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Chapter 10

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Department
Administrative Studies
Course
ADMS 2511
Professor
Donna Rex
Semester
Summer

Description
Chapter 10: Provide reasons for the importance of IT planning  Organizations must analyze the need for applications and then justify each application in terms of cost and benefits.  The need for information systems is usually related to organizational planning and to the analysis of its performance vis-à- vis its competitors.  The cost-benefit justification must look at the wisdom of investing in a specific IT application versus spending the funds on alternative projects. Describe the process of IT planning, the purpose of the IT strategic plan and the IT steering committee, and the components of the Information Systems operational plan  The planning process for new IT applications begins with analysis of the organizational strategic plan. o The organization's strategic plan states the firm's overall mission, the goals that follow from that mission, and the broad steps necessary to reach these goals.  The strategic planning process modifies the organization's objectives and resources to meet its changing markets and opportunities.  The organizational strategic plan and the existing IT architecture provide the inputs in developing the IT strategic plan. o the IT architecture delineates the way an organization's information resources should be used to accomplish its mission. o It encompasses both technical and managerial aspects of information resources. o The technical aspects include hardware and operating systems, networking, data management systems, and applications software. The managerial aspects specify how managing the IT department will be accomplished, how functional area managers will be involved, and how IT decisions will be made.  The IT Strategic Plan is a set of long-range goals that describe the IT infrastructure and identify the major IT initiatives needed to achieve the goals of the organization. o The IT strategic plan must meet three objectives  It must be aligned with the organization's strategic plan.  It must provide for an IT architecture that enables users, applications, and databases to be seamlessly networked and integrated.  It must efficiently allocate IS development resources among competing projects so the projects can be completed on time and within budget and have the required functionality.  The IT Steering Committee consists of a group of managers and staff representing various organizational units, is set up to establish IT priorities and to ensure that the MIS function is meeting the needs of the enterprise. o The committee's major tasks are to link corporate strategy and IT strategy, approve the allocation of resources for the MIS function, and establish performance measures for the MIS function and see that they are met. o The IT steering committee is important to you because it ensures that you get the information systems and applications that you need to do your job.  After a company has agreed on an IT strategic plan, it next develops the IS operational plan. This plan consists of a clear set of projects that the IS department and the functional area managers will execute in support of the IT strategic plan. o A typical IS operational plan contains the following elements/components:  Mission: The mission of the IS function (derived from the IT strategy).  IS environment: A summary of the info needs of the functional areas and of the organization as a whole  Objectives of the IS function: The best current estimate of the goals of the IS function  Constraints on the IS function: Tech, financial, personnel, other resource limitations on the IS function  The application portfolio: A prioritized inventory of present applications and a detailed plan of projects to be developed or continued during the current year  Resource allocation and project management: A listing of who is going to do what, how, and when Explain how IT investments are evaluated and justified and describe common approaches to cost- benefit analysis  Developing an IT plan is the first step in the acquisition process. o All companies have a limited number of resources available to them. o For this reason they must justify investing resources in some areas, including IT, rather than in others. o Essentially, justifying IT investment involves assessing the costs, assessing the benefits (values), and comparing the two. This comparison is frequently referred to as cost-benefit analysis. o ASSESSING THE COSTS  One of the major challenges that companies face is to allocate fixed costs among different IT projects.  Fixed costs are those costs that remain the same regardless of any change in the activity level. For IT, fixed costs include infrastructure cost, cost of IT services, and IT management cost.  For example, the salary of the IT director is fixed, and adding one more application will not change it.  Another complication is that the cost of a system does not end when the system is installed. Costs for maintaining, debugging, and improving the system can accumulate over many years. In some cases the company does not even anticipate them when it makes the investment.  An example is the cost of the Year 2000 (Y2K) reprogramming projects that cost organizations worldwide billions of dollars at the end of the 20 century. This programming technique could have caused serious problems with, for example, financial applications, insurance applications, and so on. o ASSESSING THE BENEFITS  Benefits may be harder to quantify, especially because many of them are intangible  (for example, improved customer or partner relations or improved decision making). You will probably be asked for input about the intangible benefits an information system provides for you.  The fact that organizations use IT for several different purposes further complicates benefit analysis.  In addition, to obtain a return from an IT investment, the company must implement the technology successfully.  In reality, many systems are not implemented on time, within budget, or with all the features originally envisioned for them.  Finally, the proposed system may be “cutting edge.” In these cases there may be no previous evidence of what sort of financial payback the company can expect. o CONDUCTING COST-BENEFIT ANALYSIS  After a company has assessed the costs and benefits of IT investments, it must compare the two. There is no uniform strategy to conduct this analysis.  Rather, it can be performed in several ways. Here we discuss four common approaches: (1) net present value, (2) return on investment, (3) breakdown analysis, and (4) the business case approach.  Organizations often use net present value (NPV) calculations for cost-benefit analyses. Using the NPV method, analysts convert future values of benefits to their present-value equivalent by “discounting” them at the organization's cost of funds. They then can compare the present value of the future benefits to the cost required to achieve those benefits and determine whether the benefits exceed the costs. NPV analysis works well in situations where the costs and benefits are well defined or “tangible” enough to be converted into monetary values.  Another traditional tool for evaluating capital investment is return on investment (ROI). ROI measures management's effectiveness in generating profits with its available assets. The ROI measure is a percentage, and the higher the percentage return, the better. ROI is calculated by dividing net income attributable to a project by the average assets invested in the project. In the case of IT, then, the company would divide the income generated by an IT investment by costs of that investment. greater the value of ROI, more likely the comp is to approve the investment.  Break-even analysis determines the point at which the cumulative dollar value of the benefits from a project equals the investment made in the project. Break-even analysis is attractive for its simplicity but is flawed because it ignores the value of system benefits after break-even point.  One final method used to justify investments in projects is the business case approach. A business case is a written document that managers use to justify funding one or more specific applications or projects. You will be a major source of input when business cases are developed because these cases describe what you do, how you do it, and how a new system could better support you. Describe the components of the eight stage system development life cycle (SDLC), identify the activities, outcomes and the role of users in each stage  The Systems Development Life Cycle (SDLC) is the traditional systems development method that organizations use for large-scale IT projects. The SDLC is a structured framework that consists of sequential processes by which information systems are developed.  These processes are systems investigation, systems analysis, systems design, programming, testing, implementation, operation, and maintenance.  Each process in turn consists of well-defined tasks. o SYSTEMS INVESTIGATION  The initial stage in a traditional SDLC is systems investigation.  Systems development professionals agree that the more time they invest in (a) understanding the business problem to be solved, (b) the technical options for systems, and (c) the problems that are likely to occur during development, the greater the chances of success.  For these reasons, systems investigation begins with the business problem (or business opportunity), followed by the feasibility analysis.  The main task in the systems investigation stage is the feasibility study. Organizations have three basic solutions to any business problem relating to an information system: (1) do nothing and continue to use the existing system unchanged, (2) modify or enhance the existing system, or (3) develop a new system.  The Feasability Study analyzes which of these three solutions best fits the particular business problem. This study determines the probability that the proposed systems development project will succeed.  It also provides a rough assessment of the project's technical, economic, behavioural, and organizational feasibility, as we discuss below. The feasibility study is critically important to the systems development process because it can prevent organizations from making costly mistakes. o Technical feasibility determines if the hardware, software, and communications components can be developed and/or acquired to solve the business problem. o Economic feasibility determines if the project is an acceptable financial risk and if the organization can afford the expenses and time needed to complete the project. Economic feasibility addresses two primary questions: (1) Do the benefits outweigh the costs of the project? (2) Can the company afford the project? Methods of economic feasibility. o behavioural feasibility addresses the human issues of the project. All systems development projects introduce change into the organization, and people generally fear change. Overt resistance from employees may take the form of sabotaging the new system (for example, entering data incorrectly) or deriding the new system to anyone who will listen. Covert resistance typically occurs when employees simply continue to use the old system. o Organizational feasibility refers to an organization's ability to accept the proposed project. Sometimes, for example, organizations cannot accept an affordable project due to legal or other constraints.  After the feasibility analysis is considered, a “Go/No-Go” decision is reached by the steering committee if there is one, or by top management in the absence of a committee. o The Go/No-Go decision does not depend solely on the feasibility analysis. Organizations often have more feasible projects than they can fund. Therefore, the firm must prioritize the feasible projects, pursuing those with the highest priority. o Unfunded feasible projects may not be presented to the IT department at all. These projects therefore contribute to the hidden backlog, which are projects of which the IT department is not aware. o If the decision is “No-Go,” then the project either is put on the shelf until conditions are more favourable or is discarded. If the decision is “Go,” then the project proceeds, and the systems analysis phase begins. o SYSTEMS ANALYSIS  Systems Analysis is the examination of the business problem that the organization plans to solve with an information system.  This stage defines the business problem in more detail, identifies its causes, specifies the solution, and identifies the information requirements that the solution must satisfy.  The main purpose of the systems analysis stage is to gather information about the existing system in order to determine the requirements for an enhanced or new system. The end product of this stage, known as the “deliverable,” is a set of system requirements.  Arguably the most difficult task in systems analysis is to identify the specific requirements that the system must satisfy. These requirements are often called user requirements, because users provide them.  In this phase, the team must outline what information is needed, how much is needed, for whom, when, and in what format. Systems analysts use many different techniques to identify the information requirements for the new system. o These techniques include interviews with users, surveys of users, direct observation, and document analysis (“follow the paper”). With direct observation, analysts observe users interacting with the existing system.  There are problems associated with eliciting information requirements, regardless of the method used. o First, the business problem may be poorly defined. o Second, the users may not know exactly what the problem is, what they want, or what they need. o Third, users may disagree with one another about business procedures or even about the business problem. o Finally, the problem may not be information related. Instead, it might require other solutions, such as a change in management or in organizational structure.  The systems analysis stage produces the following information: o (1) strengths and weaknesses of the existing system, o (2) functions that the new system must have in order to solve the business problem, and o (3) user information requirements for the new system. o SYSTEMS DESIGN  describes how the system will accomplish this task.  The deliverable of the systems design phase is the technical design, which specifies the following:  system outputs, inputs, and user interfaces  hardware, software, databases, telecommunications, personnel, and procedures  a blueprint of how these components are integrated  This output represents the set of system specifications.  Systems design encompasses two major aspects of the new system: logical and physical system design.  Logical system design states what the system will do, using abstract specifications. Early auditor involvement in helping to describe controls and security features is an important part of this process.  Physical System Design states how the system will perform its functions, with actual physical specifications. Logical design specifications include the design of outputs, inputs, processing, databases, telecommunications, controls, security, and IS jobs. Physical design specifications include the design of hardware, software, databases, and telecommunications. o For example, the logical telecommunications design may call for a wide area network that connects the company's plants. The physical telecommunications design will specify the types of communications hardware (computers and routers), software (the network operating system), media (fibre optics and satellite), and bandwidth (100 Mbps).  When both aspects of system specifications are approved by all participants, they are “frozen.” That is, once the specifications are agreed upon, they should not be changed.  Adding functions after the project has been initiated causes Scope Creep which endangers the budget and schedule of a project. Scope creep occurs during development when users add to or change the information requirements of a system after those requirements have been “frozen.” o Scope creep occurs for two reasons. First, as users more clearly understand how the system will work and what their needs are, they request that additional functions be incorporated into the system. Second, after the design specifications are frozen, business conditions often change, leading users to request additional functions. o PROGRAMMING  Systems developers utilize the design specifications to acquire the software needed for the system to meet its functional objectives and solve the business problem. Although many organizations tend to purchase packaged software, many other firms continue to develop custom software in-house.  For example, Wal-Mart and TD Bank design practically all of their software in-house.  Programming involves translating the design specifications into computer code.  This process can be lengthy and time-consuming, because writing computer code is as much an art as a science.  Large systems development projects can require hundreds of thousands of lines of computer code and hundreds of computer programmers.  These large-scale projects employ programming teams. These teams often include functional area users, who help the programmers focus on the business problem. o TESTING  Thorough and continuous testing occurs throughout the programming stage.  Testing is the process that checks to see if the computer code will produce the expected and desired results under certain conditions.  Proper testing requires a large amount of time, effort, and expense.  However, the costs of improper testing, which could result in a company's implementing a system that does not meet its objectives, are enormous.  Testing is designed to detect errors or bugs in the comp code. These errors are two types:  Syntax errors (for example, a misspelled word or a misplaced comma) are easier to find and will not permit the program to run.  Logic errors permit the program to run but they cause it to generate incorrect output. Logic errors are more difficult to detect, because the cause is not obvious. The programmer must follow the flow of logic in the program to determine the source of the error in the output.  “show-stopper” bugs. These bugs are the serious errors that will cause catastrophic loss or corruption of data and perhaps will shut down the system completely. In contrast, the errors that remain embedded in good-enough software should not affect the system's performance in any significant way. o IMPLEMENTATION  Implementation (or deployment) is the process of converting from the old system to the new system. Organizations use three major conversion strategies: direct, pilot, and phased.  In a Direct Conversion, the old system is cut off and the new sys is turned on at a certain point in time. This type of conversion is the least expensive. It is also the riskiest if the new sys doesn't work as planned. Because of these risks, few sys are implemented using direct conversion.  A Pilot Conversion introduces the new system in one part of the organization, such as in one plant or in one functional area. The new sys runs for a period of time and is then assessed. If the assessment confirms that it is working properly, then it is introduced in other parts of the org.  Phased Conversion introduces components of the new system, such as individual modules, in stages. Each module is assessed. If it works properly, then other modules are introduced until the entire new system is operational.  parallel conversion, where the old and new systems operate simultaneously for a time, o For example, parallel conversion is totally impractical when both the old and new systems are online. Imagine that you are finishing an order on Amazon.com, only to be told, “Before your order can be entered here, you must provide all the same information again, in a different form, and on a different set of screens.” The results would be disastrous for Amazon. A variation, called a “historic parallel,” is used in which real transactions are run through the new system and the results compared before the new systems are moved in for live usage. o OPERATION AND MAINTENANCE  After the new system is implemented, it will operate for a period of time, until (like the old system it replaced) it no longer meets its objectives. Once the new system's operations are stab
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