Information Technology Investment : Decision-Making Methodology

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Edition: 2nd
Format: Hardcover
Pub. Date: 2010-05-30
Publisher(s): World Scientific Pub Co Inc
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Summary

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 deal for educators and students involved in programs dealing with technology management, operations management, applied finance, operations research, and industrial engineering.

Table of Contents

Prefacep. vii
List of Tables and Figuresp. xvii
Introduction to Information Technology Investment Decision-Making Methodology
Introduction to Information Technology Investment Decision-Makingp. 3
Introductionp. 4
Types of IT Investment Decision-Making Problemsp. 5
What are IT Investment and Decision-Making Methodologies?p. 8
Limitations of Methodologiesp. 10
Why Study IT Investment and Decision-Making Methodologies?p. 13
Organizational Strategic Planning in IT Investment Decisionp. 14
How This Book is Organized to Help You Learnp. 21
Summaryp. 24
Needs Analysis and Alternative Information Technology Investment Strategiesp. 29
Introductionp. 30
What is Needs Analysis?p. 32
Determining IT Processing Capacities and Specificationsp. 35
Alternative IT Investment Strategiesp. 40
What is IT Outsourcing?p. 42
An IT outsourcing strategyp. 45
Final comment on IT outsourcingp. 47
Summaryp. 47
Measuring Information Technology Investment Performancep. 53
Introductionp. 54
The Economics of Informationp. 54
Examples of economic theories of informationp. 55
Why Measure IT Performance?p. 57
Measures of IT Business Valuep. 59
Financial Performance Measures of ITp. 60
Business performance measures of ITp. 62
Strategic performance measures of ITp. 64
Costs of ITp. 65
Measures of IT effectiveness valuep. 66
Measures of IT efficiency valuep. 73
Summaryp. 75
Financial Information Technology Investment Methods
Basic Financial Methodsp. 83
Introductionp. 84
What are the Basic Financial Methods?p. 84
What is Breakeven Analysis?p. 86
A statistical approach to non-quantifiable benefitsp. 89
What is Payback Period Methodology?p. 90
What is Accounting Rate of Return Methodology?p. 95
Summaryp. 99
Other Financial Methodologiesp. 109
Introductionp. 110
What Types of Methodologies Support IT Investment Decision-Making?p. 110
Financial techniques for IT investment decision-makingp. 111
Operations research/management science techniques for IT investment decision-makingp. 112
Techniques specifically designed for IT investment decision-makingp. 114
Other techniques for IT investment decision-makingp. 119
What is Present Value Analysis Methodology?p. 121
Net present value analysis methodologyp. 123
Computer-based solutionsp. 126
Unequal investment sizesp. 126
Unequal investment livesp. 127
What is Return on Investment Methodology?p. 129
ROI strategy for enterprise resource planning systemsp. 130
What is Internal Rate of Return?p. 132
Computer-based solutionsp. 135
A word about cash flowsp. 136
Summaryp. 136
Cost/Benefit Analysisp. 143
Introductionp. 144
What is Cost/Benefit Analysis?p. 144
Define problemp. 145
Identification and quantification of cost and benefitp. 146
Compare alternativesp. 150
Sensitivity analysisp. 156
What is Cost/Effectiveness Analysis?p. 158
Summaryp. 158
Multi-Criteria Information Technology Decision-Making Methods
Critical Success Factors, Delphi Method and the Balanced Scorecard Methodp. 167
Introductionp. 168
What are Critical Success Factors?p. 168
What is the Delphi Method?p. 174
What is the Balanced Scorecard Method?p. 176
Balanced scorecard componentsp. 177
Illustration of the balanced scorecard methodp. 184
Final word on balanced scorecardsp. 187
Summaryp. 189
Multi-Factor Scoring Methods and the Analytic Hierarchy Processp. 193
Introductionp. 194
What are Multi-Factor Scoring Methods?p. 195
Types of multi-factor scoring methodsp. 196
Summary of multi-factor scoring methods solution proceduresp. 198
Sensitivity analysis of multi-factor scoring methodsp. 199
Spreadsheet and computer solutionsp. 201
What is the Analytic Hierarchy Process?p. 202
The AHP procedurep. 203
Summary of AHP solution procedurep. 225
Spreadsheet and computer solutionsp. 225
Summaryp. 227
Decision Analysis and Multi-Objective Programming Methodsp. 237
Introductionp. 238
What is Decision Theory?p. 238
Decision theory problem/model elementsp. 239
Types of decision environmentsp. 240
Decision Theory Formulation and Solution Methodologiesp. 241
A decision theory problem/model formulation Procedurep. 241
Decision-Making Under Certainlyp. 245
Maximax criterionp. 245
Maximin criterionp. 245
Decision-Making Under Riskp. 247
Origin of probabilitiesp. 247
Expected value criterionp. 248
Expected opportunity loss criterionp. 249
Decision-Making Under Uncertaintyp. 250
Laplace criterionp. 251
Maximin criterionp. 253
Maximax criterionp. 253
Hurwicz criterionp. 253
Minimax criterionp. 254
Multi-Objective Programming Methodologyp. 255
What is Goal Programming?p. 257
Goal programming problem/model elementsp. 258
Goal Programming Problem/Model Formulationp. 268
GP problem/model formulation procedurep. 268
GP problem/model formulation problemsp. 269
Computer-based solutions for goal programmingp. 277
Goal Programming Complications and Model Assumptionsp. 282
GP complicationsp. 282
GP model assumptionsp. 283
Summaryp. 284
Other Information Technology Investment Methods
Benchmarking Techniques and Game Theoryp. 295
Introductionp. 296
What is Benchmarking?p. 296
A benchmarking procedurep. 298
A benchmarking methodology: Gap analysisp. 300
What is Game Theory?p. 303
Basic structure of game theory problem/modelp. 304
Objectives and assumptionsp. 306
Game theory problem/model formulation procedurep. 307
Solution Procedures for Game Theory Problemsp. 310
Rational choice method: A saddle point solutionp. 310
The minimax solution methodp. 315
A minimax solution for a mixed strategy problemp. 317
A computer-based solution for a mixed strategy problemp. 319
Summaryp. 321
Investment Portfolio Methodologiesp. 329
Introductionp. 330
What are Investment Portfolio Methodologies?p. 330
Ward's Portfolio Approachp. 331
Evaluating individual investmentsp. 335
Setting prioritiesp. 337
Investment Mapping Methodologyp. 343
Mapping the investment portfoliop. 343
Evaluating IT investmentsp. 348
Managing benefitsp. 351
Other Investment Portfolio Methodologiesp. 352
Summaryp. 353
Value Analysis and Benefit/Risk Methodologiesp. 357
Introductionp. 358
What is Value Analysis Methodology?p. 358
What is Benefit/Risk Analysis Methodology?p. 363
Summaryp. 371
Implementing IT Decision-Making
Research Suggestions on Implementing IT Investment Methodologyp. 377
Introductionp. 378
Organizational Impact of Information Technology Investmentp. 378
Previous research on IT's impact on organizationsp. 378
Measures of IT investmentp. 379
Organizational impact of IT investmentp. 381
Understanding Value and Instinct in IT Investment Decisionsp. 383
Determining what's importantp. 383
Defining value in IT investmentp. 384
The role of intuitionp. 386
Making the Best of IT Investmentp. 387
IT investments: Goal and problemp. 387
Managerial causesp. 388
Strategies to solve the paradoxp. 390
Summaryp. 392
Implementing the Outsource or Insource Decisionp. 397
Introductionp. 398
What is Outsourcing?p. 399
Why Use Outsourcing?p. 399
Why Use Insourcing?p. 401
Strategic Planning with Outsourcing and Insourcingp. 402
Outsourcing Methodologiesp. 404
Outsourcing evaluation frameworkp. 405
Cost/benefit analysisp. 406
Critical success factorsp. 407
Investment portfolio methodologiesp. 407
Other methodologiesp. 408
Post Outsourcing Decision Considerationsp. 409
Service level agreementp. 410
Summaryp. 410
Epilogue: The Costs of Not Making the Right Information Technology Decision (and Strategies on How to Avoid Them)p. 415
Macro Economic Viewp. 415
Micro Economic Viewp. 417
Strategies for Making the Right IT Investment Decisions and Avoiding IT Costsp. 422
"So What's the Good News?"p. 425
Indexp. 433
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