Management Information Systems

1
Chapter 13
Information Technology Economics
Information Technology For Management 5th
Edition Turban, Leidner, McLean, Wetherbe Lecture
Slides by A. Lekacos, Stony Brook
University John Wiley Sons, Inc.
2
Learning Objectives

• ???????????????? ? ???????????????????????????????
  ???????????????????????
• ??????????????????????????????????????????????????
  (productivity paradox) ??? IT
• ??????????????????????????????????????? IT
  ????????????????????????
• ??????????????????????????????????????????????
  (intangible benefits) ???????????????
• ??????????????????????????????? IT
  ?????????????????????
• ??????????????????????????????????????????????????
  ???????????? IT (chargeback).
• ???????????? ????????????? outsourcing.
• ????????????????????????????????????? EC ???
  Web-based technologies ???????????? EC
• ????????????????????????????????????????
  ????????????????????

3
Justifying IT investment in the state of Iowa

• Problem
• ???? ? ???????????????????????????????????????????
  ?? IT ???????????????????? Iowa ????????? ???? ?
  ??? ?????????????????????????? ?
  ?????????????????????????????????????????????
• ????????? ????????????????????? ????????????????
  ? ????????????? ?????????? ??? ???????????????????
  ????????????????????
• ????????????????????????? 1999 ?????????????
  ??????????????????? ??????????????????????????????
  ?????????????????????????????????????????????????
  IT

4

• Solution
• Iowa ???????? IT value model ?????????????????????
  ? ????????? performance-based government
  ????????????????????????????????????? ? ??????
• ????????? ??????????????? IT ???? ?
  ??????????????????????? ????????????????? IT
  ??????
• ???????????? ???? IT ?????????????????????????????
  ?????????????????????????????????? ??????????? ?
  ??????????????????????????? ????????
  ??????????????????????????????????????????????????
  ?? ????????????????????????????????????? ?
  ??????????????????
• ?????????????????????????????????
  ??????????????????????????????????????????????????
  ??????????????????????????????????????????????????
  ?????

5

• ??????????????????????????? 5-15 ?????
  ???????????????????????????????????????????????
  100 ????? ????????????????????????????????????????
  ??????????????????????????????????????????????????
  ?????????????????????????????????
• ?????????? ???????????????????????????????????????
  ????????
• ??????????? ROI ??????????????????????????????????
  ?????????????????????????????????????
  ??????????????????????????????????????????????????
  ???????????????????????????????????????????????
  ???????? 2001 ????????????????????????????? ERP
  ???????????? ???? E-Procurement, HRM ???????? IS
  Dept. ?????????????????? ERP ?????????????????????
  ???? ????????????????????????

6

• Results
• ??????? Iowa ?????????????????????????????????????
  ??????????????????????????????????? IT
  ??????????????????????????????????????????????????
  ????????? ? ????

7
13.1 Financial and Economic Trends and The
Productivity ParadoxComputing Power vs. Benefits

• ??????????????????????????????????????????????????
  ???????? ?
• ????????? ????????????????????????????????????????
  ??????????????????????????????????????????????????
  ?????
• ???????????? ?????????????????????????????????????
  ????????????????????????????? ?
  ??????????????????????????????????????????????????
  ??????????????????????????????????????????????
• ?????????????????????????????????????????????????
  IT?
• ????????????????
• ????????????
• ?????? (productivity)
• ?????????????? ?
• ??????
• ????????????????????????? information technology

8
 Moores Law
9
Productivity Paradox

• ?????? (Productivity) ????????????????????????????
  ???????????????????? ?????????????????????????????
  ???? ???????????? ????????????????????????????????
  ????????????????????????????? IT
  ???????????????????????????????????? ???????
  ???????????????????????????????????????????? IT
  ??????????????????????????????????????????
  ???????? ???????????????????? (productivity
  paradox) ??????????????? A Close Look 13.1
  Calculating Labor Productivity at The Driscoll
  Company ???? 557
• ???????????????????????????????????????? ????
• ?????????????????????????????? ?
  ???????????????????????????????? IT
• ??????????????????? IT ???????????????????????????
  ??????????? ?
• ????????????????? IT ?????????????????????????????
  ???????????????? IT ???

10
13.2 Evaluating IT Investment Benefits, Costs,
and IssuesIT investment categories

• ???????? ???????????????? ?????????????????????
  (infrastructure) ??? ????? ???????????????????????
  ????????? (specific applications)
• ???????????????? IT ?????????????????????????????
  ???????? ??????????? ? ????????????? ? ???
  ???????????????
• ???? IT applications ?????? ?????????????????????
  ? ? ??????????????????????? ??????????????
  ?????????????????? ???? ??????????????????????????
  ????????????????????

11
 The Value of Information in Decision Making
??????????????????????????????????????????????????
????????????????????????????????????????
????????????????? (value of information)
????????????????????? net benefits (benefits
adjusted for costs) ??????????????????????????????
??????????? net benefits ?????????????????????????
????????????
It is generally assumed that systems that provide
relevant information to support decision making
will result in better decisions, and therefore
they will contribute toward the return on
investment. However, this may not always be the
case.
12
Evaluating IT Investment by Traditional
Cost-Benefit AnalysisEvaluating the Benefits

• ???????????????????????????????
  ?????????????????????????????????
  ?????????????????????????????????????????
  ????????????????????????? ??????? ???
  ???????????? Tangible benefit ????????????????????
  ??????????????????????? ?????? ????
  ???????????????????? ?????? ???????? Intangible
  cost
• ?????????????????????? (Intangible benefits)
  ???????????????????? IT ?????? ???????????????????
  ?????????? ???????????????????????????????????????
  ???? ???? ??????? IT ???? ????????????????????????
  ?????????????? (???? ???????? Fax ) ????? 1
  ??????? ???????????????????? ??????? Tangible
  benefit ?????????????? ????? ?????????????????????
  ?????????? ???????????? Intangible benefit
• ??????????????????? ???????? total benefits of
  ownership

13
Conducting Cost-Benefit Analysis

• ???????????????????
• ????????????? NPV (Net Present Value) ???????
  cost-benefit Analysis. ???????????????? NPV
  ?????????????????????????????????????????????????
  ??????????????????????????????????????????????????
  ??? ??????????????? ??? organizations cost of
  funds
• ??????? Return on investment (ROI)
  ?????????????????????????????????????
  ??????????????? ??????????????????????????
  (?????????????????????????)

14
Costing IT Investment

• ??????????????????? IT ?????????????????
• ??????????? (Fixed costs) ??? ????????????????????
  ?????????????????????????????? ?????????
  ????????? IT ???? ?????????? ?????????????????????
  ???????????????????? IT (???? ?????????? leased
  line ???????????????????????????? ???????) ???
  ????????????????????????????????? IT (????
  ???????????? ??????? ???????)
• ??????????????? (Variable costs) ??????????????
  ?????????????????????????????? ???????????????
  ????????????? ??? run ???????? ?????????????????
  ???? ?????????? ????????????????????????
• ??????????? ?????????????????????????????? Total
  cost of ownership
• Total cost of ownership (TCO) ???
  ???????????????????????????????????? ????????????
  IT (HW/SW) ??????????????????? IT (Operation
  cost) ???????????????? IT (Control cost)

15
Intangible Benefits-evaluating
IT projects ?????????? intangible benefits ????
??????????? ??????????????????????
??????????????????????? ?????????????????????
?????????????????????????? ???????????????????????
????????? ???????Intangible benefits
????????????????????????????????????????????

• ???????????? Intangible Benefits
• ???????????? intangible benefits
  ????????????????????? ? ??????? NVP ????
  financial analysis ????? ? ??? ????????????????
• ???????????????? Scoring Matrix or Scorecard

16
Intangible Benefits Sawhneys Method of Handling

• ??????????? ? ????????????????????
• ??????????????????????????????????????????????????
  ????????????????????? ???? ????????
  ????????????????????????????????????????? ???????
• Pay your freight first. (????????????????)
• ?????????????????????????????????????????
  ????????? pay the freight ??????????????????????
  ????????
• ????????????????????????????????????????????
  (Follow the unanticipated)
• ?????????????????????????????????? (payoff) ???
  IT ??? e-business projects ????????????????

17
Business Case Approach - evaluating

• ??????????????????????????????????????????????????
  ??? ? ??? ????????????????? business case
  ?????????????????????????????????????????????
  ???? ???????????? ????????????????????????????????
  ?????????????????????? ??????????
  ??????????????????????????????????????????????????
  ?????????????????? ?????

• business case ??????????????????
• ??????????????????????????????????????????????????
  ??
• ??????????????????????????????
• ?????????????????????????
• ?????????????????????? IT project ????? ?
  ????????????????????????

18
A Model for Investment Justification
19
Cost-Benefits Analyses - evaluating
20
13.3 Methods for Evaluating and Justifying IT
Investment

• ???????????????????????????? IT
  ???????????????????????????????????????
  ????????????????? ????????????????????????????????
  ?????? IT ?????? intangible ??????????????????????
  ????????????? ???????????IT??????????????????? ?
  ??????????????? ?
• ???????????????????????????? 4 ??????? ? ??????
• ?????????????????? (Financial (NPV ROI)
  methods) ?????????????????????????????????????????
  ??????????????????????????????????????????????????
  ?????????????
• ???????????????????????? (Multicriteria
  (Information economics and Value analysis)
  appraisal methods) ???????????????????????????????
  ??????????????????????????????????????????????????
  ??????????????????????????????????????????????????
  ???????????
• ??????????????????? (Ratio (IT expenditures vs.
  total turnover) methods) ?????????????????????????
  ???????????????????????? IT
• Portfolio methods ??? portfolios (???? grids)
  ????????????????????? ? ??????????????????????????
  ??????????????????????????? (decision-making
  criteria)

21
Total Cost of Ownership (TCO) ??? Value Analysis
???????????????????? ? ???????????????????????????
??????????????? IT

• Total cost of ownership (TCO ???
  ???????????????????????????????????? (cost of
  owning) ???????????? (operating) ??? ?????????
  (controlling) ???? IT ?????????
  (?????????????????????????????????????????????????
  ????) ???????????????????
• ?????????????????? (hardware and software)
• ??????????????????????? (maintenance, training,
  operations, )
• ??????????????????? (standardization, security,
  central services)

22

• ????????????????????? (Value analysis)
  ??????????????????????????????????????????????????
  ?????????? ???????????????????????????????????????
  ?????????????????????????????????

23
Information Economic

• Information economics ????????????????????????????
  ????????? ? ????????? ????????????? intangible
  benefits ???? Information economics
  ???????????????????????????? ? ?????????????????
  ???????????????????? ? ???????????????????????
• ??????????????? (scoring methodology)
  ???????????????????????????? ? ???????????????????
  ??????????????????????????????????????????????????
  ?????????????? ?????????
• ??????????????????????????????????????????????????
  ??????????
• ???????????????????????????????????
• ??????????????????????????????????????????????????
  ??????????????? 0 ??? 100 ???? 0 ??? 10
• ??????????????????????????????????????????????????
  ??? ??????????????????????????????????????????????
  ???

24
Assessing Investments in IT Infrastructure

• ??????????????????????????????????????????????????
  ?????????????????????????????????????????????
  specific IS application ???????? ?????????????? ?
  ???????????????????????????? intangible
  ??????????????????????????????????????????????????
  ????????????????
• ??????????????????
• Benchmarks ?????????????????????????????????????
  ?
• ????????? benchmarks ?????????????????????????????
  ????????? ????
• ????????????? IT ???????????????????????????????
• ?????????????? downtime (?????????????????????????
  ????????????)
• ????????? CPU ????????????????????????????????????
  ????????
• ????????????????????? IS ?????????????????????????
  ?????????????????????????

25

• ??????????? Best-practice ??? benchmarks
  ??????????????????????????????????????????(???????
  ) ??????????????????????????????????????
• Management by Maxim - ?? corporate executives,
  business-unit managers, ??? IT executives
  ??????????????????????????????????????????????????
  ????????????????

26
Specific Evaluation Methods - continued
Management by Maxim
27
Real Option Valuation of IT Investment

• ???????????????????????????????????? IT ???
  ??????????????????????????????????????????????????
  ??????? ?????????????????????????????????? ????
  NPV ??????????????? ????????????????????????
  capital projects ?????????????????????????????????
  ?????????????? cash flows ????????????????????????
  ????????????????????? real options
• Common types of real options include
• ????????????????????????????? ? (????? cash flow
  ???????????????????????????)
• ???????????????????????????????????????? (?????
  minimize loss ??????????????????????)
• ??????????????????????????????????????????????????
  ?

28
The balanced scorecard and similar methods

• ?????????? balanced scorecard ????????????????????
  ????? overall health ??????????????????????? ?
  ??????????????????????????????????????????????????
  ???????????????????? ???????????????????? 4
  ???????
• ?????????? ?????????????????????????????????
• ?????? (????????????????????????????)
• ???????????????????? (?????????????????????)
• ??????????????????????? (?????????????????????????
  ???????????)
• Activity-based costing (ABC) ?????????????????????
  ????????????????????????????? ?
  ???????????????????????????? ?
• Expected value (EV) ??????????????????????????????
  ??????????????????????????????????????????????????
  ? (probability of its occurrence)

29
Balanced Scorecard (BSC)
30
Specific Evaluation Methods - continued
31
13.4 IT Economic Strategies Chargeback and
Outsourcing

• ?????????????????????????????????? IT
  ?????????????????????????????????????
  ???????????????????????????????????????? IT
  ???????????????????????? ?????????????????????????
  ? IT ??????????????????????????????????? ?
• ?????????????????????????????????????????????? IT
  
• Chargeback
• ?????????????????????????????? overhead account
  ???????????? IT ?????? free ????????????????????
  ??? ??????????????????????????????????????????????
  ?????????????????? ? ????????????????
• Cost recovery ?????????????????????? IT
  ??????????????????????????????????????????????????
  ??????????
• Behavior-oriented chargeback ?????????????????????
  ??????????????? IT ???????????????????????????????
  ?????????????? ???????????????????????????????????
  ??????????????

32

• Outsourcing
• ???????????????????????????????????????????????
  IT ???????????????????????????????????????????????
  ?????????????????????IS ????? ??????????????????
  ????
• ????????????????????????? Offshore outsourcing
• ASPs and Utility Computing. Application service
  provider (ASP) ??????????????? software-based
  services ??? solutions ???????????(???????????????
  )???????????????????
• ASP ??????? Agent ???? vendor ????????????????????
  ??? ???????????????????? ???????????????????????
  outsourced development, operations, maintenance,
  ??? other services
• Management service provider (MSP) ??? vendor ????
  remotely manages ??? monitors enterprise
  applications.

33
Costing IT Economic Strategies
34
13.5 Economics of Web-based Systems and E-Commerce
Web-based systems ????????????????
???????????????????????? ?????????????????????????
??????? EC ??????????????????????
????????????????????????? business case ???????
baseline ???????????????????? ????????????????????
??????????????????????????? business case
??????????????????????????????????????????????????
???????????? ???????????????????? e-business
????????????? ??????????????????????? Web-based
systems ??????????????????? ??????????????????????
??????????????????????????????????????????????????
???????????????????
35
13.6 Other Economic Aspects of ITIT Failures and
Runaway Projects

• Information technology ???????????????????????????
  ?????????????????????? ? ????????????????????????
  ????????????????????????????? IS
  ??????????????????? ???? ?????????????????????????
  ????????????????????? ???????????????????????????
  ??????????????????????? ??????????????????????????
  ????economic issues ???? ????? cost-benefit
  analysis ??????????
• ??????????????? IT at Work 13.1 A University
  Accounting System Failed page 583

36
MANAGERIAL ISSUES

• Constant growth and change.
• ??????? microprocessor chip ??????????????????????
  ?? ??????????????????? ???????????????????????????
  ??????????????????????????????????????????
  ????????????????????????? ? ??????????? ?
  ?????????????
• Shift from tangible to intangible benefits.
• ???? ? ???????????????????????????????????????????
  ????????????????? IT ????????????
  ???????????????? IT ?????????????????????????
  intangible benefits ???? ???????????
  ????????????????????????? ??????????????? cost
  savings ?????????????????????????????????????????
  ???????????????????????????????????????????? ?
  ??????????????????? intangible benefits
  ??????????????????????????????????????????? IT

37
MANAGERIAL ISSUES

• Not a sure thing.
• ?????? IT ????????????????????????????????????????
  ??????????????????? ??????????????????????????????
  ???????????????????????? ?????????????????????????
  ??????????????????????????????????????????????????
  ???????????????????????????????? IT
• Chargeback.
• ?????????????????????????????????????????? IT
  ??????????????????????????????????????? ???????
  ?????????? chargeback ????????????????????????????
  ????????????????????????????????????????????????
• Risk.
• ?????????? IT ????????????????????????????????????
  ???? ? ???????????????????????????????????????????
  ???????????????????????????? IT

38
MANAGERIAL ISSUES

• Outsourcing.
• ?????????????????????? IT ????????????????????????
  ???????? ?????????????????????????????????????????
  ???????? ????????????????????????????? outsource
  ?????????????? IT ??????????? ????????????
  ?????????? outsource ???? ???????????????????
  ????????? ? ???????????????????????????????????
• Increasing returns.
• ??????????????????? ? ??????????????? IT ???????
  IT ??????????????????????? ??????????? IT
  ????????? increasing returns ????????????
  ????????????????? ? ??????????????????????????
  (??? IT ????) ??? return ????? ???????????????????
  ???????????????? ? ???????????????????????????????
  ???????????????????????????????????????????

39
??????????? 13

• ????? ..