keith girling panel 1 information systems and professional issues 2007 (bman 30801) – session 2...

Panel 1 Keith Girling

Information Systems and Professional Issues 2007(BMAN 30801) – Session 2

Monday 8th October 1600 - 1750 hoursRoscoe Building Lecture Theatre B

Keith Girling – Visiting Professor

Module Text: “Professional Issues in Information Technology” – Frank Bott 2005


Objectives For Today 8th October?

• First of TWO sessions on the BUSINESS context for IT

• Challenging but Fundamental

• The “Eastenders” syndrome

• Text Chapters 5, 6, 7, 8

• Consider Business Start-Up; the role of CAPITAL

• Consider the concept of INVESTMENT

• Next session about ACCOUNTING


Remind ourselves of our “mind-map”Remind ourselves of our “mind-map”

Professional Issues in Information

Technology

PROFESSIONS (4)

Data Protection

S/W Contracts

Anti-discrimination

LAW & GOV’T (3)

IPR

Nature

Bodies

InternetMisuse

ORGANISATIONS (2)

HR Issues

Financial Accounting

BUSINESS (1)

CapitalManagement Accounting

Investment

Structure and Management


Why do we need capital?

• What are the different types of “commercial” venture?

• “Great Aunt Maud”

• Best ideas and intentions are purely academic unless vehicle for delivery

• Set-Up Costs

• Leads and Lags


The Business Plan

• “To manage is to forecast and plan, to organize, to command and to control” (Henri Fayol 1842-1925)

• Convince Others/Control

• Consists of:

– Objectives, Feasibility

– Markets

– Control Systems esp. Financials


Sources of Finance

To Begin With:

• Money You’ve got– Savings– Inheritance– Grants

• Money You Can Borrow– Loans– Equity Capital

Ongoing:

• Retained Profits

• New Finance


“The Dragon’s Den” – Gearing?

Example Page 56 Year 1 Year 2

BALANCE SHEET

FIXED & CURRENT ASSETS £100,100 £100,100

LIABILITIES

Share Capital £ 100 £ 100 0.10%

Fixed Term Loan I nt Rate 10% £ 100,000 £ 100,000 99.90%

TOTAL LIABILITIES £100,100 £100,100

PROFIT & LOSS ACCOUNT

Operating Profit £ 10,000 £ 20,000

I nterest Charges -£ 10,000 -£ 10,000

RETAINED PROFIT (Dividend?) £0 £10,000

"GEARING"

• Benefits v Risks

• Control


Investment Appraisal

1. Not to turn us into Accountants!

2. The Time Value of Money

3. Discounted Cash Flow

4. Applying DCF to propositions

5. Limitations of DCF


Investment Appraisal –2. The Time Value of Money

• What is money in the future worth now?

• Need to assume an “interest” rate

• Use tables and spreadsheets because of “compound” calculations

• Make assumptions about expenditures and income and when these occur

“ the discount factor for a discount rate of 8 per cent over a period of four years is 0.7350. This means that, if the discount rate is 8 per cent, the present value of a sum of £1,000 payable in four years time is £1000 x 0.7350 - £735.”


Investment Appraisal -3. Discounted Cash Flow

Example Page 87 – a computer maintenance company is considering whether to invest in a second van or continuing to rent a van at peak times - ASSUMPTIONS:

• New Van Costs £10,000 – Annual Insurance £500, Road Tax £150– Maintenance £200 first two years, £300 year 3, £400 year 4, £500 year 5– At end year 5, van is sold for £2,000 (year 5 value)

• Interest Rate company pays on borrowings is 10%• Van Hire costs are £30 per day and hires for 100 days per year• All cost subject to 5% inflation over the period

Total NPV over 4 years of buying new van =

£13,030

Total NPV over 4 years of renting = £15,980

BUT companies (usually the Finance Director) will factor in many more variables for example costs of money from different sources, and opportunity costs


Investment Appraisal -4. Applying DCF to Propositions

• Example Page 90 – Developing a Software Product

• Introduces other important concepts– Cumulative Present Value– Pay-back Period– Internal Rate of Return

(IRR)


Investment Appraisal -5. Limitations of DCF

• Let’s do a “risk analysis” on a software development project?


Summary

• Remind ourselves of objectives for today– First of TWO sessions on the BUSINESS

context for IT– Challenging but Fundamental– Text Chapters 5, 6, 7, 8– Consider Business Start-Up; the role of

CAPITAL– Consider the concept of INVESTMENT– Next session about ACCOUNTING

• Actions?– Get access to the Book!– Digest Chapters 5, 6, 7, 8

• Next session about ACCOUNTING

• THEN – we’ll get onto some of the more compelling stuff!

keith girling panel 1 information systems and professional issues 2007 (bman 30801) – session 2...

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