Project Selection

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Chapter 4 Project Selection Approval

• Important factors
• Selection Methods
• Value Analysis, Optimization

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IS Project Growth

• Corcoran (1997) billions spent on technology
  every year
• Sources
• users
• top management
• within information systems
• Process
• idea
• estimate benefits, costs

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IS Project Motivation

• Cost cutting/avoidance
• Revenue maintenance/enhancement
• Entering new markets
• data mining
• Gaining market share

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Estimation Pitfalls

• INTANGIBLES
• nebulous benefits
• better decision making
• HIDDEN OUTCOMES
• time, budget subject to great error
• CHANGE
• technology changes rapidly
• outdating many good project ideas

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Organizational Treatment of IS Projects

• Hinton Kaye (1996) - survey of 50 organizations
• CAPITAL rigid cost-benefit analysis
• REVENUE need to invest to keep up
• Investment Capital Mix Revenue
• training 0 1 99
• marketing 4 9 87
• info tech 39 41 20
• operations 58 31 11

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Initial Risk Evaluation

• Project manager ability
• experience with project type, environment,
  language
• familiarity with modern programming practice
• availability of critical equipment, software
• completeness of project team
• personnel turnover
• project team size
• relative control of project manager over project
  team

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Evaluation Techniques

• Economic Financial
• payback 68
• cost-benefit 63
• npv/irr 40
• Multifactor
• checklist 38
• project profile 26
• scoring/rating models 26
• multicriteria 11
• Mathematical Programming 18
• Expert Systems 6

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Criteria

• Financial
• net present value/internal rate of return
• payback
• profitability index/budgetary constraint
• Management
• support business objectives
• respond to competition
• better decision making
• satisfy legal requirements
• Development

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SCREENING

• Eliminate proposals not meeting minimum
  requirements
• GOOD quick
• BAD tradeoffs disregarded

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CHECKLIST

• Factors Minimum Standards
• a way to implement screening
• assure implementation of policy limits

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PROJECT PROFILE

• Display project features with standards
• Compares strengths, weaknesses
• Project Cost NPV/Cost Strategic?
• A265 230,000 0.43 no
• A801 370,000 0.51 yes
• A921 790,000 0.46 no
• B622 480,000 0.11 yes
• B837 910,000 0.22 yes
• C219 410,000 0.41 no

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Cost-Benefit Analysis

• Accurately estimate all benefits
• identify overall profit impact
• in net present terms
• Accurately estimate all costs
• overall profit impact, in net present terms
• RATIO benefits/costs
• lt1, dont adopt gt1, profitable
• can adopt by highest ratio

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Payback

• Identify the time needed for costs to be
  recovered
• simple
• doesnt consider NPV

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Value Analysis

• Keen (1981)
• DSS benefits usually very nebulous
• Unfair to apply cost-benefit analysis
• benefit estimates unreliable
• Costs - identify as in cost-benefit
• Benefits - leave in subjective terms
• Managerial decision are you willing to pay this
  much for that set of benefits?

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Multicriteria analysis

• SMART - multiattribute analysis
• identify criteria (including subjective)
• measure utilities of alternatives over each
  criterion
• elicit preference weights
• swing weighting - reflect range of options
• value S of weights times utilities

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Optimization

• 0-1 linear programming
• each project a 0-1 variable
• can take on value of 0 (not selected)
• or 1 (selected)
• optimize expected return to firm
• subject to constraints
• budget
• scarce resources

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Summary

• Initial evaluation of projects is where most are
  eliminated
• Companies need to avoid nonprofitable
• if budget scarce, select most profitable
• Many risks need to be considered
• ideally identify net present costs, benefits
• practically need to consider intangibles