Course: 0624M / Information Technology Valuation

Introduction to IT ValuationWeek 01

LO 1: explain the concept Business Strategy to IT Action as basis for IT Valuation

Session 1 Define the Goals Benson et al; Chapter 1 pp. 1 - 16

Learning Outcome

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IT Valuation• What it is ?• Why enterprise needs to know The Value of it’s IT ?• Why students studying IT Valuation ?

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Session 1 Introduction to IT Valuation

Learning Outcome

LO 1: Explain how the right questions focus on affordability and impact

Session 1 Define the Goals Benson et al; Chapter 1 pp. 1 - 16

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Session 1 Define the goals

Topics to be discussed • Today’s reality • The Entire IT Spend: Reducing Cost and Improving Bottom-

Line Impact• The Strategy-to-Bottom-Line Value Chain• Disconnects• Critical Success Factors• Completing the Picture: The New Information Economics

Practices• Summary of the Book

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Right Results and Right Decisions• A Company should :

– spend money on IT that directly support its BUSINESS STRATEGY and OPERATIONAL EFFECTIVENESS.

– Not spend money on IT that does’nt– Able to Control IT budgets and investments, improve IT’s bottom-line impack by selecting

the best IT invesments, and eliminating under performing IT activities. projects• Right results:

– controlled IT cost and at the same time improved bottom line impact• Right Decisions:

– lead to the management actions needed to produce the right results– The right decisions lead to:

• Creating better investment alternatives, or creating better ideas for development projects

• Choosing the right investment and projects• Eliminating nonperforming and poor IT resources• Improving performances of the remaining IT resources• Implementing the right investments and performance improvements

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Define the Goals• Our goal is the IT Improvement Zone

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HigherCost

Cost

LowerCost

LowerImpack

Higher ImpackBottom-Line

Impack

TodaysCost andImpack

Impack Increase from New Projects

CostReduction

FromOperational

(light-on)Improvement

Goals

Achievable

Cost and Impack

Today’s reality • IT Cost ( spend )

– Operational Existing IT – LIGHTS ON– Development and Enhancement IT - PROJECTS

• With the right management frameworks and management practices, companies can successfully control the growth of IT costs and the same time improve the business bottom line impact.

• 3 Scenarios :– Lower lights-on and reduced bottom line impack– Higher lights-on cost combined with no improvement in bottom line

impack– Higher lights-on cost and higher bottom-line impack

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Define the Goals• Current Patterns for Many Companies

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HigherCost

Cost

LowerCost

LowerImpack

Higher Impack

Bottom-LineImpack

TodaysSituation

All to Common :Higher CostNo Change of Impack

Higher Growth: Higher CostHigher Impack

IT Improvement

Zone

Typicaly Undesirable :Lower CostLower Impack

The Entire IT Spend:

Reducing Cost and Improving Bottom-Line Impact

Three posible Objectives : 1.A Reduced Cost Objectives2. A Stable Cost Objectives3. A “Sweet Spot” objectives

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Define the Goals• Posible Outcamess for Companies

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HigherCost

Cost

LowerCost

LowerImpack

Higher ImpackBottom-Line

Impack

Today’sSituation

Stable Cost :Same CostHigher Impack

Higher Growth: Higher CostHigher Impack

IT Improvement

Zone

Reduced Cost :Lower CostSame Impack

Sweet Spot :Lower CostHigherImpack

The ‘Strategy-to-Bottom-Line ‘ Value ChainExhibit 1.4.

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Effective Planning Process

Appropriate Resource Decision

Workable Budgets, Projects, and Operational Plan

BusinessStrategies

Performance Measurement Metrics

ITActions

Bottom-Line

Results

Disconnects

• IT Plan does’nt connect to Business Plan :– Business plan do not drive IT plans– IT plans focus on technology rather than directly addressing business

strategies– B.Mgrs do not see IT as supporting strategies– IT projects do not support b. Strategies. Operation and maintenance

does not support strategy– Company budgets do not reflect the results of IT Planning– IT Planns are shelfware that does not guide mgt decisions, projects

or budgets– IT governance practices do not direct IT from a business perspective.

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8 Critical Success Factors for getting Right IT Actions

• Business and IT planning processes are fully connected and integrated• IT-enabled innovations impact business planning and results in new business

strategies and improved ways to implement current business strategies• IT Investments are prioritized against business strategy• The enire IT spend including development, operations, maintenance and services is

aligned with business strategy• IT Business and technical performance is tracked• Business and IT management teams consistently execute the management

processes that improveIT’s constribution to the business’s bottom—line performance

• Planning and management process focus on the entire IT investment, including both Light-on and Projects

• IT and business managers partisipate effectively in these management processes

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The New Information Economics Practices

• 5 Management Practices that flesh out : STRATEGY - To-Bottom-Line Value Chain, are the basis for connecting strategy and results

• Tools for IT and Business Managers to use to translate a compani’s BUSINESS STRATEGIES into PROGRAMS and INITIATIVES that IT can Implement

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NIE PracticesExhibit 1.5.

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Plans : Establish Business Requirements and IT Solutions based on Business Strategy

Resource Decision :Justify and proritize programs and projects based on business strategy

Opreationalizing : Stablish Budgets, Plans, and Metrics based on busniness strategy

Portfolio Management

ITActions

Business Results

IT Impact Management

BusinessStrategies

Culture Management

1. Demand/Supply Planning

2. Innovation

4. Alignment

3. Prioritization

5. Performance Measurement

Supporting Practices

The New Information Economics Practices

• NIE Practice 1: Strategic Demand/Supply Planning• NIE Practice 2: Innovation• NIE Practice 3: Prioritization• NIE Practice 4: Alignment• NIE Practice 5: Performance Measurement

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NIE Practices 1:

Strategic Demand/Supply Planning

• Translates business strategies into direction on what the company intends to do( strategic intention )

• Business and IT managers achieve a concensus on where the company is going and what IT can do to help

• Establishing the business drivers, as the Strategic IT Requirements translated from Management’s straqtegic intention

• Strategic IT Requirements establish Business strategic DEMAND for IT and IT Strategic planning deliver technology solutions as strategic IT SUPPLAY

• The result is a strategic AGENDA for the use of IT, translate into IT Plans and Actions

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NIE Practice 2:

Innovation• Changes the business strategies through IT capabilities • IT usually respons to business needs• Drives business management to uncover the business

opportunities that IT makes posible and provides a way to feed those opportunities into business strateic and tactical planning.

• The result is competitive set of business opportunities

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NIE Practice 3:

Prioritization

• Assesses the business impact of proposed IT initiatives , prioritizes of projects, assigns resources to highest value projects that support strategic intentions, ranking by future impact

• The result, money is spent in the right places, for the right reasons, with business and IT managres agreeing on the decisions.

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NIE Practice 4: Alignment

• Assesses the business impact of existing IT activities.• Business and IT managers decide which existing IT initiatives

should get resources, not all existing IT will be support • The result, is a reasoned approach to spending money for

existing activities, which often results in money made available for new development

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NIE Practise-5 : Performance Measurement

• Measures IT Performance in ways relate to the business– Easy to measures IT performance in operational and tactical terms– Hard to measure IT’s impact on the business

• Allows IT to ditermine what to measure how to manage IT based on those measures and how to communicate its performance

• The result is improved IT performace and imprpved communication with business managements.

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Practice support • IT Impact Management

– Deals with part of management culture and offers a framework and focabulary to state what is important to the company

• Portfolio Management– Makes IT posible to consider the intire IT spend, profiding holistic

framework for making priority and invesment management decisions• Culture Management

– Enables teh company to deal with its existing culture in the company in order to remove barriers to management process cahange

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Strategy to Bottom-line Value Chain

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BusinessStrategic

Intentions

AsessedPortfolio

(Alignment,Service/quality

Technology The IT Enterprise : Four “Light-On” Asset Pools

Performance Measurement Metrics

Strategic IT Plan Annual IT Plan

The Business Enterprise : Lines of Business, Departments

Strategic ITAgenda

Strategic ITPlan

Strategic ITRequirements

ProjectsBudget

Light-OnBudget

ProjectsProjects

Plan(annual)

Effective Planning

Appropriate Resource Decisions

Workable Budgets, Projects, and Organization Plan

Deliverables in the

Strategy-to-Bottom-line Value Chain

Action

IT Plan(Annual)

Business Plan(Annual)

BusinessStrategyBusinessStrategy

ITAction

ITAction

Bottom line

Results

Bottom line

Results

Performance Measurement MetricsPerformance Measurement Metrics

Summary• Controlling spending, means controlling the total IT cost, the aggregate of all total IT

Spending for a company, the goal is to understand what the company spends and than keep that total spend within company budget.

• Right Decisions on IT spending or IT cost are made by selecting the best choises about the detailed expenditur on IT resources focuses on items which gains maximum contribution to bottom-line

• IT should produce greater value and have a greater impact on organizational performance through it’s benefits

• NIE principles and management pratices guiding us to make the best and right decision on which

• Using a Business Value maturity model framework to assess an organization’s readiness for aplying the NIE principles

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