Chapter 11: Acquiring IT Applications and Infrastructure



CHAPTER 13: Acquiring Information Systems and Applications

|Chapter Outline |

13.1 Planning for and Justifying IT Applications

13.2 Strategies for Acquiring IT Applications

13.3 The Traditional Systems Development Life Cycle

13.4 Alternative Methods and Tools for Systems Development

13.5 Vendor and Software Selection

|Learning Objectives |

1. Define an IT strategic plan, identify the three objectives it must meet, and describe the four common approaches to cost-benefit analysis.

2. Discuss the four business decisions that companies must make when they acquire new applications.

3. Identify the six processes involved in the systems development life cycle, and explain the primary tasks and importance of each process.

4. Describe four alternative development methods and four tools that augment development methods, and identify at least one advantage and one disadvantage of each method and tool.

5. Analyze the process of vendor and software selection.

|Teaching Tools and Tips |

This chapter discusses the process whereby an organization develops a new information system. I would suggest spending time discussing the opportunities and pitfalls of systems development. Among the key points is to ensure that students gain an appreciation for the human relations side of the process. Remind students that people are an extremely important component of any information system. Once a development project is underway, many people from different disciplines are involved in the effort. Emphasize that project management and communications skills are extremely important for this process to be successful.

It is important that students understand that when companies are planning new information systems, sometimes the concerned parties hit a stone wall regarding development and implementation processes. Managers from different areas may have different (and often hidden) agendas for the new system. Some times these hidden agendas may not become apparent until it is too late.

Spend some time describing how companies struggle to bring order to the system development life cycle (SDLC) process. In some cases companies actually allow their users to develop their own applications. Explain that these islands of information and private databases maintained by users must be integrated into a well-designed, enterprisewide information strategy. This is especially true in cases where IS failed to determine the applications that users should and should not develop, as well as the tools they should and should not use.

Companies usually embark on a systematic development of information systems when they find out they are losing competitive advantage because they have an inefficient business process or no IS at all. In such cases, top management frequently initiates an impetus for change and throws their unwavering support behind the effort. Consequently, the project gets off to a great start. Unfortunately, this same sense of urgency causes project managers to take inappropriate shortcuts. It is imperative for top management to inform their employees that the project plan is the blueprint for successful development.

A successful approach to systems development is to rely on modular methodology and to exercise sound technical judgment. The key to successful project completion, however, is human relations and communications techniques. Therefore, it is prudent to mix the study of information systems development with sociological and psychological topics!

|Review Questions |

Section 13.1 … Before you go on…

1. What are some problems associated with assessing the costs of IT?

One problem is the allocation of fixed costs among different IT projects. Another difficulty is that system costs continue after the system is installed. It is important to calculate the Total Cost of Ownership – a formula for calculating the cost of acquiring, operating, and controlling an IT system.

2. What difficulties accompany the intangible benefits from IT?

By definition, intangible benefits are very difficult to place an accurate monetary value on. It is important not to ignore these benefits, however, because they are real and are valuable to the organization. Therefore, they must be approximated. Overestimating the value of intangible benefits will cause organizations to initiate projects that do not produce the expected benefits. Conversely, underestimating their value can result in valuable projects being rejected.

3. Describe the NPV, ROI, breakeven analysis, and business case approaches.

The NPV method compares the present value of a project’s cash inflows with the present value of its cash outflows, discounted at the organization’s cost of capital. An NPV that is $0 or greater suggests the project is acceptable. The ROI method computes a rate of return that is generated by the project based on the project’s net income divided by the average assets invested in the project. Breakeven analysis provides an estimated date when the money spent on the systems development process is recouped from the benefits earned in the business it is used in.

A business case is a written document that is used by managers to garner funding for one or more specific applications or projects. Its major emphasis is the justification for a specific required investment. The business case helps to clarify how the organization can best use its resources to accomplish the IT strategy.

Section 13.2 … Before you go on…

1. Describe the four fundamental business decisions that organizations must make when acquiring information systems.

1. How much computer code does the company want to write?

A company can choose to use a totally pre-written application (to write no computer code); to customize a pre-written application (to write some computer code); or to custom-write an entire application (write all new computer code).

2. How will the company pay for the application?

For pre-written and customized pre-written applications, the payment options are to buy or to lease. For complete custom applications, the company may use internal funding.

3. Where will the application run?

The company may choose to run the application on the company’s own platform or on someone else’s platform (e.g., Software-as-a-Service vendor or an application service provider).

4. Where will the application originate?

Pre-written applications can be open source or proprietary software (i.e., from a software vendor). These applications may be further customized in-house or outsourced. Completely customized applications can be either written in-house or outsourced.

2. Discuss each of the seven development methods in this section with

regard to the four business decisions that organizations must make.

|Development Methods |Amount Of Code |Funding/ |Operating Platform |Program Source Code |

| |Written |Payment |Owner | |

|Purchase a pre-written application |None |Buy or Lease |Company’s platform |Open-source or |

| | | | |Proprietary |

|Customize a pre-written application |Some |Buy or Lease |Company’s platform |Open-source or |

| | | | |Proprietary |

|Lease the applications |None |Lease |Company’s or Vendor’s |Open-source or |

| | | |platform |Proprietary |

|Application service providers and |None |Lease |Vendor’s platform |Open-source or |

|software-as-a-service vendors | | | |Proprietary |

|Use open-source software |Some |Internal |Company’s platform |Open-source |

| | |funding | | |

|Outsourcing |None |Internal |Company’s platform |Outsource |

| | |funding | | |

|Custom development |Most |Internal |Company’s platform |In-house or |

| | |funding | |outsource |

Section 13.3 … Before you go on…

1. Describe the feasibility study.

The feasibility study involves defining the business problem or new opportunity, investigating options available for the best solution, making a recommendation and estimating the probability of success.

2. What is the difference between systems analysis and systems design?

Systems analysis is the detailed study and documentation of the “as is” situation and the requirements for the new system. Systems design is the development of a technical specification that details the system inputs, outputs and interfaces as well as the hardware, software, databases, telecommunications, personnel and procedures needed to provide a solution for the requirements developed in the analysis stage. Systems design also provides a blueprint for integrating these various components.

3. Describe structured programming.

• Structured programming techniques are used to establish a uniform approach to programming that successive iterations of staff can understand. Each module has only one function.

• Each module has only one entrance and one exit.

• GO TO statements are not allowed.

4. What are the four conversion methods?

Parallel - running old and new systems concurrently for a period of time.

Direct – moving the new system into production at the same time the old system is being made inaccessible.

Pilot – introducing the new system in one part of the organization, determining that it is stable, and then rolling it out to other areas.

Phased – introducing select components of the new system in stages. When the organization determines that these components are stable, it rolls out other components.

Section 13.4 … Before you go on…

1. Describe the tools that augment the traditional SDLC.

Prototyping involves building a model of the system based on user feedback. It is an iterative approach that helps users visualize what the new system will look like.

Joint application development (JAD) involves a meeting attended by all of the end users meeting and the IS project team to develop requirements and reach a consensus. It can save a lot of time, but it is intense, and it will work well only if all departments are represented.

CASE tools are specialized tools that automate many of the tasks in the SDLC. Long-term maintenance on systems developed with CASE tools can be less expensive; however, initial development can cost more.

Rapid application development is a systems development method that can combine JAD, prototyping, and ICASE tools to rapidly produce a high-quality system. In the first RAD stage, developers use JAD sessions to collect system requirements. This strategy ensures that users are intensively involved early on. The development process in RAD is iterative, similar to prototyping. That is, requirements, designs, and the system itself are developed and then undergo a series, or sequence, of improvements. RAD uses ICASE tools to quickly structure requirements and develop prototypes. As the prototypes are developed and refined, users review them in additional JAD sessions. RAD produces the functional components of a final system, rather than prototypes.

2. Describe the alternate methods that can be used for systems development, other than the SDLC.

The two methods are end-user development and object-oriented development.

End-user development is very popular today because of the availability and familiarity with small databases such as Access and spreadsheet applications.

As long as these databases are relatively small and the users document what they have done, end-user development can work well. If not, the IS department is usually called on to rewrite and rework.

Object-oriented development is based on a different view of computer systems. OO systems are based on the aspects of the real world that must be modeled to perform a task. Consequently, these systems can be used to perform related tasks that involve the same real-world entities.

Section 13.5 … Before you go on…

1. List the major steps of selection of a vendor and a software package.

a. Identify potential vendors

b. Determine the evaluation criteria

c. Evaluate vendors and packages

d. Select a vendor and a package

e. Negotiate a contract

f. Establish a service-level agreement

2. Describe a request for proposal (RFP).

A request for proposal (RFP) is a document that a company sends to potential vendors inviting them to submit a proposal that describes their software package and explains how it would meet the company’s needs.

3. Explain why SLAs play an important role in systems development.

Service-level agreements are formal contracts that specify the division of work and responsibilities between vendors and the company. These divisions are based on a set of agreed-upon milestones, quality checks, and what-if situations – all of which need to be specified in the SLA. They describe how quality checks will be made and what is to be done in case disputes and quality standards are specified

|“IT’s About Business” Questions |

IT’s About Business 13.1

Anniston Orthopaedics and Greenway Medical Technologies

1. Would acquiring a new information system for a small organization be a longer or shorter process than acquiring one for a large organization? Why or why not? Support your answer.

It some ways it may take longer due to the possible lack of understanding of the process, the systems, and the expectations of the acquiring organization. However, these factors can also speed up the process under some circumstances.

2. What is the purpose of the contract between the two parties?

When acquiring a new information system, both parties (purchasing organization and service provider) normally sign a contract outlining the project scope and other aspects of the project. A typical contract for a system development project includes — but is not limited to — the final system functionalities, stakeholders and their responsibilities with proper contact information, reporting/communication channel for the project progress, system costs, service charges, training and consulting fees, payment terms and procedures, contract and system effective dates, conflict of interest, change orders procedures, implementation procedures and timeline, stakeholder penalty for violating the contract terms, project termination, insurance, and warranty.

In this case, the contract will specify the responsibilities of both Anniston and Greenway. If the two parties cannot agree on terms, then Anniston must resume its search for a new IS vendor.

IT’s About Business 13.2

A Disastrous Development Project

1. Debate the lawsuit from the point of view of Deloitte and SAP.

Deloitte filed a counterclaim over Marin county’s failure to pay more than $550,000 in fees and interest. In its counterclaim, Deloitte maintained that it had fulfilled all of its obligations under the contract, as evidenced by the fact that all of Deloitte’s work was approved by the county officials who were responsible for the project.

2. Debate the lawsuit from the point of view of Marin County.

The complaint alleged that Deloitte used the county’s SAP project as a training ground to provide young consultants with public sector SAP experience, at the county’s expense. Further, the complaint charged that Deloitte (1) intentionally failed to disclose its lack of SAP and public sector skills; (2) withheld information about critical project risks; (3) falsely represented to the county that the SAP system was ready to “go live” as originally planned; (4) conducted inadequate testing; and (5) concealed the fact that it had failed to perform necessary testing, thereby insuring that system defects would remain hidden prior to the “go-live” date. The county further maintained that, despite the consulting fees it had paid to Deloitte, the system continued to experience crippling problems.

IT’s About Business 13.3

The State of Virginia’s Outsourcing Contract Proves Costly

1. What are some reasons why Virginia’s IT problems can be considered the result of poor state oversight of Northrop Grumman? What are some reasons, if any, why the state might not be overseeing Northrop effectively?

The IT problems at the State of Virginia could stem from the state’s — or, in this case, the VITA taskforce’s — poor agreement (i.e., contract) and inadequate oversight of the contractor. The project contract did not cover such items as backup or a disaster recovery plan. There is no penalty for Northrop Grumman if the project milestone is delayed or fails. Furthermore, the project scope is so large that a relatively small, 16-member VITA committee simply cannot oversee the entire $2.4 billion, 10-year project development for the state.

2. What are some reasons why Virginia’s IT problems can be considered the result of poor execution by Northrop Grumman? What are some reasons, if any, why Northrop might be executing this project poorly?

• Northrop Grumman did not have any prior experience.

• There was not a disaster recovery plan in effect in the event of a system outage.

• The state’s critical databases were backed up properly.

|Discussion Questions |

1. Discuss the advantages of a lease option over a buy option.

Leasing has the advantages of lower upfront costs and more flexibility to change and adapt the applications used over time as needs change.

2. Why is it important for all business managers to understand the issues of IT resource acquisition?

Because information systems are so critical to competitive advantage, a system’s timely and careful development is a very high priority. Systems acquisition and development is a team effort that should involve the entire organization.

3. Why is it important for everyone in business organizations to have a basic understanding of the systems development process?

End users possess the business knowledge the IS staff needs to develop all of the components of the system’s design. For this reason, user input is critical to the acquisition and/or design of a successful IS.

4. Should prototyping be used on every systems development project? Why or why not?

The SDLC provides the basic structure of the development process. Prototyping can be used within that structure to experiment with new technology or clarify requirements. It should not replace the traditional SDLC for highly complex systems.

5. Discuss the various types of feasibility studies. Why are they all needed?

Technical, economic, behavioral, and organizational feasibilities are different facets of the analysis.

Technical – determines if the current hardware and software platform is appropriate as well as whether the system should be developed in house or purchased from a vendor.

Economic – determines if the project has an acceptable financial risk and whether the organization can afford it.

Behavioral – determines if the corporate culture is open to the change.

Organizational – determines whether the organization has any external issues that would preclude the project from being successful and whether the project meshes with the company’s strategic plan.

6. Discuss the issue of assessing intangible benefits and the proposed solutions.

Intangible benefits are often very hard to quantify. IS staff responsible for the cost benefit analysis should collaborate with users of the system to place a value on the benefit, even if their analysis is less than scientific. Very often, it is the quantifying of the intangible benefit that will make the biggest impact on the decision to move ahead with a new system.

7. Discuss the reasons why end-user-developed information systems can be of poor quality. What can be done to improve this situation?

Putting development tools in the hands of end-users can result in some very innovative work. One of the biggest problems, however, is that in many cases the end users do not know the most efficient way to design a system. Therefore, when working with a small amount of data, it may seem like everything is okay, but as soon as they try to function in a full-blown production environment, the application grinds to a halt or stops completely.

One way that this problem can be avoided is through education. If, for example, the users know how to design a relational database, then, they have a better chance of developing an efficient application. Another way would be to have the applications run through a quality assurance process with IS to ensure that they are not only developing software that can be used, but also documenting their work.

|Problem-Solving Activities |

Students will research as directed and prepare a thoughtful report on their findings.

1. Access ecommerce-. Find the product review area. Read reviews of three software payment solutions. Assess the payment solutions as possible components.

Students will visit the Web sites and look for reviews on three software payment solutions of their choice. Note that some product information was submitted by the company representatives and may not provide the “true” review of the product.

2. Use an Internet search engine to obtain information on CASE and ICASE tools. Select several vendors and compare and contrast their offerings.

A list of CASE tool vendors can be found at this Web site . Students may choose a few vendors and compare and contrast their features.

3. Access , , , and . Observe how each site provides components for you to use to build applications. Build a small application at each site.

Ning is an educational network site that helps people integrate social media into education. Students will visit and learn how to use it to build an application. There are resources available in many different formats (e.g., printed information, blog, interactive demo, etc.) to help users get started. Note that no longer provides support for its users.

|Web Activities |

Results of the various on-line activities should be organized into report format and submitted after research activities are completed.

1. Enter software. Find its WebSphere product. Read recent customers’ success stories. What makes this software so popular?

Students will develop and submit or present a report on their findings.

2. Enter the Web sites of the GartnerGroup (), the Yankee Group () and CIO (). Search for recent material about ASPs and outsourcing, and prepare a report on your findings.

Students will develop and submit or present a report on their findings.

3. StoreFront () is a vendor of e-business software. At its site, the company provides demonstrations illustrating the types of storefronts that it can create for shoppers. The site also provides demonstrations of how the company’s software is used to create a store.

a. Run the StoreFront demonstration to see how this is done.

Students may need to register with the Web site in order to view the demo.

b. What features does StoreFront provide?

Features of the StoreFront e-commerce software include various software tools for store building, product management, order processing, marketing and promotions, shopper features, and store management.

c. Does StoreFront support smaller or larger stores?

The software provides services for smaller stores with additional add-on modules for larger stores.

d. What other products does StoreFront offer for creating online stores? What types of stores do these products support?

In addition to software solutions, StoreFront offers services that help customers build e-commerce stores including design, custom development, marketing, setup and implementation, training, hosting, payment processing, and support. Click the View Client Gallery link to see examples of client applications.

|Team Assignments |

1. Assessing the functionality of an application is part of the planning process (Step 1) Select three to five Web sites that cater to the same type of buyer (for instance several Web sites that offer CDs or computer hardware), and divide the sites among the teams. Each team will assess the functionality of its assigned Web site by preparing an analysis of the different sorts of functions provided by the sites. In addition, the team should compare the strong and weak points of each site from the buyer’s perspective.

Students will follow the directions for the group project. Note that students will have to search the Internet to locate information, and some Web sites might require them to register and provide contact information.

2. Divide into groups, with each group visiting a local company (include your university). At each firm, study the systems acquisition process. Find out the methodology or methodologies used by each organization and the type of application each methodology applies. Prepare a report and present it to the class.

Students will research and develop report on their findings.

3. As a group, design an information system for a startup business of your choice. Describe your chosen IT resource acquisition strategy, and justify your choices of hardware, software, telecommunications support, and other aspects of a proposed system.

Students will follow the directions for the group project. The project outcome may include a written report (e.g., a project proposal), a class presentation, or both. To help students prepare for the presentation, set up a scenario where the city has some funding to help a local startup business. Each project team is working for a local company. Stage the presentation as though the groups are presenting the selected company’s information system to the city’s Board of Commerce as a part of the city grant/funding application process.

|Closing Case |

The City of Lincoln, Nebraska: Developing Systems for the Taxpayers

The Business Problem

The City of Lincoln and the County of Lancaster, Nebraska, have a history of innovative systems development projects. In 2001, the municipality deployed Palm handheld computers to its animal control officers in an effort to streamline the processes involved in managing the area’s growing pet population. The initial deployment was very successful and provided the animal control officers with real-time access to a wealth of useful field information, including contact information for pet owners, vaccination data, bite and attack history, previous

dispatch history, citations written, and impoundment data.

As a growing city/county government, Lincoln/Lancaster was concerned about providing the highest level of governmental services possible given its specific budgetary constraints. In 2008, the City and County wanted to again effectively use technology, this time involving the city police, county sheriffs, and firefighters.

The IT Solution

The Lincoln/Lancaster government’s IT staff undertook an enterprise-wide systems development project that would enable the governmental staff and citizens to utilize smartphones to access a variety of governmental services. The initial project was the development of a smartphone-enabled system for parking services. Follow-up projects subsequently expanded into the sanitation and weed control departments.

In addition, the city/county government developed a multi-use web portal to serve two purposes. First, the portal facilitates employee access to email and calendaring systems. Second, the portal provides citizens with realtime access to animal tag lookup, fire runs, property tax information, a geographical information system (GIS) for navigating the area’s streets, 29 traffic cameras, and a lookup service for government employee phone numbers.

The system also enables smartphone subscribers to receive real-time alerts from the National Weather Service, the Department of Homeland Security, and Amber Alerts (missing persons) from the State of Nebraska. For the first time, the local police, fire, sheriff, public health officials, and emergency coordinators can send needed information within seconds to desktops or smartphones.

The Results

Citizens’ responses to the systems developed by the Lincoln/Lancaster government and deployed via smartphones have been very positive. In a recent ranking published by the Center for Digital Government, Lincoln/Lancaster was ranked the second most technologically progressive municipal/county government in the United States.

Questions

1. Is this use of information technology an appropriate use of tax-payer dollars? Why or why not?

The technology based projects have enabled the city to provide better service to the tax payers and also made the city employees more efficient in their job. These benefits can be quantified in financial terms and show that the tax payers are benefiting from these projects. So, these projects are appropriate use of tax payer dollars.

2. Can you think of any other possible uses for this type of technology in local or state government?

There are many potential projects. Involving the citizens in the governance process and means of interacting with the city are useful projects that can be based on technology.

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