in the portfolio in order to set sensible priorities.
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Cont… STRATEGIC HIGH POTENTIAL
KEY OPERATIONAL SUPPORT
Business innovation and change
(R&D projects)
Business process restructuring
Business effectiveness
Business rationalization and integration
Business efficiency
Process elimination and cost reduction
Very risky
Low risk
Very risky
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Assessing and Managing Investment Risks
• The assessment address the risk factors that are due to the nature and degree of change involved, as well as the organization’s ability to achieve those changes.
• 4 categories potential factors– What kind of change will be involved?– How ready is the organization to accommodate the
change?– How will the organization react to the change?– How dynamic is the context within which the change
is to be effected?
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Potential Risk Factors
• Kind of change (A)– Business impact– Degree of change– Pace of change– Technology innovation– Novelty of business
solution– Clarity of vision of
intended outcome
• Likely reaction (C )– Stakeholder
commitment to benefits
– Stakeholder willingness to change
– Stakeholder willingness to contribute resources
– Process and system interfaces
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Potential Risk Factors
– Level of dissatisfaction with the status quo
– Strength of drivers & constraints – balance
– Business sense of ownership
– Agreement on project objectives by key stakeholders
– Senior management stance
– History of success or failure- track record
– Change management capability
– Technology competency and experience
– Project management competency and experience
•State of readiness (B)
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Potential Risk Factors
• Contextual change (D)– Dependence of objectives on current
commercial environment– Susceptibility to regulatory and legislative
changes during project– Dependence on current management
structure– Dependence on other projects– Dependence on key personnel– Appropriateness of internal control
mechanisms
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Potential Risk Factors• Any individual factor scoring 4 or 5 should cause
relevant aspects of the project to be reviewed in order to:– Identify the possibility of changing its scope or the
development approach to reduce the risk; or– Agree actions that can address the underlying
cause(s) if the weakness; or– Establish appropriate contingencies to accommodate
problems; or– Perhaps all three, in the case of a 5!
• If the average for any category is 4 or 5 or 50% or more of the category factors are 4 or 5, there is cause for considering whether the investment as intended will succeed.
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Potential Risk Factors: Strategic Investment
• Score is highly in categories A and D• Action can be identified per high-risk factor• Actions should focus on reducing risk factors in
B and C by reviewing the change components of the benefits dependence network to reduce the scale, severity or speed of change to make it more manageable
• Some benefits may have to be forgone or postponed by accepting that not all the changes are achievable at present.
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Potential Risk Factors: Strategic Investment
• If the project scores highly in category C, but low in category B, careful attention should be paid to particular stakeholders’ issues to reduce the potential resistence
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Potential Risk Factors: Key Operational Investment
• Similar to the strategic projects, except that a high score in A is more serious.
• Unless all other categories are low, the nature and scope of the proposed solution should be considered carefully, with the objective of finding a lower-risk, alternative way of delivering the set of benefits.
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Potential Risk Factors: Support Investment
• A high score in category A, C, or D suggests that the project is not support! and its expected contribution should be reconsidered.
• The main risk category is C and if this scores highly, it implies that essential changes will be resisted.
