Information Systems Project Management—David Olson

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Information Systems Project Management—David Olson
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Chapter 4: Project Selection &

Approval
Important factors
Selection Methods
Value Analysis, Optimization

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Information Systems Project Management—David Olson
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IS Project Growth
• Corcoran (1997): billions spent on technology every year
• Sources
– users
– top management
– within information systems
• Process
– idea
– estimate benefits, costs

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IS Project Motivation

• Cost cutting/avoidance
• Revenue maintenance/enhancement
• Entering new markets
– data mining

• Gaining market share

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Estimation Pitfalls

• INTANGIBLES
– nebulous benefits
• better decision making
• HIDDEN OUTCOMES
– time, budget subject to great error
• CHANGE
– technology changes rapidly
• outdating many good project ideas

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Organizational Treatment of
IS Projects
• Hinton & Kaye (1996) - survey of 50 organizations
CAPITAL: rigid cost-benefit analysis
REVENUE: need to invest to keep up
Investment Capital Mix Revenue
training 0% 1% 99%
marketing 4% 9% 87%
info tech 39% 41% 20%
operations 58% 31% 11%

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Initial Risk Evaluation

• Project manager ability
• experience with project type, environment, language
• familiarity with modern programming practice
• availability of critical equipment, software
• completeness of project team
• personnel turnover
• project team size
• relative control of project manager over project team

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Evaluation Techniques
• Economic & Financial
– payback 68%
– cost-benefit 63%
– npv/irr 40%
• Multifactor
– checklist 38%
– project profile 26%
– scoring/rating models 26%
– multicriteria 11%
• Mathematical Programming 18%
• Expert Systems 6%

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Criteria
• Financial
– net present value/internal rate of return
– payback
– profitability index/budgetary constraint
• Management
– support business objectives
– respond to competition
– better decision making
– satisfy legal requirements
• Development

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SCREENING

• Eliminate proposals not meeting minimum

requirements
• GOOD: quick
• BAD: tradeoffs disregarded

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Information Systems Project Management—David Olson
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CHECKLIST

• Factors Minimum Standards

a way to implement screening

assure implementation of policy limits

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Information Systems Project Management—David Olson
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PROJECT PROFILE

• Display project features with standards

• Compares strengths, weaknesses
Project Cost NPV/Cost Strategic?
A265 230,000 0.43 no
A801 370,000 0.51 yes
A921 790,000 0.46 no
B622 480,000 0.11 yes
B837 910,000 0.22 yes
C219 410,000 0.41 no

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Cost-Benefit Analysis

• Accurately estimate all benefits

– identify overall profit impact
– in net present terms
• Accurately estimate all costs
– overall profit impact, in net present terms
• RATIO: benefits/costs
<=1, don’t adopt >1, profitable
can adopt by highest ratio

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Payback

• Identify the time needed for costs to be

recovered
• simple
• doesn’t consider NPV

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4-15

Value Analysis
• Keen (1981)
• DSS benefits usually very nebulous
• Unfair to apply cost-benefit analysis
– benefit estimates unreliable

• Costs - identify as in cost-benefit

• Benefits - leave in subjective terms
• Managerial decision: are you willing to pay
this much for that set of benefits?

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Information Systems Project Management—David Olson
4-16

Multicriteria analysis

• SMART - multiattribute analysis

– identify criteria (including subjective)
– measure utilities of alternatives over each
criterion
– elicit preference weights
• swing weighting - reflect range of options
value = Σ of weights times utilities

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Optimization

• 0-1 linear programming

• each project a 0-1 variable
– can take on value of 0 (not selected)
– or 1 (selected)
• optimize expected return to firm
• subject to constraints
– budget
– scarce resources

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Summary

• Initial evaluation of projects is where most

are eliminated
• Companies need to avoid nonprofitable
– if budget scarce, select most profitable
• Many risks need to be considered
• ideally identify net present costs, benefits
• practically need to consider intangibles

© McGraw-Hill/Irwin 2004