Unit 1: Tech 2

Slide 2

Making the business case for IT. It still amazes me that IT managers and IT personnel
still do such a poor job making the business case and well talk about that in this
module, what it takes to make a good business case. Quite often IT folks in general
focus on the technology and don't put it in terms of something that matters to the
organization. When we identify the benefits we can look at it that its going to automate,
its going to informate, or its going to give a strategic benefits. We have to decide what
it's going to do. The fact that it runs faster doesn't help managers. We have to put it in
terms that means something to them. One of the problems we have with justifying
systems is its easy to identify the cost, identify the cost of developing new system.

Slide 3

However, it's more difficult to identify the productivity gains. Now there are definitely
limitations to identifying what the gains will be but we haven't seen productivity
increased at the rate of IT investments. So weve spent lots of money, millions of dollars,
billions of dollars, as an industry, into IT productivity but we haven't seen the
tremendous benefits.

Slide 4

In fact sometimes we see declines in productivity and we call this productivity paradox,
information systems can and may be used in unintended ways. So we give everyone in
our organization Internet access and its slow and no one uses it because it is so slow
and we increase Internet access so that we have this nice, robust Internet connection.
What happens? People might start doing online gaming, they may start doing more junk
and e-mail spamming, they may do personal shopping, they may be on blogs all day,
they may be doing YouTube and Facebook, eBay, things like that. So we run into a
productivity paradox that IT investment does not equal and parallel overall productivity.
This is a good place to talk about efficiency versus effectiveness. Which is more
important - to do things right or to do the right things. The answer is that theyre both
equally important.

Slide 5

So we have to balance both efficiency and effectiveness. One of the problems we have
with measuring productivity is that it's difficult to measure and sometimes we look at the
wrong things again. We look at is the concept of efficiency versus effectiveness.

Slide 6

Heres a real world example. Lets look at call centers. We historically have evaluated
call-center employees by their efficiency: how many calls they take per hour minus the
number of calls that were abandoned, number of people that hung up waiting. So, if I'm
on the telephone and Maria's on the telephone system and Maria takes 20 calls an hour
and I take three calls an hour Maria gets a higher score than I do. She took more call.
She's more efficient. Now if Maria took 20 calls an hour that means that the time to pick
up the phone, log the call, talk with the customer, hang up and close the call was within
5 minutes. Its possible that in 5 minutes time, an average of 5 minutes, which means
that some people were longer, some people were shorter. Hello helpdesk. Yes, Im
having problems with my machine. Go ahead and reboot and call us back. Click. Thats
probably not really going to help that person out but if I spent 20 minutes with your
problem, I would be more effective than Maria would be. However thats not how were
being measured. So quite often we have measurement problems. We don't measure
whether were being more productive and not and just because we handled more calls,
we are more efficient, didnt mean were more effective.

Slide 7

Another problem is time lags. Sometimes there's a learning curve that happens. Theres
a delay between investing in IT and the systems gaining use, acceptance, and increase
in productivity. Imagine that we that we rolled out a new sales management system and
we had to train all of our people on it. Lets say we have offices in 14 states. How long
will it take to get everyone trained on the new system? How long will it take them for
them to be as comfortable with the new system as they were with the old system?
There are going to be some delays there. What if we buy the new system but it takes us
two years to customize it so that integrates with our other systems. So there's a number
of reasons why wed have time delays. Sometimes a new information system may not
really increase our market share from new customers as it might bring back old
customers or steal customers for competitors.

Slide 9

Lastly, mismanagement. The best information technology system in the world cannot fix
bad management. It cant fix bad processes. It cant fix things that don't work. So we
end up with a creation of unanticipated bottlenecks, things that we didn't plan that would
happen. So we have to have good management in the organization. If company X rolled
out version 7 and it worked for them, it doesn't mean its going to work for us. We have
a different organization. We have different management. We have different employee.
There are lots of factors that have to come into play here and we have to include all of
these when we start looking at our productivity estimates of what this will do for our
organization.

Slide 10

I started off telling you that I am still surprised how often IT managers and personnel
make bad business cases. They don't quantify the benefits of IS. Its faster, it's more
accurate, doesn't mean anything to managers. Youve got to put it in terms that matter
for them. Now IT does not have and continues not to have an unlimited budget. We
continue to have shrinking budgets and your competing against other IT projects as well
as other business projects as well. So we have to make a strong business case and we
can base it upon three things: faith, fear, or facts. Lets look at each one of these.

Slide 11

Arguments based upon faith, we have beliefs. We don't know it for sure but we think this
strategy will work. We believe that its going to give us a competitive advantage. We
think the industry forces are going to come to play here. We think thats going to better
customer perceptions. So developing a better website interface, we don't have facts
about that. I can't tell you for sure that if we make our interface better it will bring us
more customers. However, we can have decision based on faith that we believe this will
happen. We have good reason for it. We don't know it for sure so it's not fact, but we do
it based upon faith.

Slide 12

Arguments based on fear. If we don't do this, we will go out of business, we will lose
market share, a competitor will buy us up. Now there are times when youd want to look
at arguments based upon fear. Markets that have a higher uncertainty would be a good
place where you would want to use this. Automotive industry would be an example. If
we don't do this our competitors will, so highly competitive markets are going to look for
things using fear.

Slide 13

Factors in IS decisions. Just a few of the things when presenting arguments based on
fear. So industry factors, what are our competitors doing. The technology factors, if we
continue running on Microsoft Windows 95 we will not be able to find software to run on
it. We will not be able find virus protection to run on it. Now we dont that as a fact, we
don't know when vendors will stop writing software for those. However, its pretty sure
that's going to happen. Restructuring the business processes, implementation factors,
IT investment and organizational performance. If we roll out this product, it is so new
and so different we will have organizational performance problems.

Slide 14

Michael Porter's five forces model is used to analyze competition within an industry. We
look at the threat of new entrants, how easy is it for new people to come into our
market. In some markets that's very easy. Online book selling: easy to do. Commercial
banking: more difficult. Bargaining power of buyers. Bargaining power of suppliers. Who
holds the power? Well if I go into Wal-Mart I don't have bargaining power as a buyer. Im
going to go buy one shopping cart worth of stuff. What about Wal-Mart? Were looking
at this looking per organization, per person. Wal-Marts bargaining power is very, very
high because of the quantity that they buy in. Threat of substitutes: products and
services. In the case of Wal-Mart thats high. I dont have to go to Wal-Mart. I can go to
Target. I can go to CVS. I can go to Tom Thumb. So lots of different places. And then
industry competition, rivalry among existing firms. A good example of that today would
be the cell phone industry, lots of rivalry between existing cell phone companies. Now
threat of new entrants there would be low, bargaining power of buyers would be low,
bargaining power of suppliers may be high, we don't know what is the bargaining power,
so put a question mark there. We dont know what the bargaining power of Nokia and
Samsung and Ericsson is to AT&T and Sprint and Verizon. Threat of substitute products
is very low. People want a cell phone. A corded land phone is not a true substitution

today. A text pager is not a true substitution. But theyre going to have high competition
here. So we would use this based upon fear. We dont know for sure. We don't have the
facts.
Slide 15

Arguments based upon facts. So data, quantitative analysis, we have numbers,

indisputable factors, things that no one can dispute, things you can measure, that you
have data for. Primary tools: we can do cost-benefit analysis, we can identify the cost,
we can identify the benefits, contrast the expected cost and the benefits. Then we came
up with the weighted multi-criteria analysis. This is another means to look at arguments
based upon fact. Now Ill give you a practical example of agreements based on fact.
About 10 years ago I was working for a bank and we were looking at upgrading the
teller system. Now there was going to be a considerable cost to upgrade all the PCs for
tellers. Now I could go in with all the reasons why we need to upgrade all the PCs and
all the network cards and say that we were going to run an average of 20% faster. That
doesn't mean anything to a manager especially to a branch manager that is bank and
customer focused. We are going to be able to do transactions a half a second to a
whole second faster. Again that doesn't mean anything to them. I haven't put it in terms
that mean something to them. How about, I can put an extra 50 cars through your drive-

thru lane per hour. Now Ive got their attention. If they've got four lanes and I can
increase 50 cars across those four lanes, that's pretty good. I dont have to hire more
people. I dont have to build more drive-thru lanes. We can increase the efficiency. Now
thats something that's very important for banks. If you go on a Friday afternoon and
there's lines down the street, out of the drive-thru line, into the parking lot, out to the
street, youre not going to go to that bank. So you have to put this in terms that mean
something to that manager.
Slide 16

Other ways we can do it is through TCO, total cost of ownership, the cost of acquisition,
the cost of use, the cost of maintenance. Now at another universe I was working at we
make a business case to throw away a million dollars worth of network equipment. How
do you justify throwing away a million dollars worth of equipment? Well, we looked at
the cost of acquisition. To buy new equipment would cost about a quarter of a million
dollars. It would cost next to nothing to use and the maintenance was much cheaper. In
fact the maintenance on the old system, as well as the required upgrades to fix it, were
close to a half million dollars. So I could send a half million dollars to band aid an
existing system, a quarter of a million dollars and throw it away and start fresh. So
identifying the cost is one way of doing it. The total cost of ownership was less. The

recurring versus non-recurring cost: recurring cost are monthly costs. So if everyone on
my enterprise needs a phone line to dial into their computer, thats a recurring cost. If I
can have a non-recurring cost and buy VPN solutions, virtual private network
connections, so people can connect across the Internet and work from home, then I can
use the recurring cost as a justification.
Slide 17

Then the concept of tangible versus intangible cost, tangible versus intangible benefits.
Its important to look at the different types of benefits and we look at in the terms of
tangible and intangible benefits, tangible and intangible cost. But if something is tangible
that means we can measure it, we can see it, we can observe it. Well we know what a
5% increase of sales looks like. A 5% increase of sales we can measure. We can
measure that with numbers. A reduction of order entry errors, we can measure the
number of errors and if we had 400 errors last month and we have 308 errors this
month, our errors have gone down. We have cycle times. If cycle times used to be 45
seconds and now its 30 seconds, we have an improvement. Those things are tangible
cause they can be measured. So we have tangible cost, tangible benefits. Intangible
benefits we cannot measure. Things like customer service. Whats an improvement in

customer service? How do we measure that? How do we say that customer service is
better? Our customers seem to be happier about our products. Well, happier is hard to
measure because its a perception and anytime we look at perceptions its difficult to
measure. Now in making our business cases we want to use tangible benefits as much
as possible. A tangible benefit, as we mention, can be measured. Its harder to dispute
and its easier to justify your case if you have previous results. So anytime that we have
intangible benefits if there is a way we can convert that to a tangible benefit we want to
do so.
Slide 18

Cost-Benefit analysis. A couple of different methodologies we can use here when we

are looking at the expected tangible cost versus the tangible benefits. Break-even
analysis identifies a point where the tangible cost equals the benefits. So at what point
will the cost equal the benefit. So if we're producing a machine and the machine is going
to save us $10,000 a year but it cost $50,000, thats our cost, our break-even analysis
will be at five years. Thats when we are going to break-even on that. If were only
planning to be in business three years or were only going to produce that product for
three years then a break-even analysis will not justify that expenditure. Net-present
value analysis identifies the present value of future cash flows.

Slide 19

Weighted multi-criteria analysis, this is a good method for showing multiple alternatives.
Now in my experience when I presented business plans to executive managers,
whether it be at banks or within the Navy or within universities, always come back to
here are the alternatives, here are the benefits of doing this. If you do this and you
present your results, you let the manager make the decision. The reason why you let
executive managers make the decisions is because then they own that decision. It
becomes their decision. So we have different alternatives. Heres alternative A,
alternative b, alternative c, and weve given them ratings. Now you can do this on any
number of things. You can do this for your next cell phone purchase in terms of cost, in
terms of weight, in terms of battery time, in terms of ring tone capacity, of picture
capacity, any number of things that you might want to add there. But want you want to
do is have consistent ratings. And unfortunately I have seen people go through these
types of rating and if they really want a product then theyll choose high ratings for this
one and theyll give really low ratings to another product. So you want multiple
reviewers and you want them to be unbiased in the results. The multi-criteria analysis
should not be used to help pick out or justify a product you already want. So whats the

best thing to do, whats the best product you should have. The weight should always
equal 100 and you should look at the best score. In this case the best product here
would be alternative C. Of course we dont know what that is but you can use the same
exercise with your next cell phone. Put the requirements, give them weights in terms of
importance. It maybe that cost is most important. It could be that weight is most
important to you. It could be that compatibility with other devices. If could be that you if
you ready have Samsung or Motorola or Nokia phones then maybe the car chargers
and adapters and everything else you already have is very important . So the multicriteria analysis varies by individual, it varies by organization. Just because XYZ
Company did this multi-criteria analysis for a new order entry system doesnt mean its
the same for our organization.
Slide 20

When you present the business case you have to know your audience. I started out this
lesson telling you that it still surprises me how many IT managers and IT workers cannot
present a valid business case and it's true. Ive seen organizations that have had money
to give out. Ive seen departments that are ready to spend money but the IT groups
have not been able to justify why they need the money. And realize in today's world,
where budgets are constrained, youre not just competing against just your department,

you're competing against the entire organization for prioritization, which projects can go
first, who gets the resources for them and who gets the money. So you have to know
your audience. You have to know whats the goal of the organization and the goal of the
group and you have to look at the stakeholder groups. Lets look at management first.
Whats managements goal? Managements goal is to make a profit and minimize cost.
Now if your project is not positioned to help them with their goals its not going to get
funded. Theyre looking at things of strategic value, long-term benefits to the
organization. So we have to be aware of that. The steering committee is going to decide
which projects get funded and when. Now the text mentions here, and its true, they
may have their own agendas. A steering committee is made up usually of executive
managers from different areas of the organization. Its possible that if your project is
going to take away resources from one of their projects it may not get funded. It may not
happen. The user department wants their project at all cost but realize that I'm putting in
a system for marketing and purchasing needs their system first, theyre going to be
pulling for their system. Then an IS or IT executive, in terms of either a CTO, chief
technology officer, or CIO, chief information officer, the overall responsibility of
managing that project.

Slide 21

One thing you want to do is convert benefits to monetary term. Say the benefit is better
up time, well have our systems up more often. Well how do I justify that? Well reduce
down time by 6 minutes a year on average. Well what is 6 minutes worth? Well what if
we calculate it in terms of salary, managers salary per hour, the number of managers
affected , the daily savings then, the weekly savings, and the annual savings. Now
weve converted it to a tangible idea. We can do a break-even analysis on this. Should
we upgrade the system so that we can save an hour a week? The system is unavailable
for one hour a week. People are inconvenienced. We can save $90,000 just from 12
people. What happens when its an enterprise that spans the globe and now were
talking about thousands of individuals? All of a sudden were going to reduce an hour of
down time actually means something.

Slide 22

So use proxy variables whenever possible. We have to do that when is not a clear-cut
measure. And then measure whats important to management. Your case becomes
more meaningful and you can focus on management's hot button issues. Whats
important to them? Well customer service is important, efficiencys important, expanding
into new markets, capturing sales from competitors. Find out what it is and align the
technology with those goals and youll have a better chance of presenting your case.
Now in today's world with HIPPA and FERBA and Sarbanes-Oxley and Gramm-LeachBliley, there are lots of compliance issues. So right off the bat why we need to do this,
compliance is one of them. We have to be able to maintain a chain of custody, thats
saying that the records were secured at all times within our organization, we have to
provide adequate safekeeping for records. Regulatory and compliance value is one
that's very easy to justify a project with today. Economic value, whats an economic
value of the system, what would it take to do it without the system. This is important
when we talk about disaster recovery. But when bad things happen how do we survive.
Whats the value of the architecture, whats the value of the operation to us? And lastly
we need to view IS as an asset and not as an expense. What is the value of having our
customer records? Whats the value of having information on our website that our

customers can quickly and easily get information from?