MIS chapter 14 projec management establishing the business value of system

Chapter 14

Project Management:
Establishing the
Business Value of
Systems and
Managing Change
14.1


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
LEARNING OBJECTIVES

• 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.

14.2


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
LEARNING OBJECTIVES (cont’d)

• Analyze the principal risk factors in information
systems projects.
• Select appropriate strategies for managing project
risk and system implementation.

14.3


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
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.
• Primavera project management software increases
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.

14.4

Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
The Importance of Project Management

• 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
14.5


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
The Importance of Project Management

Consequences of Poor Project Management

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.

Figure 14-1
14.6


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
• Scope
• Time
• Cost
• Quality
• Risk

14.7


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
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
14.8


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Selecting Projects

Management Control of Systems Projects

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.

Figure 14-2
14.9

Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Selecting Projects

• Linking systems projects to the business plan
• Information systems plan: Road map indicating direction of
systems development, includes:
• Purpose of plan
• Strategic business plan rationale
• Current systems/situation
• New developments to consider
• Management strategy
• Implementation plan
• Budget

• In order to plan effectively, firms need to inventory and
document all information system applications and IT
infrastructure components
14.10


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Selecting Projects

• 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
14.11


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
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

14.12


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Selecting Projects

Process/Data Class Matrix

Figure 14-3
This chart depicts
which data classes
are required to
support particular
organizational
processes and
which processes
are the creators and
users of data.

14.13


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
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
14.14


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Selecting Projects

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.

14.15


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
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

14.16


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change

Selecting Projects

A System Portfolio

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.

Figure 14-5
14.17


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Selecting Projects

• Scoring models
• Used to evaluate alternative system projects, especially when
many criteria exist
• Assigns weights to various features of system and calculates
weighted totals
CRITERIA

WEIGHT

SYSTEM A %

SYSTEM A
SCORE

SYSTEM B %

SYSTEM B
SCORE

Online order entry

4

67

268

73

292

Customer credit check

3

66

198

59

177

Inventory check

4

72

288

81

324

Warehouse receiving

2

71

142

75

150

ETC
GRAND TOTALS

14.18

3128

3300


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Establishing the Business Value of Information Systems

• 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
14.19


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of

Systems and Managing Change
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)

14.20


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Establishing the Business Value of Information Systems

• 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
14.21


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Selecting Projects

Cost and Benefits of the New Supply Chain Management System

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.

Figure 14-6A
14.22


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Selecting Projects

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

Figure 14-6B

14.23


Management Information Systems
Chapter 14 Project Management: Establishing the Business Value of
Systems and Managing Change
Establishing the Business Value of Information Systems

Financial Models

Figure 14-7
To determine the
financial basis for an
information systems
project, a series of
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
return (IRR).

14.24

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
Original investment
Annual net cash inflow

=

Number of years to pay back

• Simple method good as initial screening
• Heartland stores: More than 2 years to pay back
• Payback method ignores:
•
•
•
•
14.25

Time value of money
Cash flow after payback period
Disposal value
Investment profitability