AIS Chapter 17

Business Case for IT Initiatives

Why are we doing this project?

How does it address key business issues?

How much will it cost, and how long will it take?

What is the return on investment and the payback period?

What are the risks of doing the project?

What are the risks of not doing the project?

What are the alternatives?

How will success be measured?

Economic Justification Process

Assessing Business Requirements

IT initiatives should reduce one or more gaps between the firm’s current and desired performance

Consider other enabling changes

Estimating Benefits

Revenue enhancement, Revenue protection, Cost savings, Cost avoidance

Acquisition Costs

Direct Cost (hardware, software, networking, development, training)

Indirect costs of the disruption to current operations

Operating Cost

Direct Cost (Hardware replacement, software upgrades, maintenance contract)

Indirect Cost (user downtime and lost productivity, such as time spent on self-training, peer support, end user data management)

Assessing Risks

Alignment risk—the solution is not aligned with the strategy of the firm.

Solution risk—the solution will not generate projected benefits.

Financial risk—the solution will not deliver expected financial performance.

Project risk—the project will not be completed on time within budget.

Change risk—the firm or part of the firm will not be able to change.

Technological risk—the technology will not deliver expected benefits.

Payback period

= Initial Investment/Increased cash flow per period

The breakeven point is where the total value of benefits equals that of total costs. The payback is the number of periods needed to recover the project’s initial investment

Net present value

Sum of the present value of all cash inflows minus the sum of the present value of all cash outflows. Each cash outflow/inflow is discounted to its present value

Internal rate of return

Discount rate that makes the project’s net present value equal to zero

Accounting rate of return

The average annual income from the IT initiative divided by the initial investment cost

Prepare the Value Proposition

The change and technology proposed.

The anticipated benefits (related to the firm’s critical success factors).

The group(s) within the firm that will benefit.

The timing of the benefits.

The likelihood of achieving those benefits as planned.

Phases of the Systems Development Life Cycle

Planning Phase.

Analysis Phase.

Design Phase.

Implementation Phase.

Maintenance Phase.

Planning Phase

involves summarizing the business needs with a high-level view of the intended project

feasibility study is often used to evaluate economic, operational and technical practicability

Analysis Phase

further refines the goals of the project into carefully specified functions and operations of the intended system

Design Phase

describing in detail the desired features of the system that it uncovered in the analysis phase

Implementation Phase

development, testing and implementation of the new proposed system

Maintenance Phase

making changes, corrections, additions, and upgrades (generally smaller in scope) to ensure the system continues to meet the business requirements that have been set out for it

Project management

planning, organizing, supervising and directing of an IT project

project manager

the lead member of the project team that is responsible for the project

project sponsor

often be a senior executive in the company who takes responsibility for the success of the project

Constraints of IT projects

100% Rule

rule requiring 100% planning of all tasks, including all the internal, external, and interim tasks

15-15 Rule

rule suggesting that if a project is more than 15 percent over budget or 15 percent off the planned schedule, it will likely never recoup the time or cost necessary to be considered successful

PERT Chart

works to identify all tasks of a project

Gantt chart

a graphical representation of the project schedule by mapping the tasks to a project calendar