Performance Indicators and Measures Success

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Performance Indicators and Measures Success

• Outline
• Performance
• Information Eras and IS investment
• Tangible benefits measurement
• Making the investment decision

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The Performance MindsetManaging for Results

• What gets measured, gets done.
• --Peter Drucker

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Performance
Its NOT just about MEASURES!
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Performance
STRATEGIZE
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Performance
STRATEGIZE COMMUNICATE
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Performance
STRATEGIZE COMMUNICATE MOTIVATE
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Performance
STRATEGIZE COMMUNICATE MOTIVATE MANAGE
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Information Eras and IS investment (Remenyi, et
al.)

• Era

E2
E1
E3
Goal
Automate Efficiency
Informate Effectiveness
Transformate Exploitation
Generic benefit
Nature of benefit
Hard
Soft
Scale of benefit
Metrics
Requires metrics that focus on cost
displacement and /or cost avoidance analysis, any
intangible benefits are extra gains best
measuring surveys
Requires full capital investment
appraisal techniques needing long term horizons,
not likely to include many measures from E2 but
will include some from E3
Requires metrics that include some element
of automate era and so measured as for E1
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Continuum of approaches to investment decisions
Assess financial impact of change
Assess value of change
Causal logic for change
Must Do/Dictated change
Act of faith change
Hard
Soft
Tangible
Intangible
NPV, IRR, etc to document quantifiable net
savings
RoM or similar to document net value
IE or other weighting method to select
best
CSF or similar for strategic contribution
N/A Not really a decision
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Tangible benefits measurement

• Parker and Benson (1988) suggest seven stages to
  calculate the value of the tangible benefits
• Break down the effort on the basis of the work
  functions affected by implementation.
• Identify alterations associated with the specific
  processes.
• Determine the cost of performing the job process
  affected.
• Determine the effects of the change on indirect
  costs.
• Determine the effect of performing the modified
  process.
• Determine where additional costs will occur in
  the future.
• Calculate the difference between performing the
  process the old way and the new way.

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Hard financial justifications

• Amount of increased value.
• Amount of decreased expenses.
• Amount of increased expenses avoided.

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Methods of calculating the financial benefits

• Return on investment (RONI)

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Methods of calculating the financial benefits

• Discount cash flow (DCF)
• Net present value (NPV) it is the difference
  between the sum of values of the cash inflows and
  the present value of the original investment.
• PV of Benefit

I rate of interest N number of years NPV
Present value of benefit-present value of
investment If NPV gt 0 Invest If NPV lt 0
Do not invest
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Methods of calculating the financial benefits

• Internal rate of return (IRR)
• 0

I rate of interest N number of years Solve for
I rather than for NPV If i gt 12
Invest If i lt 12 Do not invest
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Methods of calculating the financial benefits
Probability of attainment/Bayesian analysis
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Methods of calculating the financial benefits

• Return on Management RoM

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Strassmanns return on management

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Information economics

• Business perspective
• Value
• - Costs
• ----------------
• Justification

• Information technology
• perspective
• Costs
• Recovery
• ----------------
• Viability

Technology services
Cost of services
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Investment justifications
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Information value assessment factors for
information economics
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Project appeal Increasing/decreasing factors

• Business Domain
• Strategic Match
• Competitive advantage
• Management information support
• Competitive response
• Organisational or project risk

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Project appeal Increasing/decreasing factors

• Technology Domain
• Strategic IS architecture
• Definitional uncertainty
• Technical uncertainty
• Infrastructure risk
• The method builds in the distinction between
  business justification and technical viability

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Strengths of the approach Wiseman (1992) 7 Cs

• Comprehensiveness
• Consistency
• Clarity
• Communications
• Confidence
• Consensus
• Culture

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Practitioners Survey

• Using formal quantitative methods gt 56
• 33 use RoI despite problems
• CBA and RoI approaches encourage low risk
  investments with small returns
• They result from manufacturing economy where
  labour is treated as an expense
• The analysis is static and short-term
• Using qualitative methods gt 16

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Making the best rational decision?

• All assessment and evaluation is an intrinsically
  subjective and political activity.
• Searching for the best and most appropriate
  measurement method is an irrelevancy and seeking
  to interpret and understand the social forces at
  work forms the heart of the subject.
• What leads an organisation to feel that certain
  IS activities are important must be investigated.

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• After justifying selecting and implementing an IS
  investment decision there needs to be some
  follow-up evaluation
• Can be
• Interpretive, Qualitative, Informal or
• Formal, Rational, Analytical
• Purpose learning about the resource allocation
  process the learning organisation

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Will organisations do a follow-up evaluation?
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References

• Wendy Robson Strategic Management Information
  Systems Chapter 7
• John Ward Principles of Information Systems
  Management Chapter 5