IS 483 Information Systems Management James Nowotarski 5 June 2003.

IS 483Information Systems Management

James Nowotarski

5 June 2003

• Review for the core knowledge exam

Today’s Objectives

Topic Duration

• Last week’s quiz 5 minutes

• Recap and quiz on 45 minutes

– Procurement

– Financial analysis

• *** Break 10 minutes

• Core Exam Logistics 10 minutes

• Core Exam Review ???

Today’s agenda

Topic Duration

• Last week’s quiz 5 minutes

• Recap and quiz on 45 minutes

– Procurement

– Financial analysis

• *** Break 10 minutes

• Core Exam Logistics 10 minutes

• Core Exam Review ???

Today’s agenda

IT Outsourcing - Technical Considerations (9.1)

9.1 Discuss how the maturity of a system’s technology and its degree of integration with other systems affect the choice of outsourcing approaches.

Technical Considerations

Low High

High

Low

Degree of TechnologyIntegration

Degree of Technology Maturity

Outsource

Insource

Selective Outsourcing - What is it? (9.5)

What is it• Select the best-of-breed for an activity

9.5 Describe selective outsourcing with at least two advantages and two disadvantages

Advantages• Creates a competitive environment• Enables staff to be retained and redeployed• Provides flexibility to adapt to changes • Less risky than total outsourcing

Disadvantages• Overhead associated with multiple evaluations,

multiple contract negotiations, and multiple vendors to manage and coordinate

• Dividing up pieces of infrastructure (e.g., help desk and network management) can lead to trouble since the pieces are integrated

Topic Duration

• Last week’s quiz 5 minutes

• Recap and quiz on 45 minutes

– Procurement

– Financial analysis

• *** Break 10 minutes

• Core Exam Logistics 10 minutes

• Core Exam Review ???

Today’s agenda

Procurement - Process

RFP Process

1. Pre-RFP

2. RFP

3. Proposal Submissions

4. Proposal Evaluations

5. Vendor Selection

6. ProcurementMethod

7. ROI Analysis

8. NegotiateContract

6. Procurement Methods

• Purchase

– not that popular because of fear of obsolescence

– longest-term commitment of these 3 methods

• Rent

– usually less than 1 year in duration

– only need to give 30 days’ notice to cancel

– more expensive than purchase or leasing

• Lease

– usually 12-36 months in duration

– often done with an option to buy

– middle of the pack in terms of cost and ability to get out

8. Contract Negotiation

• Do’s

– Include vendor responses to RFP in the contract

– Keep lawyers at bay until Statement of Work is complete

– Leverage outside expertise in negotiations

– Provide incentives/penalties

• Don’ts

– Buy vaporware instead of proven solutions

– Purchase low bid unless the value is there

– Settle on final offer prematurely

The way you interact at the negotiating table may foreshadow ongoing relationship dynamics

8. Contract Negotiation

• Agreement between firm and vendor

• Was outlined in the RFP, now it gets finalized

• Includes

– Software characteristics

– Implementation plan

– Technical architecture

– Training strategy

– Maintenance and support

– Service levels (SLA items)

– Cost schedule

Statement of Work

Approach to qualityDefinition of quality metrics

Statement of Work

Approach to Quality and Measurement

Plan

Do

Check

Act

1. Identify quality standards and goals

2. Measure project performance

3. Compare metrics against goals 4. Conduct quality reviews, e.g., peer reviews5. Test for defects

6. Eliminate causes of deficient performance- fix defects- fix root causes

Statement of Work

Quality Metrics

Progress Measures the amount of work accomplished by the development team in each phase

Quality Evaluation Effort Measures the percentage of the development effort spent on internal quality evaluation efforts

Test Coverage Measures the amount of the software system covered by the testing process

Defect Detection Efficiency

Measure percentage of the actual defects originating in a stage of the project that were actually detected in that stage

Requirements Traceability Measures the percentage of the requirements that have been addressed by the system

Defect Removal Rate Measures the number of defects detected and removed over time

Defect Density Identifies defect-prone components of the system

Customer Satisfaction Measures customer satisfaction using objective surveys.

RFP Software Products

1) APES with INFORequestorTM Series – Completely integrated database system enabling pre-loaded or user-defined automated use requirements surveys. Business needs priority scoring, pre-loaded or user-defined RFQ, RFI, RFP preparation. Automatic generation of detail shortlist based on actual RFI responses. It is re-usable tool that will help over and over in the future. Cost is $698.00. 2)HyperRFPTM Series – Distribute RFPs by email or by Web, receive formatted vendor responses back to your designated E-Mail address & eliminate tedious copying, packaging, and mailing. Cost is $229.00. 3) On-Line Consultant - Software tool to make the process more efficient and objective. Linkage vendors’ responses with RFP questions. Quickly and easily compare and score vendors. Cost is varying

RFP Software Products

“Wilmington Trust Co. uses collaboration technology to manage the request-for-proposal process with its vendors. Most recently it used software from eRoom technology to evaluate 20 competitors vying to be the company’s sole temporary-staffing vendor, posting a set of questions in a single format.”

- InformationWeek, 7 October 2002

RFP Software Products

Network Computing web site’s RFP Builder

* http://www.networkcomputing.com/1202/1202sp3.html

RFP Software Products

For those preparing proposals (www.pragmatech.com):

The RFP Machine®

The RFP Machine® enables Knowledge Managers to build, edit, and maintain a central repository of company, product, and service information required for automated RFP and RFI creation. The software brings consistency and accuracy to the RFP response process by providing you with the tools to produce persuasive, professional documents in dramatically reduced time.

The RFP Tracking System™The RFP Tracking System™ allows users to track proposal activity, including information pertaining to the issuer of the RFP or RFI, the person responsible for the response, document turnaround time, the win/loss status, and any other important information

Financial Analysis

• Costs

–One-time vs. recurring

–Fixed vs. variable

–Tangible vs. intangible

o Tangible - Accurately projected

o Intangible - Difficult to estimate or hidden

Costs and Benefits Review

Financial Analysis

• Benefits

–One-time vs. recurring

–Fixed vs. variable

–Tangible vs. intangible

o Tangible - Measurable

o Intangible - Important but difficult to measure or translate into $$$

Costs and Benefits Review (cont.)

Financial Analysis

Tangible benefits• Can be measured and

expressed in $$$• Examples:

– increase sales– reduce labor costs

reduce headcount increase productivity

– reduce inventory costs

Intangible benefits• Difficult to translate into $$$• Perceived gains • Examples:

– improve reputation– provide better information for

decision-making– offer services that

competitors currently offer• When to use:

– When the tangible costs exceed the tangible benefits, look at the deficit and decide if the intangibles are worth that amount. 

Tangible vs. Intangible Benefits

Financial Analysis

1. Break-even analysis

2. Payback analysis

3. Cash-flow analysis

4. Net present value analysis

There are four common methods of cost-benefit analysis:

Financial Analysis

1. Break-even analysis

Definition Breakeven point is when total cost of current system and proposed system intersect

Example Current payroll systems costs $1.25 per employee

New system costs $20,000 to implement and $0.35 per employee

Let x = number of employees

.35 x + 20000 = 1.25 x

x = 22,222 employees

If 1,000 employees processed per week, breakeven point is reached in the 23rd week of the system’s life

Financial Analysis

1. Break-even analysis

When to use Project justified in terms of cost savings, not benefits

Advantages Useful when business is growing, volume is key variable in cost

Disadvantages Benefits are ignored

Financial Analysis

2. Payback analysis

Definition Payback period is the amount of time it takes to recover an initial investment

Example New B2B system costs $300,000 to develop.

System handles 1,000 sales per month.

Cash inflow is $50 per sale after paying variable costs.

Payback period = initial investment / annual cash inflow

= 300,000 / (1,000 * 50)

= 300,000 / 50,000

= 6 months

Financial Analysis

2. Payback analysis

When to use Project justified in terms of tangible benefits

Advantages Simple to use

Disadvantages Ignores the time value of money

Does not consider total return beyond the payback period

Financial Analysis

3. Cash Flow Analysis

Definition Examines the direction, size, and pattern of cash flow associated with the proposed system

ExampleQ1 Q2 Q3 Q4 Q5

Revenue 5 20 25 50 75Costs (26) (27) (17) (19) (20)Cashflow (21) (7) 8 31 55Cum (21) (28) (20) 11 66

Financial Analysis

3. Cash Flow analysis

When to use Project is expensive relative to firm size

Advantages Simple to use

Disadvantages Ignores time value of money

Financial Analysis

4. Net present value analysis

Definition Present value - $1 received today is more valuable than $1 a year from today, which is more valuable than $1 two years from today, etc.

NPV considers the time value of both the investments and cash flows

Let p = current amount, r = interest rate

Future amount in n periods (Fn) = p(1+r)n

p = Fn / (1+r)n

Example Q1 Q2 Q3 Q4 Q5Revenue 5 20 25 50 75r = .01NPV 4.95 19.61 24.26 48.05 71.36

Financial Analysis

4. Net present value analysis

When to use Payback period is long or cost of borrowing money is high

Advantages Can adjust interest rate to reflect greater risk in far future versus near future

Relatively simple to explain

Disadvantages Longer the time frame, more uncertain on what NPV is

Slightly more complex than other methods

Capital Budgeting

Objective

• Determine if a depreciable asset will provide a return that will meet or exceed the original investment in the asset's acquisition

Screening vs. Preference Decisions

• Screening - Look at one proposed project

• Preference - Select from among several alternatives

Capital Budgeting

Question:

• When do you consider intangible benefits in capital budgeting decisions?

Answer:

• When tangible costs exceed tangible benefits, look at intangible benefits and decide if they are worth the deficit amount

• When selecting from multiple alternatives that are ranked even (tie-breaker)

Financial Analysis

Describe a situation where a project may not meet minimum cost-benefit requirements and still be approved.

Financial Analysis

When is cost-benefit analysis done during the procurement process? Why is this the most desirable time to do it? 1. Pre-RFP

2. RFP

3. Proposal Submissions

4. Proposal Evaluations

5. Vendor Selection

6. ProcurementMethod

7. ROI Analysis

8. NegotiateContract

range of potential costs/benefits

preliminary cost/benefit analysis

in-depth cost/benefit analysis

update cost/benefit analysis

update cost/benefit analysis

update cost/benefit analysis

Topic Duration

• Last week’s quiz 5 minutes

• Recap and quiz on 45 minutes

– Procurement

– Financial analysis

• *** Break 10 minutes

• Core Exam Logistics 10 minutes

• Core Exam Review ???

Today’s agenda

Topic Duration

• Last week’s quiz 5 minutes

• Recap and quiz on 45 minutes

– Procurement

– Financial analysis

• *** Break 10 minutes

• Core Exam Logistics 10 minutes

• Core Exam Review ???

Today’s agenda

• Deadline for registration is . . . today!!!• Exam is June 17, 2003 beginning at 6pm• Exam lasts 75 minutes• Loop campus

– “Specific building and room locations will be posted on the CTI web site the day before the exam”

Core Knowledge Exam Logistics

• Tonight’s session being recorded• Recordings not available after 6/13, noon

COL Recordings

Part A

• Answer all 4 questions (mandatory)

• Taken from study guide topics:8. Procurement9. Outsourcing10. Financial Analysis

Core Knowledge Exam Questions

The Core Exam will have two parts:

Part B• Five pairs of questions• Answer three of the five pairs• Each half of a pair comes from a different topic• Questions taken from remaining study guide topics:

1. Major IT eras 2. IT Human Resources Management and Organizational Transformation3. Distributed IT Architecture and Infrastructure4. Network Management5. Operations Management6. End User Training7. Help Desk

Core Knowledge Exam Questions

The Core Exam will have two parts (cont.):

Anatomy of Core Knowledge Exam

A1.A2.A3.A4.

B1a.B1b.

B2a.B2b.

B3a.B3b.

B4a.B4b.

B5a.B5b.

Topics 8,9,10

Topics 1-7

Anatomy of Core Knowledge Exam

A1.A2.A3.A4.

B1a.B1b.

B2a.B2b.

B3a.B3b.

B4a.B4b.

B5a.B5b.

A1.A2.A3.A4.

Select 3 pairs

Anatomy of Core Knowledge Exam

A1.A2.A3.A4.

B1a.B1b.

B2a.B2b.

B3a.B3b.

B4a.B4b.

B5a.B5b.

A1.A2.A3.A4.

Select 3 pairs

B1aB1b

B4aB4b

B5aB5b

Topics 8,9,10

Topics 1-7

<= 9 topics10 questionsTotals

Anatomy of Test Bank

# DescriptionLecture Date(s)

# Questions in Test Bank

1 IT Eras 3-Apr 8

2 IT Human Resource Management

10-Apr 8

3 Distributed Architecture 17-Apr 8

4 Network Management 24-Apr 8

5 Operations Management 1-May 8

6 Organizational Transformation (BRP, ERP)End User Training

1-May8-May

8

7 Help Desk 8-May 8

8 Procurement 15-May29-May

16

9 Outsourcing 22-May 8

10 Financial Analysis 29-May 8

Topic Duration

• Last week’s quiz 5 minutes

• Recap and quiz on 45 minutes

– Procurement

– Financial analysis

• *** Break 10 minutes

• Core Exam Logistics 10 minutes

• Core Exam Review ???

Today’s agenda

End of slides