Information Technology Investment: Decision-making Methodology (2nd Edition) / Edition 2

by Marc J Schniederjans, Jamie L Hamaker, Ashlyn M Schniederjans

Overview

From the individual to the largest organization, everyone today has to make investments in IT. Making a smart investment that will best satisfy all the necessary decision-making criteria requires careful and inclusive analysis. This textbook provides an up-to-date, in-depth understanding of the methodologies available to aid in this complex process of multi-criteria decision-making. It guides readers on the process of technology acquisition — what methods to use to make IT investment decisions, how to choose the technology and justify its selection, and how the decision will impact the organization.Unique to this textbook are both financial investment models and more complex decision-making models from the field of management science so that readers can extend the analysis benefits to enhance and confirm their IT investment choices. The wide range of methodologies featured in the book gives readers the opportunity to customize their best-fit solutions for their unique IT decision situation. This textbook is especially ideal for educators and students involved in programs dealing with technology management, operations management, applied finance, operations research, and industrial engineering.A complimentary copy of the ‘Instructor's Manual and Test Bank’ and the PowerPoint presentations of the text materials are available for all instructors who adopt this book as a course text. Please send your request to [e-mail].

Product Details

ISBN-13:	9789814282567
Publisher:	World Scientific Publishing Company, Incorporated
Publication date:	03/24/2010
Edition description:	New Edition
Pages:	468
Product dimensions:	6.10(w) x 9.00(h) x 1.20(d)

Table of Contents

Preface vii

List of Tables and Figures xvii

Part II Introduction to Information Technology Investment Decision-Making Methodology

Chapter 1 Introduction to Information Technology Investment Decision-Making 3

Introduction 4

Types of IT Investment Decision-Making Problems 5

What are IT Investment and Decision-Making Methodologies? 8

Limitations of Methodologies 10

Why Study IT Investment and Decision-Making Methodologies? 13

Organizational Strategic Planning in IT Investment Decision 14

How This Book is Organized to Help You Learn 21

Summary 24

Chapter 2 Needs Analysis and Alternative Information Technology Investment Strategies 29

Introduction 30

What is Needs Analysis? 32

Determining IT Processing Capacities and Specifications 35

Alternative IT Investment Strategies 40

What is IT Outsourcing? 42

An IT outsourcing strategy 45

Final comment on IT outsourcing 47

Summary 47

Chapter 3 Measuring Information Technology Investment Performance 53

Introduction 54

The Economics of Information 54

Examples of economic theories of information 55

Why Measure IT Performance? 57

Measures of IT Business Value 59

Financial Performance Measures of IT 60

Business performance measures of IT 62

Strategic performance measures of IT 64

Costs of IT 65

Measures of IT effectiveness value 66

Measures of IT efficiency value 73

Summary 75

Part II Financial Information Technology Investment Methods

Chapter 4 Basic Financial Methods 83

Introduction 84

What are the Basic Financial Methods? 84

What is Breakeven Analysis? 86

A statistical approach to non-quantifiable benefits 89

What is Payback Period Methodology? 90

What is Accounting Rate of Return Methodology? 95

Summary 99

Chapter 5 Other Financial Methodologies 109

Introduction 110

What Types of Methodologies Support IT Investment Decision-Making? 110

Financial techniques for IT investment decision-making 111

Operations research/management science techniques for IT investment decision-making 112

Techniques specifically designed for IT investment decision-making 114

Other techniques for IT investment decision-making 119

What is Present Value Analysis Methodology? 121

Net present value analysis methodology 123

Computer-based solutions 126

Unequal investment sizes 126

Unequal investment lives 127

What is Return on Investment Methodology? 129

ROI strategy for enterprise resource planning systems 130

What is Internal Rate of Return? 132

Computer-based solutions 135

A word about cash flows 136

Summary 136

Chapter 6 Cost/Benefit Analysis 143

Introduction 144

What is Cost/Benefit Analysis? 144

Define problem 145

Identification and quantification of cost and benefit 146

Compare alternatives 150

Sensitivity analysis 156

What is Cost/Effectiveness Analysis? 158

Summary 158

Part III Multi-Criteria Information Technology Decision-Making Methods

Chapter 7 Critical Success Factors, Delphi Method and the Balanced Scorecard Method 167

Introduction 168

What are Critical Success Factors? 168

What is the Delphi Method? 174

What is the Balanced Scorecard Method? 176

Balanced scorecard components 177

Illustration of the balanced scorecard method 184

Final word on balanced scorecards 187

Summary 189

Chapter 8 Multi-Factor Scoring Methods and the Analytic Hierarchy Process 193

Introduction 194

What are Multi-Factor Scoring Methods? 195

Types of multi-factor scoring methods 196

Summary of multi-factor scoring methods solution procedures 198

Sensitivity analysis of multi-factor scoring methods 199

Spreadsheet and computer solutions 201

What is the Analytic Hierarchy Process? 202

The AHP procedure 203

Summary of AHP solution procedure 225

Spreadsheet and computer solutions 225

Summary 227

Chapter 9 Decision Analysis and Multi-Objective Programming Methods 237

Introduction 238

What is Decision Theory? 238

Decision theory problem/model elements 239

Types of decision environments 240

Decision Theory Formulation and Solution Methodologies 241

A decision theory problem/model formulation Procedure 241

Decision-Making Under Certainly 245

Maximax criterion 245

Maximin criterion 245

Decision-Making Under Risk 247

Origin of probabilities 247

Expected value criterion 248

Expected opportunity loss criterion 249

Decision-Making Under Uncertainty 250

Laplace criterion 251

Maximin criterion 253

Maximax criterion 253

Hurwicz criterion 253

Minimax criterion 254

Multi-Objective Programming Methodology 255

What is Goal Programming? 257

Goal programming problem/model elements 258

Goal Programming Problem/Model Formulation 268

GP problem/model formulation procedure 268

GP problem/model formulation problems 269

Computer-based solutions for goal programming 277

Goal Programming Complications and Model Assumptions 282

GP complications 282

GP model assumptions 283

Summary 284

Part IV Other Information Technology Investment Methods

Chapter 10 Benchmarking Techniques and Game Theory 295

Introduction 296

What is Benchmarking? 296

A benchmarking procedure 298

A benchmarking methodology: Gap analysis 300

What is Game Theory? 303

Basic structure of game theory problem/model 304

Objectives and assumptions 306

Game theory problem/model formulation procedure 307

Solution Procedures for Game Theory Problems 310

Rational choice method: A saddle point solution 310

The minimax solution method 315

A minimax solution for a mixed strategy problem 317

A computer-based solution for a mixed strategy problem 319

Summary 321

Chapter 11 Investment Portfolio Methodologies 329

Introduction 330

What are Investment Portfolio Methodologies? 330

Ward's Portfolio Approach 331

Evaluating individual investments 335

Setting priorities 337

Investment Mapping Methodology 343

Mapping the investment portfolio 343

Evaluating IT investments 348

Managing benefits 351

Other Investment Portfolio Methodologies 352

Summary 353

Chapter 12 Value Analysis and Benefit/Risk Methodologies 357

Introduction 358

What is Value Analysis Methodology? 358

What is Benefit/Risk Analysis Methodology? 363

Summary 371

Part V Implementing IT Decision-Making

Chapter 13 Research Suggestions on Implementing IT Investment Methodology 377

Introduction 378

Organizational Impact of Information Technology Investment 378

Previous research on IT's impact on organizations 378

Measures of IT investment 379

Organizational impact of IT investment 381

Understanding Value and Instinct in IT Investment Decisions 383

Determining what's important 383

Defining value in IT investment 384

The role of intuition 386

Making the Best of IT Investment 387

IT investments: Goal and problem 387

Managerial causes 388

Strategies to solve the paradox 390

Summary 392

Chapter 14 Implementing the Outsource or Insource Decision 397

Introduction 398

What is Outsourcing? 399

Why Use Outsourcing? 399

Why Use Insourcing? 401

Strategic Planning with Outsourcing and Insourcing 402

Outsourcing Methodologies 404

Outsourcing evaluation framework 405

Cost/benefit analysis 406

Critical success factors 407

Investment portfolio methodologies 407

Other methodologies 408

Post Outsourcing Decision Considerations 409

Service level agreement 410

Summary 410

Epilogue: The Costs of Not Making the Right Information Technology Decision (and Strategies on How to Avoid Them) 415

Macro Economic View 415

Micro Economic View 417

Strategies for Making the Right IT Investment Decisions and Avoiding IT Costs 422

"So What's the Good News?" 425

Index 433