Transcript Project selection and evaluation

Performance Indicators and Measures
Success
Outline
 Performance
 Information Eras and IS investment
 Tangible benefits measurement
Making the investment decision
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The Performance Mindset
“Managing for Results”
“What gets measured, gets done.”
--Peter Drucker
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It’s NOT just about MEASURES!
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STRATEGIZE
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STRATEGIZE
COMMUNICATE
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STRATEGIZE
COMMUNICATE
MOTIVATE
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STRATEGIZE
COMMUNICATE
MOTIVATE
MANAGE
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Information Eras and IS
investment (Remenyi, et al.)
Era
Goal
Generic benefit
E1
E2
E3
Automate
Efficiency
Informate
Effectiveness
Transformate
Exploitation
Nature of benefit
Hard
Soft
Scale of benefit
Metrics
Requires metrics that
focus on cost
displacement and /or
cost avoidance
analysis, any intangible
benefits are extra gains
best measuring surveys
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Requires metrics
that include some
element of
automate era and
so measured as for
E1
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Requires full capital
investment appraisal
techniques needing
long term horizons, not
likely to include many
measures from E2 but
will include some from
E3
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Continuum of approaches to
investment decisions
Assess financial impact
of change
Assess value of
change
Causal logic
for change
Hard
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Must Do/Dictated
change
Soft
Tangible
NPV, IRR, etc
to document
quantifiable
net savings
Act of faith
change
Intangible
RoM or
similar to
document
net value
IE or other
weighting
method to
select
‘best’
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CSF or similar
for strategic
contribution
N/A
Not really a
‘decision’
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Tangible benefits measurement

Parker and Benson (1988) suggest seven stages to
calculate the value of the tangible benefits:
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Break down the effort on the basis of the work functions affected
by implementation.
Identify alterations associated with the specific processes.
Determine the cost of performing the job process affected.
Determine the effects of the change on indirect costs.
Determine the effect of performing the modified process.
Determine where additional costs will occur in the future.
Calculate the difference between performing the process the old
way and the new way.
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Hard financial justifications
 Amount of increased value.
 Amount of decreased expenses.
 Amount of increased expenses avoided.
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Methods of calculating the
financial benefits
 Return on investment (RONI) =
Annualbene fit
Investment amount
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Methods of calculating the
financial benefits

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Discount cash flow (DCF)
Net present value (NPV) it is the difference
between the sum of values of the cash inflows and
the present value of the original investment.
PV of Benefit = Ben efit
(1  i )
n
I = rate of interest
N= number of years
NPV= Present value of benefit-present value of investment
If NPV >= 0
Invest
If NPV < 0 Do not invest
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Methods of calculating the
financial benefits
 Internal rate of return (IRR)
Ben efit
0=
(1  i )
n
I = rate of interest
N= number of years
Solve for I rather than for NPV
If i >= 12%
Invest
If i < 12%
Do not invest
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Methods of calculating the
financial benefits
Probability of attainment/Bayesian analysis:
System could give
increase of %
Probability that it
will
Sales value
£000s
Return
£000s
1%
0.80
750
600.00
3%
0.15
2250
337.50
5%
0.05
3750
187.50
Return combining all probabilities
With 15 % before- tax tax profit on sales
1125.00
Profitability
168.75
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Methods of calculating the
financial benefits
 Return on Management RoM=
Managementvalue added
Managementcost
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Strassmann’s return on
management
Management value added
Business
value added
Management costs
Operation costs
Revenue
Shareholder value added
Purchases and
taxes
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Information economics
Business perspective
Information technology
perspective
+ Value
Technology services
- Costs
---------------Justification
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Cost of services
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- Costs
+ Recovery
---------------Viability
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Investment justifications
Organisational element
The line of Business
(LoBs)
Corporate backbone
(infrastructure)
Possible justification
Direct cost reduction
Enhancements offering added
value to the LoBs
Enhanced business
performance
Direct cost reductions
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Information value assessment
factors for information economics
Business domain
IT domain
Positive factors that add to
the appeal of the candidate
project
Strategic match
Competitive advantage
Management information
Competitive response
Strategic IS architecture
Negative factors that
detract from the appeal of
the candidate project
Organisational or project
risk
Definitional uncertainty
Technical uncertainty
IS infrastructure risk
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Project appeal
Increasing/decreasing factors
 Business Domain
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Strategic Match
Competitive advantage
Management information support
Competitive response
Organisational or project risk
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Project appeal
Increasing/decreasing factors
 Technology Domain
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Strategic IS architecture
Definitional uncertainty
Technical uncertainty
Infrastructure risk
The method builds in the distinction between
business justification and technical viability
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Strengths of the approach:
Wiseman (1992) 7 Cs
 Comprehensiveness
 Consistency
 Clarity
 Communications
 Confidence
 Consensus
 Culture
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Practitioners Survey
 Using formal quantitative methods >= 56%
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33% use RoI despite problems
CBA and RoI approaches encourage low risk
investments with small returns
 They result from manufacturing economy where
labour is treated as an expense
 The analysis is static and short-term
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 Using qualitative methods >= 16%
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Making the best rational
decision?
 All assessment and evaluation is an intrinsically
subjective and political activity.
 Searching for the best and most appropriate
measurement method is an irrelevancy and seeking
to interpret and understand the social forces at work
forms the heart of the subject.
 What leads an organisation to feel that certain IS
activities are important must be investigated.
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 After justifying selecting and implementing an IS
investment decision there needs to be some followup evaluation
 Can be
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Interpretive, Qualitative, Informal or
Formal, Rational, Analytical
 Purpose – learning about the resource allocation
process – the ‘learning organisation’
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Will organisations do a followup evaluation?
Finance
Sector
Retail Sector Manufacturing
Sector
Formal
evaluation of
results
Rarely
(25% of times)
Very Rarely
(18% of times)
Possibly
(30% of times)
Informal
evaluation of
results
Possibly
(34% of times)
Probably
(40% of times)
Possibly
(30% of times)
No evaluation
of results
Probably
(41% of times
Probably
(42% of times)
Probably
(40% of times)
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References
 Wendy Robson – Strategic Management &
Information Systems – Chapter 7
 John Ward – Principles of Information
Systems Management – Chapter 5
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