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IT Economic$

IT Economic$. Eloy Arjona | Jose A. Del Angel. Economic Trends in IT. Price-to-performance ratio Hardware capabilities 2x every 18 mo. (Moore’s Law). Economic Trends in IT. Productivity Paradox

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IT Economic$

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  1. IT Economic$ Eloy Arjona | Jose A. Del Angel

  2. Economic Trends in IT • Price-to-performance ratio • Hardware capabilities 2x every 18 mo. (Moore’s Law)

  3. Economic Trends in IT • Productivity Paradox • There is no hard data that demonstrates increases in productivity with the widespread of IT • Costs, investment and IT budgets have increased • Costs are higher than estimated when including total cost • Challenges • Support costs (27%) and Administrative (9%) • Wasted time—waiting for reports, programs, web-pages • Software development problems • Junk Computing—reports, presentations, email, personal time

  4. Evaluating IT Investment Value Vs. Cost • Basic IT Investment Categories • IT Infrastructure • IT Applications • IT Investment Categories by its Drivers • Transformation—Inadequate core infrastructure (e.g. ERP) • Renewal—Reduce cost, increase quality, obsolescence • Process Improvement—Business Case (e.g. HR, automation) • Experiments—New technologies, products, processes, or business models (e.g. EC, self-serve)

  5. Evaluating IT Investment • Value of IT in Decision Making • Value of Information = Net Benefits with Information – Net Benefits without Information • Traditional Cost-Benefit Analysis and ROI • Net Present Value (NPV) • Internal Rate of Return (IRR) • Payback Period

  6. Opportunities and Revenue • Opportunities • Infrastructure—WAN • Compliance—SOX • No Alternative—Computerized reservations • Direct & Indirect Returns—Online brokerage • Competitive Necessity—ATMs, EDI, EC • Revenue Increase and Cost Reduction • Sales, Transaction fees, Subscription fees, Advertising fees, etc. • Transaction Costs: search, information, negotiation, decision costs. • Reducing Risks: quality, financial transactions, tracking shipments

  7. Other Approaches • Intangible Benefits • What is the value of… • Speed to market • Employee satisfaction • Customer loyalty • Better control • Organizational agility • Easier distribution of products • Rough estimates • Strategic advantages • Quick wins vs. Long term • Think “out-of-the-box” for other benefits • The Business Case • Used for funding projects and even whole companies • Shows specifics on investment requirements, plans, and implementation steps

  8. MethodsforEvaluating and Justifying IT Investments • Fourtypes • Financialapproach • Monetary-valueonly; NPV, ROI • Multicriteria • Financial + Nonfinancial; infoeconomics, valueanalysis • Ratio Approach • IT expenditures vs. Total turnover, etc. • Portfolio Approach • Proposalscenarios

  9. TCO / TBO • Total Cost of Ownership • TCO = Acquisitioncost + OperationsCost + Control Cost • InvestmentPayoff = TBO - TCO

  10. TCO / TBO • Examples: • Acquisition • Hardware, Software • Control Costs • Centralization, Standardization • OperationCosts • Support, Evaluation, Installation/Upgrade, Training, Downtime, Futz, Auditing, Virus, Powerconsumption

  11. IT Metrics • Specific, Standard, Measurable Performance Metrics • ValueProposition of Business Model • Communication of Business Strategy • Accountability • Alignment of objectivesthroughouttheorganization

  12. IT Metrics • Expectedbenefits of metricsimplementation • Revenuegrowth • Costreductions • Customersatisfaction • Customerservice

  13. Chargeback and Outsourcing • Accuratelymeasurethecost of aninitiative / project • Chargeusersforsharedinvestments • Reduce swlicensestowhat’sactuallybeingused

  14. Chargeback • No incentive to control costifusers can accessresources at (seemingly) no expense • Chargecost of recovery • Assigncostleveldependingondesireduserbehavior • Issues: • Lack of understanding of whattheusers are beingchargedfor

  15. Outsourcing • IT functionshavedifferentlevels of relevance per company • IT isanenabler, butit can becomplex and expensive • Drivers • Focusoncorecompetencies, costreductions, improvedquality, speedtomarket, fasterinnovation

  16. Outsourcing http://www.deloitte.com/dtt/cda/doc/content/us_consulting_oaspovwhysettle_141207(1).pdf

  17. Outsourcing • 70% of respondentsachieved ROI targets • But… • 39% switchedvendors • 50% backsourced • 61% reportedscalationtoseniormanagement • Paradox of financialbenefit and relationshipconflicts • Unrealizedpotential: Settinggoalstoolow

  18. Outsourcing • Building a SolidFoundationforanOutsourcingInitiative • Business case / strategyassessmentiskey • ROI – hiddencosts, remotemanagement, severancecosts • Intangible benefits • Effective performance management: metrics, measures

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