chapter 8 information technology operations n what is total cost of ownership (tco)? is collective...

Chapter 8Chapter 8

Information Technology Operations

N

What is Total Cost of What is Total Cost of Ownership (TCO)?Ownership (TCO)?

• is collective (and usually annualized) cost (both direct and indirect) of providing and maintaining corporate information services

• Goals of TCO is to help enterprises understand many of components involved in both the budgeted and unbudgeted costs of acquiring, operating, and managing their IT infrastructures throughout its life cycle.

TM -2

An Example of Four Metrics An Example of Four Metrics for TCO Modelfor TCO Model

CapitalTechnical SupportAdministrationEnd-user operations

Each category is further divided into desktop and network components

TM -3

and …Costs of Downtime

The Driving Forces Behind The Driving Forces Behind OutsourcingOutsourcing

• Two drivers – focus

on core business

– value shareholder

TM -4TM -4

The Changing Operations The Changing Operations EnvironmentEnvironment

• 1. On-line systems and networks• 2. Diversity of performance measures• 3. Efficiency–effectiveness balance• 4. Changes in staffing needs• 5. Changes in technology• 6. Trend toward outside sourcing• 7. Similar to manufacturing with

– highly volatile technology– specialized labor– dynamic markets– changing industry structure

Dr. Chen, IT Operations and Management Processes TM -5

Developing an Operations Developing an Operations StrategyStrategy

• Ensure that an architecture has been conceived and is being implemented.

• Ensure that new systems are being developed in ways that appropriately address their long term maintainability.

• Ensure that internal/external sourcing decisions are carefully considered.

• Determine the extent to which IT operations should be managed as a single entity or be broken into a series of … focused subunits …

NDr. Chen, IT Operations and Management Processes TM -6

Technology PlanningTechnology Planning• Review: how long since development or last total rewrite?• Planning (see Figure below: “Forces (and tensions) to be

Managed in IT Innovation”

– inventory of the uses of existing technology

– ongoing appraisal of user readiness

– awareness of where technology is going

– program of appropriate pilot technology projects

Technology

Userreadiness

Businessobjectives

Current IToperation

delivery capacity

ITplanning/technology

awareness

Phased programof innovation


Table 8-1: Characteristics of Effective Management of Emerging-Technology (ET) by Phase

Organization Organic (ET) Mechanistic (traditional IT)

Management control Loose, informal Tight

Leadership Participating Directive (telling, delegating)

Management Issue Innovation-Phase Control-Phase Concerns: (Effectiveness) (Efficiency)

Characteristics

Ability to support the new technology

Resources of diffusion of the technology

General management

approves

E.T. Group


IT Planning: The relationship between business, IS, and IT Planning: The relationship between business, IS, and IT strategiesIT strategies


IT Planning: Basic four-stage modelIT Planning: Basic four-stage model


Major activities and outputs in the four stage of IT Major activities and outputs in the four stage of IT planningplanning


Business Systems Planning (BSP) ApproachBusiness Systems Planning (BSP) Approach


Charge-OutCharge-Out System System(Charge-Back, Cost-Recover)(Charge-Back, Cost-Recover)

• Users pay for the computing and information services they use, by charging the corporate IT expenditures to the users.– “We tried chargeback for 6 months, we found that computers

had viruses, backups weren’t completed, and services wasn’t maintained because department managers didn’t want to pay for it. It was a terrible idea for us.”

(Turban, p. 582)


IT Planning: Stages, Methods, and OutputsIT Planning: Stages, Methods, and Outputs


Nolan’s Six Stages of IS GrowthNolan’s Six Stages of IS Growth


CRITICAL SUCCESS FACTORSCRITICAL SUCCESS FACTORS

SMALL NUMBER, EASILY IDENTIFIABLE OPERATIONAL GOALS

SHAPED BY INDUSTRY, MANAGER, ENVIRONMENT

BELIEVED TO ASSURE FIRM’S SUCCESS.

USED TO DETERMINE ORGANIZATION’S INFORMATION REQUIREMENTS

*


EXAMPLE GOALS CSFs

PROFIT EARNINGS/SHARE AUTOMOTIVE INDUSTRY:

CONCERN RETURN ON INVESTMENT STYLING

MARKET SHARE QUALITY DEALER SYSTEM

NEW PRODUCT COST CONTROL

ENERGY STANDARDS

NONPROFIT EXCELLENT HEALTH CARE REGIONAL INTEGRATION WITH

OTHER HOSPITALS

MEETING GOVERNMENT REGULATIONS EFFICIENT USE OF RESOURCES

FUTURE HEALTH NEEDS IMPROVED MONITORING OF

REGULATIONS

CRITICAL SUCCESS FACTORSCRITICAL SUCCESS FACTORS (CSFs) (CSFs) & GOALS& GOALS


USING CSFs TO DEVELOP SYSTEMSUSING CSFs TO DEVELOP SYSTEMS

• COLLECT MANAGERS’ CSFs• AGGREGATE, ANALYZE INDIVIDUALS’

CSFs• DEVELOP AGREEMENT ON COMPANY CSFs• DEFINE COMPANY CSFs• USE CSFs TO DEVELOP INFORMATION

SYSTEM PRIORITIES• DEFINE DSS & DATABASES


Five-Step Model for Information Requirements Five-Step Model for Information Requirements AnalysisAnalysis


Measuring and Managing CapacityMeasuring and Managing Capacity• 1. Capacity comes in much smaller, less-expensive increments than it did a

decade ago.• 2. A capacity “crunch” develops with devastating suddenness.• 3. Explosion of diagnostic tools• 4. Suppliers of computer peripherals are increased• 5. Complex trade-offs must be made between innovation and conservatism• 6. The cost and disruption caused by change may outweigh the specific

advantages with a particular technology.• 7. As investments in the products of small software and hardware vendors

increase …• 8. A hidden set of capacity decisions focuses on appropriate infrastructure

back up


Managing the IT Operations Managing the IT Operations WorkforceWorkforce

• Human issues– staff availability and quality

– linkage between the users and the IT development group

– a long-term IT operations staff development plan

– quality of work life

• Unionization – a small number of individuals strike can virtually paralyze an organization

• Selection factors for operations manger and staff– scope of activities

– criticality of IT operations unit

– technical sophistication of the shop


Production Planning and ControlProduction Planning and Control• Setting goals• Establishing priorities

– established goals might be conflicted– organization of capacity– consistent operating policies

• Strategic impact of IT operations– cost efficiency, error or capacity dimension

• Implementing production control and measurement– indexes and standards of performance


SecuritySecurity• 1. perfect security is unobtainable at any price• 2. organizations band together• 3. organizations with critical IT establish multiple data centers• 4. organizations with less-critical IT establish secondary sites

without hardware• 5. within a single site, steps to follow:

– limit physical access– complex access codes– surround the data center with physical measures and monitorings– uninterrupted power supply (UPS)– off-site data storage– Halon gas system for fire protection– rotation of personnel with jobs and enforcement of mandatory vacations– certification of new and changed programs


PrivacyPrivacy• The capabilities of new technology

– increasing intrusiveness into privacy

• Ethical Issues: PAPA• Implications

– information storage– information use– information sharing– human judgment – combining of information– error detection and correction– long vs. short term concerns– education of public (e.g., clients)– organizational control


Chapter 9Chapter 9

Information TechnologyManagement Processes

Management ControlManagement Control

“The IT management control system is a critical network and set of activities that

integrates IT activities with the rest of the firm’s operations and ensures that IT is

being managed in a cost-efficient, reliable fashion.”


PlanningProcessing

System

Inputof

DataResources

Output of

InformationProducts

People Resources: End Users and IS Specialists

Data Resources: Data Knowledge Bases

Management Control System

Project Management System

So

ftware R

esou

rces: Pro

gram

s and

Pro

cedu

resHar

dw

are

Res

ou

rces

: M

ach

ines

an

d M

edia

Network Resources: Communications Media and Network Support

IT Management Process ModelIT Management Process Model


Relationship among Planning Relationship among Planning and Control Effortsand Control Efforts

• Firm’s planning process– multi-year view in assimilating technologies

and systems

• Management control system– guides IT department on year-to-year basis

• Project management system– guides life cycle of individual projects


Charge-OutCharge-Out(Charge-Back, Cost-Recover) (Charge-Back, Cost-Recover)

SystemSystem

• Users pay for the computing and information services they use, by charging the corporate IT expenditures to the users.– “We tried chargeback for 6 months, we found that computers

had viruses, backups weren’t completed, and services wasn’t maintained because department managers didn’t want to pay for it. It was a terrible idea for us.”

(Turban, p. 582)

TM -31

Objectives of Objectives of IT Management ControlIT Management Control

• Facilitate communication

• Encourage effective utilization of IT department resources

• Provide means for efficient management of IT resources


Factors to ConsiderFactors to Consider

• Sensitive to mix of phase of technology adoptions

• Specific to corporation’s situation: user IT sophistication, geographic dispersion

• Consonant with organization’s overall control system

• Appropriate to strategic significance of IT in firm


ITIT Evolution and Management Evolution and Management ControlControl

• Software issues

• Operation issues

• Growth in user influence

• Corporate control process

• Strategic impact of IT on corporation

• Others– control architecture– control process, financial and non-financial– audit function


Results Control ArchitecturesResults Control Architectures

• Unallocated Cost Center

• Allocated Cost Center and Charge-Out Procedures

• Profit Center


Unallocated Cost CenterUnallocated Cost Center• Essentially free

• Lack of red tape

• No charge-out system

• Appropriate when IT budget relatively small

• but … (due to no financial pressure)

• Irresponsible requests for service

• Politicization of resource-allocation decisions

• Insulates IT from competitive pressures

• Blurs revenue/cost tradeoffsNDr. Chen, IT Operations and Management Processes TM -36

Allocated Cost Center and Allocated Cost Center and Charge-Out Procedures ICharge-Out Procedures I

• Allocation Problems:– comparison with other companies and vendors leads to

misleading and invidious conclusions (not a true free market)

– discourages innovation– “technically correct” charges may be unintelligible and

unpredictable– artificially high since they cover overhead in addition to

operations– do not hold IT responsible for inefficient operations– administration of charge-out system expensive


Allocated Cost Center and Allocated Cost Center and Charge-Out Procedures IICharge-Out Procedures II

• Desirable Characteristics (for an IT charge-out system to be effective):– users understand it: standard cost per unit of

output, user-understood transactions– perceived as fair and reasonable– distinguish IT efficiency from user utilization


Allocated Cost Center and Allocated Cost Center and Charge-Out Procedures IIICharge-Out Procedures III

• Maintenance and Development Charges– professional contract between IT and user

IT estimates of job costs and responsibility for excess costs

procedures for reestimating and canceling the job if job scope changes

change in scope defined

– problem defining proportion of usage on a multi-user system (e.g., database)


Profit CenterProfit Center• Pressures of the marketplace on IT

• Leads to IT marketing function

• Controls excess capacity of IT — either eliminated or marketed outside firm

• but … • Should a service department be a profit

center, especially if no outside revenue?

• Do users really have alternative of going outside?


Budget Process

BudgetObjectives

1. Fine-tuning

2. Trigger a dialogue

3. Warning system

1. Appropriate people are involved

2. Appropriate controls

3. Education

BudgetTargets

1. Establish benchmark dates

2. Personnel types and levels

3. Milestones and completion dates

Outputs

1. Planned service levels

2. Costs of central operations

Financial Reporting Process


Nonfinancial Reporting ProcessNonfinancial Reporting Process

• Survey user attitudes toward the IT support regularly

• Staff turnover trend– critical early insight into the problems of this

notoriously unstable group

– leadership, salary levels, workplace climate

• Others– network up time,

– response time


IT Audit FunctionIT Audit Function

• Provide a vital check and balance on IT activity.

• 1. Standards are developed and installed

• 2. Operating units adhere to the standards

• 3. Active involvement


Information Technology Information Technology PlanningPlanning

“Communicating viewpoints and discussing problems and potential opportunities may be as important as selecting appropriate

projects.”


Pressures Toward IT Planning Pressures Toward IT Planning II

• Corporate (External) Pressures:– (support) of corporate plan rapid changes in

technology– scarcity of (experienced) IT personnel– scarcity of other corporate resources– trend to database design and integrated systems– validation


Pressures Toward IT Planning Pressures Toward IT Planning IIII

• IT Process Pressures– During Phase I:

new technologieshuman resource skills

– During Phase II:develop potential users’ interest in the technologyinitiate a series of user-supported pilot projects

– During Phase III:efficiency focusshort term

– During Phase IVmanaged evolutionlong-term exploitation of the technology

1. Identification/Investments

(Technical-oriented)

2. Learning/ Adaptation

(User-oriented)

3. Rationalization/Management Control

4. Maturity/Technology Transfer


Limitations on the Limitations on the Effectiveness of IT PlanningEffectiveness of IT Planning

• Planning is a resource drain

• Planning’s fit with corporate culture

• Strategic relevance of IT– cost-effective, useful role– distinctly supportive role

• Mismatch between actual and perceived importance of IT


HighLow

High

Low

Figure 9-1: Information Technology Strategic Grid

Strategic impact of application development portfolio

Strategic impact of existing

operating systems

Key:A:Major bank 1988-1992

B: Major insurance company

C: Medium-size grocery chain

D: $100 million distributor

E: Major airline

F: Major chemical company

G: Major process industry manufacturers

H: Insurance broker

Factory

Support

Strategic

Turnaround

C EB

G

F

H

A, 1992 A, 1988

D


HighLow

High

Low

Figure: Information Technology Strategic Grid

Strategic impact of application development portfolio

Strategic impact of existing

operating systems

Key:A:Major bank 1988-1992

B: Major insurance company

C: Medium-size grocery chain

D: $100 million distributor

E: Major airline

F: Major chemical company

G: Major process industry manufacturers

H: Insurance broker

Factory

Support

Strategic

Turnaround

C EB

G

F

H

A, 1992 A, 1988

D


•IT support•Cost-effective•No disruption

•IT support•Un-interruptive cost-effectiveis NOT necessary

•IT support•Little strategic impact

Improving IT Planning SuccessImproving IT Planning Success

• 1. Make status of IT manager congruent with importance of IT to strategy

• 2. Put the IT group in physical proximity to the general management team

• 3. Make IT planning as formal as the remainder of the organization

• 4. Increase formality of IT planning as size of organization increases


That’s All, FolksThat’s All, Folks

The IT ArchitectureThe IT Architecture• IT architecture is the field of study and practice

devoted to understanding and deploying information systems components in the form of an organizational infrastructure.

• IT architecture consists of a description of the combination of hardware, software, data, personnel, and telecommunications elements within an organization, along with procedures to employ them.

*

Dr. Chen, The Challenge of the Information Systems Technology TM -TM -5353

Consists of ...Consists of ...

ManagementManagement

IT ManagementIT ManagementUSERS USERS ManagementManagement

GENERAL GENERAL ManagementManagement

Partnership of Three Partnership of Three ConstituenciesConstituencies

Plus ...Plus ...

ImaginationImaginationChallenge ...Challenge ...

Figure 8-1: Forces (and tensions) to be Managed in IT Innovation

Technology

Userreadiness

Businessobjectives

Current IToperation

delivery capacity

ITplanning/technology

awareness

Phased programof innovation

Table 8-1: Characteristics of Effective Management of Emerging-Technology (ET) by Phase

Organization Organic (ET) Mechanistic (traditional IT)

Management control Loose, informal Tight

Leadership Participating Directive (telling, delegating)

Management Issue Innovation-Phase Control-Phase (Effectiveness) (Efficiency)

Characteristics

• Privacy: What information about one's self or one's associations must a person reveal to others, under what conditions, and with what safeguards? What things can people keep to themselves and not be forced to reveal to others?

• Accuracy: Who is responsible for the authenticity, fidelity, and accuracy of information? Similarly, who is to be held accountable for errors in information, and how is the injured party to be made whole?

• Property: Who owns information? What are the just and fair prices for its exchange? Who owns the channels, especially the airways, through which information is transmitted? How should access to this scarce resource be allocated.

• Accessibility: What information does a person or organization have a right or a privilege to obtain, under what conditions, and with what safeguards. In an information society a citizen must posses at least three things to be literate:

– 1.One must have the intellectual skills to deal with information.– 2.One must have access to the information technology.– 3.One must have access to the information itself.

• At stake with the increased use of information technology is the quality of our lives should we, or our children, survive. If we are unwise, many people will suffer information bankruptcy or desolation.

• Our moral imperative is clear. We must insure that information technology, and the information it handles, are used to enhance the dignity of mankind. To achieve these goals we must formulate a new social contract, one that insures everyone the right to fulfill his or her own human potential.

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