BENEFITS MANAGEMENT & REALISATION

1. The Long-term is (easily) ignored

   Nota:

   • Adjustment time (in years) is usually required to match organisational factors and ICT investments (Ward & Daniel, 2006) • Integrating ICT with the business strategy can have long term benefits – when evaluating the success of an organisation • even when its productivity is based on financial outcomes • …but it may take some years
2. Too Much Focus on Cutting Costs?

   Nota:

   • Conventional productivity metrics are based on measuring tangible things – This shifts towards a cost savings orientation • productivity is based on financial gain or loss. • Methods, e.g.: – Accounting rate of return; payback method; cost-benefit ratio; net present value; profitability index; internal rate of return » Research indicates that most managers are not making ICT investments strictly to cut costs
3. Isolation of ICT as a Single Entity

   Nota:

   • Technology is only one component of an information strategy • BUT: many organisations decide to single out the ICT function as a separate business/cost entity – This makes it very difficult to evaluate ICT in terms of contribution to productivity across the organisation – When ICT is considered a separate component it can be perceived as a costly process – Often leads to the assumption that ICT is not a success factor for the organisation …. and can be outsourced

1. Problems with evaluation

   Nota:

   • inappropriate measures • hidden costs – knock-on costs, human costs, organisational costs • neglecting intangible benefits • not investigating risk • failure to devote resources for evaluation • failure to take time-scale for likely benefits into account • not relating significance of information resources to the achievement of the organisation’s strategic agenda
2. Evaluating IS/IT - Problems

   Nota:

   • Changes in the type of tasks addressed by IS/IT – Shift from automation & clerical tasks to more decision-oriented tasks • from asset to infrastructure • IS/IT projects are now usually part of larger business projects – Who benefits from an EIS? – Sometimes IS/IT budgets have R&D origins (Google, Amazon etc) » Difficult to disentangle an assessment of IS/IT benefits alone – “strategic” projects bypass the process and therefore forego proper evaluation
3. Evaluation Techniques

   Nota:

   • Over 70 evaluation techniques all differing in their sophistication, application and appropriateness. • Most are based on Cost/Benefit analysis as part of a business case – Objective measurement of inputs and outputs & attached values – Subjective methods address user participation, ownership & commitment - reliance on attitudes & opinions
   1. Business Case Approach
      1. Costs

         Nota:

         • Three example approaches to costing • Traditional Accounting – e.g. Return on Investment [ROI], Net Present Value [NPV], Payback, and others – Add up the direct & indirect costs • Direct – clearly linked to the project/process • Indirect – the overheads (although these may be absorbed elsewhere in the organisation) via an allocation formula • Activity Based Costing (ABC) – Counts the actual activities (processes, functions, or tasks that occur over time) that consume resources – Can calculate how much an IT system is used by an activity, and assign a cost • Total Cost of Ownership (TCO) – Capital investments, plus includes costs associated with support, admin., training – Direct (budgeted) costs are the capital, fees, and labour costs spent by the corporate IS department, and business unit IS groups in delivering Information Technology services and solutions to the organisation and users. • H-ware; s-ware; operations (mgt.); administration (support) – Indirect (unbudgeted) costs measure the efficiency of IS in delivering expected services to end users. • End-user operations; downtime – Estimate annual cost per user Ward & Daniels, 2006, p.27-35; or, Ward & Peppard, 2002, pgs.422-426
      2. Benefits

         Nota:

         • Understanding & Evaluating Benefits • Lack of satisfaction with costing approaches has led to a focus on evaluating benefits – linking benefits to the objectives of information strategy – benefits should reflect these criteria… Ward & Daniels, 2006; chp5 Benefits must be SMART
      3. Risks

         Nota:

         • Benefits result from change; in particular: – Doing new things (or in new ways) – Doing things better (better performance) – Stopping doing some things • Change involves risk » this means that you have to assess & manage the risks BENEFITS-CHANGE-RISK 
         • Risk: PRINCE2 Definition “A risk is an uncertain event or set of events that, should it occur, will have an affect on the achievement of objectives. It consists of a combination of the probability of a perceived threat or opportunity occurring, and the magnitude of its impact on objectives” Sub definitions: • Threat – an uncertain event that could have a negative impact on objectives • Opportunity – an uncertain event that could have a favourable impact on objectives
         1. Risk: Strategies

            Nota:

            • •Avoid  • Reduce • Fallback • Transfer  • Acceptance • Share • Exploit   • Enhance • Reject • 
         2. Understanding & Evaluating Risk

            Nota:

            • Risk tolerance of organisation – relationship between amount of satisfaction derived from risk-taking [i.e. utility] against potential payoff • Risk averse; risk neutral; risk seeking
            • The probability of the risk occurring against the potential impact – Referred to as a probability/impact matrix – Can quantify risk probability and consequence – Can also then track risks over time (and mitigating action) Information Strategy 24 Problem: (Strategic) risk assessment is “Fooled by Randomness and Screwed by Political Intent” Budzier & Flyvbjerg (2006)
            • Variation in the types of risks across the IS application portfolio – Main types of risks: • Technical (e.g. technical complexity; technical novelty) • Financial (e.g. size of investment; project cost control) • Organisational (e.g. senior mgt. commitment; extent of changes) – Will vary according to the importance/significance of the information system to current & future organisational performance • Strategic & High Potential = likely to be technical, financial & organisational risks • Support & Key Operational = likely to be organisational risks (Ward & Daniels, p.203)
4. Evaluation: closing thoughts

   Nota:

   • •Application of evaluation methods are often ritualistic, have biases and are unlikely to be rational and formal • The evaluation process itself can have an impact

1. Benefits Management

   Nota:

   • Benefits have many perspectives – Strategic advantage: – Internal efficiencies (reduce cost & more flexibility) • Benefits achieved may be less than those anticipated – Benefits are relative to industry performance – Competitors adopt the same system - leads to industry standard value is then transferred to the customer. – IS /IT systems often become legacy • Managed within a portfolio of activities / projects
   1. Benefit types

      Nota:

      • – Financial – Quantifiable – Measurable – Observable
   2. Benefits Management Techniques

      Nota:

      • Large number available • Indicative of difficulty in assessing value of IS benefits. • Mostly devised for large commercial firms – Active Benefits Realisation – Val IT – Benefits Management Approach (Ward & Daniels) – Benefits Realization Approach (Thorp) – Balanced scorecards
      1. Benefits Management Approach (Ward & Daniels)

         Nota:

         • Process model approach • Use of benefits dependency networks – helps to identify the relation between information systems proposal and business benefits
         • Reduced Expenditure Customer Satisfaction Increased Effectiveness Better Market Image Better Quality Information
      2. – Benefits Realization Approach (Thorp)

         Nota:

         • Based on key activities (next slide). • Account is taken of the whole IS lifecycle • Benefits are evaluated against costs and also relevant areas – 1. Alignment – doing the right things? – 2. Integration – doing them the right way? – 3. Capability efficiency – are they being done well? – 4. Benefits – are we getting the benefits?
         • Key activities • Business programme management instead of isolated IT project management. • Portfolio management of all business programmes, where the value of each programme is managed in relation to the other programmes. • Full life cycle management instead of project management. • Full accountability of business programmes with business sponsorship and ownership. • Relevant measurements to keep score in terms of benefits realization. • Proactive management of change to give stakeholders ownership of programmes. Information 
      3. Balanced scorecards

         Nota:

         • Financially "To succeed, how should we appear to our shareholders?"
         • Internal Business Processes "To satisfy our customers and shareholders, what businesses processes must we excel at?"
         • Learning and Growth "To achieve our vision, how will we sustain our ability to change and improve?" 
         • Customer "To achieve our vision, how should we appear to our customer?"
      4. IS/IT Full Life Cycle Approach

         Nota:

         • Life cycle approach is useful in taking account of the value consequences of IS • Business cases need to be continually evaluated throughout the life cycle – not just at inception. – Planning – Development – Operations
         • Planning Stage • Priority of the IT investment relative to other investments is established • Could use Earl’s top down, bottom up and inside out planning approaches • Questions to be asked are – What business are we in & what differentiates us? – What major changes in business are likely? – What is our strategic focus & how will it be achieved (innovation or efficiency)? – To what extent can IT assist in this strategy?
         • Development Stage • Not just about working through the prioritised list. • Need to manage costs & benefits through active resource management and the delivery of functionality • Alt all times delivery has to keep an eye of the business case and the subsequent benefits that are to be achieved • Resist additional functionality which doesn’t add benefits. • Governance of the project through delivery is vital
         • Operations Stage • This stage is different in that – Systems changes are usually minor – Removing functionality would be of major concern – Most of the costs have already been incurred • Usually this is where the benefits are reaped

Nota:

• Managerial issues • Constant growth and change; • Identifying and measuring intangibles • Shift from tangible to intangible benefits; • Not a sure thing; • Chargeback – who pays for the IT service/department; • Managing Risk; • Consideration of Outsourcing options; • Managements push for Increasing returns and value
• Evaluation – appears simple, but.. • Difficulties of evaluating ICT (as well as the wide variation in ICT application & usage) have contributed to what has previously been referred to as the ‘productivity paradox’ • There are however a number of reliable techniques that can aid evaluation – A business case approach addresses evaluation through a range of techniques, focusing on: costs, benefits, & risks • Includes wide range of techniques from more traditional financial measures to techniques for observational measures of areas such as competencies & capabilities • Incorporates the idea that benefits are derived from change, and that this carries risk