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AFM 341 (30)
Brian Ma (12)
Chapter 14

AFM 341 Chapter 14: Chapter 14

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Accounting & Financial Management
AFM 341
Brian Ma

Chapter 14 There are techniques to evaluate IT projects because: - IT projects require a lot of capital of which firms tend to have a limited amount - opportunity cost of choosing an investment - IT projects have big impact on business processes which will affect the organization Business cases are created (business case question) - why are we doing this project? - how does it address key issues? - cost? time? - ROI? payback period? - risks of doing project? not doing project? - alternative projects? - how to measure success? Economic Justification Process (used to justify IT initiatives) 1. assess business requirements for IT project 2. potential solutions to address those business problems 3. evaluate benefits, costs, risk for all options 4. combine info to estimate value prop 5. formalize business case recommendations To align with business requirements, IT initiatives needs to reduce gaps between current and desired performance levels shown on their strategy map Need to link technology with critical success factor. 1. specific business processes affecting critical success factor 2. problems with current business processes 3. opportunities to address issues 4. technology that would improve issues Complementary changes to IT: - Providing training - redefining job descriptions - reconfiguring tasks - offering incentives Benefit – positive consequence of IT investment 1. revenue enhancement: more sales opp 2. revenue protection: protect existing revenue stream 3. cost savings (ex. inventory management reduces cost of inventory) 4. cost avoidance (ex. install current software to accommodate changes to regulations) *not to facilitate work from home Benefits > cost To quantify benefits of tech: - simulate impact on key performance indicator on F/S - get an expert opinion - compare chance of getting benefits with investment vs benefit of not investing (real option theory) - use actual experience of other firms that made similar investments in similar situations to estimate benefit (external benchmark) Forecasting effects of change: 1. assess current performance by looking at output and input for process 2. consider change and forecast benefit of new processes Relevant cost: incremental expense to create, implement, and operate proposed IT Total acquisition cost = direct cost + indirect cost to get and run technology D
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