INSS737 - Management of Information Systems - Fall 2000

IT Management Processes

IT management processes refer to planning, management control, management of partnerships, and project management of IT activities. In this class we are concentrating in planning and management control, while the next two class meetings will be dedicated to management of partnerships and project management. We will start by examining management control concepts and then discuss planning.

Management control includes both planning and control of IT activities for a period of one to two years. It is the link between strategic planning and operations. See figure 1 for a representation of the planning hierarchy and interaction among the various planning levels. All management control decisions are conditioned by the long-term resource allocations decided in the strategic level, and will constrain what resources will be available for operations planning and control. Objectives for management control are set in the strategic plan, while operational objectives are decided in the management control process. Management control plays the vital role of translating strategies into actions, operations.

The architecture of management control is also important, meaning the type of responsibility center which is chosen for IT. See figure 2 for the different architectures. The basis for this decision is the notion of transfer price, what IT services and technologies should cost to the users. In the IT literature and practice two main architectures are recognized: IT as an expense center or as an income center. As an expense center IT can be seen as overhead (no cost is charged-out to any user, it is an overall administrative expense), or as a service center (users are charged with a proportion of the operations and development services used). As an income center IT can be seen as a profit center (cost plus margin), or an investment center (cost, plus depreciation, R&D, etc). Businesses that adopt the income center concept generally create an IT subsidiary, which sells excess capacity to other businesses, and also allow users to buy IT services from outside services if the internal IT prices are higher than outsourcing. For more details read textbook pages 425-432.

Budgeting for IT is also another major component of management control. The IT budget has been growing in the last decade around 4% a year, see figure 3 , including recession years. In the last three years the growth has increased to 7-8% a year. This distribution of the IT budget has been pretty stable as shown in figure 4, with constant trends to decrease in hardware expenses, and increase in personnel, software, and data and voice communications expenses. Although recently (last year or so) hardware expenses have increased more than the others. See what the CIOs are planning to do after the Y2K expenses "black hole." IT now accounts for nearly one-half of all business investment. For those not familiar, the basic budget concepts are:

• Decision making models: incremental (last year budget plus a positive or negative increment), zero-based or rational (justify all expenses every year), flexible (percentages of income or other expenses). Many organizations use a combination of these methods. For example, treating all budgets as incremental but requiring a certain number of departments, divisions to justify all their expenses in alternate years. Flexible budgets are important when forecasts in certain business activities are not stable.
• Activities versus programs: budgets can be prepared by activities (hardware, software, personnel, etc) or programs (order entry system, customer service, CAD/CAM, etc). Activities or "line items" are important to know in what resources are the budget expenses going. Programs are important to measure the value added by the budget expenses to an overall business product or service.
• Capital versus operations: there are two different budgets - capital expenditures and operational expenditures. The capital expenditures budget is part of the strategic planning process, while the operational expenditures budget is part of the management control process. Capital expenditures affect operations indirectly through depreciation.
• Budget cycle: budgets are yearly exercises, with latest estimates for the current year, a proposed budget for next year, and estimates for one or two more years after next year. The budgetary process starts with publication of assumptions (inflation, growth, etc) and objectives. In a top down approach it is followed by high level budgets, that in turn are broken down in divisional, departmental budgets. In a bottom up approach it is followed by departmental, divisional budgets that are consolidated into high level budgets. Both end by a top management review, modification and approval. of the high level budget and some specially selected divisional, departmental budgets.
• Budget software: software for creating budgets are available for a long time (IBM Budplan was introduced as early as 1969), but you can count in IT executives still doing it with calculators or spreadsheets.

IT planning follows three main approaches: (a) resources planning, (b) systems planning and (c) business plan. We have already discussed the main resources planning tool - Information Architecture, in a prior class. Systems planning aims to define first what systems to be developed and then derive the resources necessary. IBM Business System Planning (BSP) was the original methodology representative of this type of planning. Both assume that IT planning is done independently of the organization business plan, which may or may not exist. The business plan approach assumes that IT is part of the overall organization business plan process, like we have discussed in the first four class meetings of this course. We should consider in what stage of the technology curve the organization is - initiation, contagion, or control, as proposed by Nolan. We may have different information technologies experiencing different stages of growth, like the Web and payroll. So what may be valid for one technology may not be appropriated for another. In addition, organizations, or parts of the same organization, may be in different quadrants of the IT strategic grid. Read textbook pages 437-449, specially table 10-1 for a distinction between what is needed in terms of planning for "Support" and "Strategic" companies, and don't forget that IT planning is one of the top key issues for CIOs, like we saw in our second class meeting.

Case instructions

We will use the standard framework to analyze the case: (a) what is the problem, (b) what are the alternatives, and (c) what are the recommendations, like we have done before. We will discuss the www.springs.com case on the Web and in class.

1. What is the problem?

Why is it a problem? Is there a decision involved? If it is a problem, what are the pros and cons that makes it a problem?

2. What are the alternatives?

What can be done? There is always the do nothing alternative. If everything went well (rosy scenario) what we would like to do? If everything went wrong (doomsday scenario) what should we do? What can we do in between the rosy and the doomsday scenarios? What are pros and cons of each alternative? Be sure to list not only alternatives, but pros and cons.

3. What is you recommendation?

What criteria should we use to select the most suitable alternative in the case? Why you are recommending one alternative versus the others? How this alternative satisfies your criteria? How to implement the alternative you selected?