Article: Information Systems

Sambav_66

Week5.pdf

Home >Information Systems homework help >Article: Information Systems

Chapter 8

Unique

Common

Standardized

Commoditized

Utility

Figure 8.1 Maturity for IT Function Delivery

Unique: A unique IT function is one that provides strategic (perhaps even proprietary) advantage and benefit.

Common: This type of IT function caters to common (i.e., universal) organizational needs. It has little to differentiate the business, but it provides a necessary component (e.g., HR, financial system).

8-18

Standardized: An IT function that not only provides common tasks/activities but also adhere to a set of standards developed and governed by external agencies.

Commoditized: These functions are considered commodities similar to oil and gas. Once attributes are stipulated, functions are interchangeable and indistinguishable (e.g., ASPs, network services, server farms, backup services).

8-19

Utility: A utility function is a commodity (such as electricity) delivered by a centralized and consolidated source (e.g., ISPs, other telecommunication services such as bandwidth on demand).

8-20

Figure 8.2 IT Functions Ranked by Maturity Stage

In-house

Insource

Outsource

Partnership

8-22

Figure 8.3 Delivery Options for IT Functions

1. Flexibility: Response time (i.e., how quickly IT functionality can be delivered).

Capability (i.e., the range of IT functionality).

2. Control: Delivery (i.e., ensuring that the delivered IT function complies with requirements).

Security (i.e., protecting intellectual assets).

8-24

1. Knowledge Enhancement: Behind many sourcing decisions is the need to either capture knowledge or retain it.

2. Business Exigency: Unforeseen business opportunities arise periodically, and firms with the ability to respond do so. That is, a quick decision is made to seize the opportunity, and normal decision criteria are jettisoned in order to be responsive to the business.

8-25

Identify your core IT functions.

Create a “function sourcing” profile.

Evolve full-time IT personnel.

Encourage exploration on the whole range

of sourcing options.

Combine sourcing options strategically.

8-26

Core Function? IT Function In-house Insource Outsource Partnership

Yes Business analysis

Systems analysis

In Future Strategy and planning

In Future Data management

Yes Project management

Yes Architecture

Application development

QA and testing

Now but not in

future

Networking

Operating systems and services

Yes Application support

Data center operations

Application software

Hardware

Table 8.3 Sample Function Delivery Profile

Develop a sourcing strategy Use a decision framework to identify what’s core and what’s not.

Develop a risk mitigation strategy Ideally, an outsourcing relationship should be structured to ensure shared risk so both parties are incented to make it work.

8-28

Understand the cost structures If you can’t compete in-house, you should outsource.

Ongoing cost comparisons are effective as they motivate both parties to do their best and most cost-effective work.

8-29

Sourcing has become an integral part of many organizations. IT managers have an incredible range of available options in terms of how they choose to source and deliver IT functions. Based on the framework proposed, organizations can develop more strategic, nuanced, and methodological approaches to IT function sourcing and management.

8-30

Chapter 9

Takes too long.

Process may be disconnected from the business objectives.

Rigid adherence to annual plans may inhibit responsibility for performance.

May inhibit the business needs to be flexible.

9-32

Organizational budgeting practice emerged in the 1920s as a tool for managing costs and cash flows.

Present-day annual fixed plans and budgets were established in the 1970s to drive performance improvements.

9-33

Fiscal IT budget (i.e., those prepared for the CFO):

-- Capital expenditures – consist of large expenses spread over multiple years.

-- Operating Expenses – consist of the annual costs of running the business.

9-34

Capital budgets IT Expenditures that may be capitalized include:

-- Project development -- Infrastructure -- Consulting fees -- Major technology purchases

9-35

Functional IT budgets

Used by IT managers as spending plans and are based on:

-- Operations costs

-- Strategic investment

9-36

Operations costs:

-- Costs to “Keep the Lights On”.

-- Includes maintenance costs, computing and peripheral functions, in-house support and outsourced support.

-- May include operating and capital costs.

9-37

Strategic investment:

-- Consists of “New” technology spending. -- May include business improvement

initiatives, business-enabling initiatives to transform company operations or new technology business opportunity projects.

-- May be classified as capital or operating costs.

9-38

Cost allocation:

-- The process of allocating IT costs to others’ budgets.

-- Allocation may be based upon a formula using factors such as size of business unit, prior year spending, or percentage of use of IT services.

-- May lead to artificiality in allocating development resources.

9-39

1. Fiscal Discipline

2. Strategy Implementation

9-40

“IT Costs too Much”. Demonstrating the realities of business finance has become a significant part of IT leadership. IT budgets may be used to limit or manage demand. Used to hold IT leadership accountable for what it spends.

9-41

Budgets link long-term goals to short-term execution through the allocation of resources. Where IT dollars are spent can impact corporate performance. How discretionary IT dollars are spent impacts project outcomes. The budget process reinforces strategic decision making.

9-42

Figure 9.1 A Generic IT Planning and Budgeting Process

Corporate processes:

-- Establish corporate fiscal policy.

-- Establish strategic goals.

-- Set IT spending levels.

9-44

Factors that Affect IT Spending Levels

Number of competitors

Uncertainty

Diversification of products and services

Affordability

Growth

Previous year’s spending

9-45

Set functional IT budget – determine what is spent on IT operations and strategic investment.

Set the fiscal IT budget – transform the functional IT budget into operating and capital spending categories.

9-46

1. Appoint an IT finance specialist

2. Use budgeting tools and methodologies

3. Separate operations from innovation

4. Adopt enterprise funding models

5. Adopt rolling budget cycles

9-47

1. IT finance specialist:

-- Understand IT costs and drivers.

-- Can manage the translation between the IT functional and fiscal budget.

-- Can develop business cases for new projects.

9-48

2. Use budgeting tools and methodologies

-- Link IT Budgets to IT Plans. -- Link IT Budgets to Corporate Strategic

Plans. -- Link IT Budgets to Resource Strategies. -- Link IT Budgets to Performance

Metrics.

9-49

3. Separate operations from innovation:

-- Split operations costs from new project development costs.

-- Provide visibility to business unit managers to better understand true costs to deliver and service new systems and ongoing services.

9-50

4. Adopt enterprise funding models:

-- Separates centralized core IT services from decentralized business unit services.

-- Used to develop IT operations budgets at an enterprise level.

9-51

5. Adopt rolling budget cycles:

-- IT Plans and budgets need updating more than once per year.

-- Quarterly eighteen month rolling plans enable new projects to be funded more quickly.

9-52

The IT budget process can be a critical lynchpin between many different stakeholders: finance, business units, corporate strategy, and IT.

IT budgets play a key role in implementing strategy and controlling costs.

9-53