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5 Chapter 14
Understanding the Business Value
of Systems and Managing Change
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سوه
1. How can our company measure the business
benefits of our information systems? What
models should be used to measure that
business value?
2. Why do so many system projects fail? What
are the principal reasons for system failures?
3. How should the organizational change
surrounding a new system be managed to
ensure success?
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سوه
4. Are there any special challenges to
implementing international
information systems?
5. What strategies can an organization
use to manage the system
implementation process more
effectively?
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1. Determining benefits and costs of a
system when they are difficult to
quantify.
2. Dealing with the complexity of large-
scale systems projects.
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Two Kinds of Information System
Investments
٠ System Projects
° Infrastructure
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IT Investment Values
Improvement in business processes
Improvement in management decision
making
Longer Term Values
Improve strategic position
Implement new technologies and products
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Cuptd Budketery Dade له
Capital Budgeting
Rely on measuring cash inflows ¢
and outflows
٠ 6 capital budgeting models
Payback method
Accounting rate of return on investment (ROI)
Net present value
Cost-benefit ratio
Profitability index
Internal rate of return (IRR)
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Ouptd Budgetary Dodo سل
Costs and Benefits of Information
Systems
٠ Costs:
Hardware, telecommunications, software, ¢
services, personnel
٠ Tangible benefits (cost savings):
* Increased productivity, lower operational
costs, reduced workforce, etc.
٠ Intangible benefits:
¢ Improved asset utilization, improved resource
control, improved organizational planning, etc.
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Copa Budgetary Dodeb وله
Limitations of Financial Models
Costs and benefits don’t occur in same
time frame
Difficulties in measuring intangible
benefits
Bias toward applications with specific
business functions
Overlook social and organizational costs
and benefits
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Coser Oxcnple: Cupid مومت( !)رام( بر( و و ول Gystew
Heartland Stores
General merchandise retail chain upgrading
supply chain management system
٠ Reduce inventory costs: Items stocked in inventory
٠ Reduce labor costs: Inventory and tracking personnel
٠ Reduce telecommunication costs: Less time on phone
tracking inventory and shipments
٠ Reduce transportation costs: Consolidating
shipments, more efficient shipping schedules
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One orl brut من میخض
Tae CGH Bete Ne Sng Gan gee
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©0006 by Prevace “I
ول سم
an fated ro pee OF
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Owe Cxavpl: Ouptd Budgetay Por a ew Guppy Obata Ouoagewedt مه
Payback Method
Time required to pay back initial investment of project
Original
___investment ______- Number of years to pay
Annual net cash ۰. back
inflow
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Owe Cxavpl: Ouptd Budgetay Por a ew Guppy Obata Ouoagewedt مه
Accounting Rate of Return on Investment (ROI)
Desired rate of return must equal or exceed cost of
capital
(Vota becehits — Dota cost — Depreviction)
— et
OsePul Pe ~ becePit
Det becePit ۵
ل نك
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Owe Cxavpl: Ouptd Budgetay Por a ew Guppy Obata Ouoagewedt مه
Net Present Value
Compare investment with future savings and
earnings
Creseatuche oP experi = eit لمع و
peek Awe raat
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Cruse Oxcrople: Ouptd Budgetag Por o Dew Guppy Obata Oucagewedt Opstew:
Cost-Benefit Ratio
Ratio of benefits to cost
Dota beoePits
Ae eeee صق اطع
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Ouse Cxavple: Ouptd Budgetay Por a Dew Guppy Obota Oucageaedt Gystew
Profitability Index
Allows ranking of different possible investments
resect vue oP cask iP
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Cruse Oxcrople: Ouptd Budgetag Por o Dew Guppy Obata Oucagewedt Opstew:
Internal Rate of Return (IRR)
٠ Rate of return, or profit, that an
investment is expected to earn
* Discount (interest) rate that will
equate the present value of the
projects future cash flows to the initial
investment cost
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صم مب مضه صمتا
Portfolio Analysis
Analysis of portfolio of potential
applications to determine risks and
benefits, and select among alternatives
Scoring Models
Method for deciding among alternative
systems based on a system of ratings
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© systew porfolo
Project risk
E High Low
ع
8
مي High
5
ع8
Q
a
3 Low Routine projects
2
2
a
Prue P-O
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صم مب مضه صمتا
Real Options Pricing Models
Models using techniques for valuing financial
options to evaluate information technology
investments with uncertain returns
Knowledge Value-Added Approach
Focuses on knowledge input into a business
process
Determines costs and benefits of changes in
business processes from new information
systems
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4kPorextos Techowlqy Iweskoeds ond Productuiy
Multi-Factor Productivity
Measure of firm’s efficiency in
converting inputs to outputs
Amount of capital and labor required
to produce a unit of output
“Productivity Paradox”
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ره له اه وراه مرش و1۵
Information Technology Contributions
¢ Manufacturing: Increased productivity
¢ Service sector: Benefits unclear
* Information and knowledge industries:
Benefits difficult to measure
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ساد ع له تن سای هت مه
systew problew aru م1۳
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٠ Design
٠ 7ةتلاتتع 0 capture essential business
requirements
٠ Information in difficult to use format;
poor user interface
* Incompatible with organization
structure, culture, goals
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٠ ۵
¢ Inaccuracy, inconsistency of data
¢ Not organized properly for business
purposes
٠ (Cost
* Cost to implement and run prohibitive
* Operations
¢* Computer operations breaking down
٠ Information delays, slow response times
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Change Oxoagewerdl ond he Opuept oP Teoplew ection
* Implementation
¢ All organizational activities working
toward the adoption, management, and
routinization of an innovation
* Change Agent
* Individual acting as catalyst during the
change process
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Ouses of 1] لج ووعوص 6 دمجم صار Puke
٠ User Involvement and Influence
* Molding system to user priorities and
business requirements
* Positive involvement in system
* Users can take limited view of system
* User-designer communications gap
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actors to اوبرت ما sucess or Pare
User involvement.
and influence
Management
support
Level of
complexity/risk
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Ouses of 1] لج ووعوص 6 دمجم صار Puke
٠ Management Support and
Commitment
* Positive perception
* Inducement to participation
* Sufficient funding and resources
* Enforcement of workflow changes
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Ouses of 1] لج ووعوص 6 دمجم صار Puke
٠ Level of Complexity and Risk
* Project size: Greater risk with larger
projects
* Project structure: Greater risk with less
defined outputs and processes
¢ Experience with technology: Greater
risk if project team and information
systems staff lack required expertise
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Ouses of 1] لج ووعوص 6 دمجم صار Puke
Results of Poorly Managed Systems
Projects
٠ Costs that vastly exceed budgets
٠ Unexpected time slippage
٠ Technical shortfall; poor performance
٠ Failure to obtain anticipated benefits
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Cost overruns
Poor Project Time slippage
Management Technical shortfalls impairing performance
Failure to obtain anticipated benefits
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Ouses of 1] لج ووعوص 6 دمجم صار Puke
Factors in Poor Management:
٠ Ignorance and optimism
٠ The mythical man-month
* When adding labor can slow productivity
° Falling behind
* Bad news travels slowly upward
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Guterpree Oppitioxe, od Oerpere onl Orquctioe
٠ 70% failure rate in BPR projects
٠ High failure rate in enterprise applications
٠ Poor implementation; inadequate change
management
« M&As: Require considerable
organizational change and system projects
to combine information systems of two
companies
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٠ Disparate information requirements
and business processes
* Local facility differences
¢ National accounting laws
* Transborder data flow
* Language
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٠ Technology hurdles: lack of standards
and connectivity
° Standardizing computer hardware
platform
° Software for international teamwork
¢ Integrated global networks difficult, costly
to install
* Standards for networking and EDI are
industry and country specific
٠ Local user resistance to global systems
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Ordo oa Orquctraious
Global E-Commerce: Good and Bad
News
What management, organization, and
technology issues should be
addressed when developing a global
Web strategy?
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ججبه؟ ٩۲ موه
٠ Managing technical complexity
+ Internal integration tools
¢ Formal planning and control tools
٠ Program Evaluation and Review Technique (PERT)
* Gantt charts
٠ Increasing user involvement and
overcoming user resistance
* External integration tools
* User participation, education and training,
incentives
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م07 the ۳ بمب
Organizational Factors in Systems
Planning and Implementation
Employee participation and involvement
Job design
Standards and performance monitoring
Ergonomics
Employee grievance resolution procedures
Health and safety
Government regulatory compliance
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م07 the ۳ بمب
٠ Organizational impact analysis
¢ Study of how a proposed system will
affect the organization structure,
attitudes, decision making, and operations
٠ Sociotechnical design
¢ Establishes human objectives
۰ Separate sets of technical and social
design solutions
* Design based on best fit to technical and
social needs
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جدصادادد م صاجب!/ Qxcagay Bbbd
¢ Limit transnational development to core
systems
* Cooptation
¢ Bringing opposition into development process
* Separate transnational systems developed
by separate country units
٠ Global technology infrastructure
* International private network, VANs
* Internet technology: VPNs, intranets
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Business Systems Scope
Geographic Business Scope
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سم( م۳ مس جسن"
Project planning as an enterprise-
wide focus
Managers focus on solving problems
as they arise and meeting challenges
Seek ways to adapt to unforeseen
uncertainties that could provide
additional opportunities
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Orgra Ghuobles wis Orw Ovwtower Geruice مر
1. Evaluate Cigna using the value chain and
competitive forces models. What was Cigna’s
business strategy?
2. What was the relationship of its information
systems to Cigna’s business systems and business
strategy? How well did its systems support its
strategy? How did they provide value for the
company?
3. What management, organization, and technology
factors contributed to Cigna’s problems?
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4. Classify and describe the problems that Cigna
faced in trying to modernize its customer-facing
systems using the categories described in this
chapter on the causes of system failure.
5. Evaluate the risks of the Cigna systems
modernization project as seen at its outset, and
then outline its key risk factors. Describe the
steps you would have taken during the planning
stage of the project to control these factors.
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