Managing information systems 7th edition brow ch010

MANAGEMENT INFORMATION SYSTEMS

CHAPTER 10
METHODOLOGIES FOR PURCHASED SOFTWARE PACKAGES

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THE MAKE-OR-BUY DECISION
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- In large companies today, application software is typically both custom developed and purchased.

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In small businesses, software is typically purchased.

Why?

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THE MAKE-OR-BUY DECISION

Advantages and Disadvantages of Purchasing

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PURCHASING METHODOLOGY

Initiating the Purchasing process

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Development of a high-level cost estimate - with business manager and IS analyst input

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PURCHASING METHODOLOGY
The Purchasing Steps

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Steps for purchasing application packages fit into the three SDLC phases (referred to as the modified SDLC approach)

Fig 10.1

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PURCHASING METHODOLOGY

The Purchasing Steps, continued

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In comparison to an SDLC methodology, the Definition phase has additional steps, and the Construction
phase is greatly reduced.

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In special circumstances, if the package is new, the purchaser may play a major role as an Alpha or Beta site
for the vendor:
- Alpha site: plays a role in determining the final functionality and user interface design for the new
package
- Beta site: plays a role in user acceptance testing

α
β
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PURCHASING METHODOLOGY

Definition Phase

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Two traditional SDLC steps:

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Five additional steps:

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DEFINITION PHASE

Feasibility Analysis

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Determine whether the proposed system is economically, technically, and operationally feasible

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In addition, the feasibility of purchasing rather than building the system is considered
- Preliminary investigation of available packaged systems
- Detailed cost-benefit analysis for budgeting and monitoring purposes

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DEFINITION PHASE

Requirements Definition

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As when creating custom software, Requirements Definition is a critical step in the purchase methodology

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But rather than create detailed requirements for in-house custom development, this step focuses on defining
functional requirements needed to develop a Request for Proposal (RFP)

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DEFINITION PHASE

Create Short List of Suitable Packages

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Eliminate all but a few promising candidate packages

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Evaluate:

- Available features of a package
- Compatibility with current hardware and software
- Vendor track record

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DEFINITION PHASE

Establish Criteria for Selection

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Business and IS team members work together to determine relevant criteria to select the best package
Some criteria may be mandatory, while others may be desirable

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DEFINITION PHASE

Develop and Distribute RFP

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Request for Proposal (RFP): A formal document sent to potential vendors inviting them to submit a
proposal describing their software package and how it meets the company’s needs

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Gives vendors information about:
- System’s objectives and requirements
- Environment in which the system will be used
- General criteria used to evaluate proposals
- Conditions for submitting proposals

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DEFINITION PHASE

Example of Content in RFP

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DEFINITION PHASE

Choose Package

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Collect data from:
- Vendors’ responses from RFPs
- Vendor demonstrations (for a few leading packages)

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References from users in other companies

Project team evaluates how well available packages meet company’s needs

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DEFINITION PHASE

Negotiate Contract

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Use of an attorney for contracting with a vendor reduces likelihood of future legal problems

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Contract type has implications for the risk level of the purchasing company
- for fixed-price contracts, the purchasing company knows the total price in advance
- for cost-reimbursement contracts, the purchasing company pays the vendor’s direct and indirect costs
and thus assumes a much greater risk

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PURCHASING METHODOLOGY
Discrepancies between needs and package capabilities will need to be dealt with by:
- Modifying the package
- Changing internal procedures
- Living with the differences

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CONSTRUCTION PHASE

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System Design and Building steps are only necessary if modifications are to be made to the package.
However, essentially all packages will require “configuring” the package to meet the organization’s needs
by making choices using pre-programmed templates by the vendor.

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CONSTRUCTION PHASE

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System Design and Building:
- Typically the vendor does not provide the source code for the package, so the company typically
contracts with the vendor (or a certified third party firm) for modifying the package.

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Changes may also be required for other existing company systems that interface with the package.

System Testing:
- User acceptance testing of configured package (and/or modified package)

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IS specialist or vendor testing on organization’s equipment

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IMPLEMENTATION PHASE

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Same three steps as for Implementation phase for custom development:

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IMPLEMENTATION PHASE
Installation

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Installation planning, training, data cleanup, and conversion
Success dependent on:
- Quality of vendor support

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Package size and complexity

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Special attention needs to be given to training, especially if there are significant changes in the way
employees do their work

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Change management is a set of activities designed to help overcome resistance by business users to the new
system

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IMPLEMENTATION PHASE

Operations

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Operations is the same, whether the package was built or bought

Initial success highly dependent on good communication with the vendor
Long-term success also dependent on how well the system has been integrated into the company’s ongoing
operations

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IMPLEMENTATION PHASE

Maintenance

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Most common = vendor handles package maintenance, as specified in the contract
Advantage:

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Can lead to significant cost avoidance over the life of the system

Disadvantages:
- Purchasing company totally dependent on vendor for future system changes
- May not get specific changes that the company wants

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PURCHASING METHODOLOGY

Project Team

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Project manager: usually is an IS manager, but may be a business manager (or both)
IS analysts and IS specialists who will operate the system

Representatives of key business managers and users

Software vendor personnel
Sometimes a third-party implementation partner (other than vendor)

For contracting:
purchasing specialists and attorneys

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ENTERPRISE SYSTEM PACKAGES

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Enterprise Resource Planning (ERP) systems are software packages designed to integrate all departmental
and functional systems into a single integrated system

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Packages are more complex to implement because they can impact an entire enterprise

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Companies purchase to achieve business benefits and IT platform benefits, such as:
- Enables access to integrated data for better decision making
- Takes advantage of client/server platform

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ENTERPRISE SYSTEM PACKAGES

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Source: Brown and Vessey, MIS Quarterly Executive, 2003
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