SlideShare a Scribd company logo
1 of 18
Information Economics
  The classical approach
          Jeroen Hoevenberg
              2control4IT
   Jeroen.Hoevenberg@2control4IT.nl
Classic Information Economics
Information Economics regards the ex-ante
assessment of IT investments. It is regarding
both the individual project and the project
portfolio and is meant as a frame work in order
to assign the scarce IT budgets in such a way
that the highest Added value is generated.
Information economics is a multi criteria analysis
instrument taking into account both tangible
indicators as intangible indicators.
The subject of Information Economics was developed by Parker and Benson (see Benson, 1991).
Main used Benefit Indicators (1)
1. Return on Investment (ROI)
  A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a
  number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the
  cost of the investment; the result is expressed as a percentage or a ratio.

  The return on investment formula:

  It is also possible to use similar indicators as net present value, etc



2. Strategic Match (SM)
  Strategic match assesses the degree to which the proposed project responds to established corporate and
  business strategies and goals. This dimension emphasizes the close relationship between IT planning and
  corporate planning, and it assesses the degree to which a potential project contributes to corporate
  strategy.
Main used Benefit Indicators (2)
3. Competitive Advantage (CA)
  Competitive advantage evaluates the degree to which the proposed project provides an advantage in the
  marketplace, for example, inter-organizational collaboration through electronic data interchange.



4. Management Information (MI)
  Management information is an assessment of a project's contribution to management's need for
  information on core activities, e.g., activities directly involved in the realization of the firm's mission, as
  distinguished from support and accounting activities.



5. Competitive Response (CR)
  Competitive response evaluates the degree of business risk associated with not undertaking the project.
Main used Benefit Indicators (3)
6. Service and Value (SV)
  Measurements of customer satisfaction (service and value) must be made from the customer's viewpoint.
  This measurement takes into consideration such things as ease of
  access, credibility, competence, reliability, courtesy, security and responsiveness. It also attempts to
  measure the degree to which customers "like" to do business with the company.


7. Strategic IT Architecture (SA)
  Strategic IT architecture assesses the degree to which the proposed project fits into the overall
  information systems direction. It assumes the existence of a long-term IT plan, i.e., an architecture or
  blueprint that provides the top-down structure into which future data and systems must fit.
Main used Risk Indicators (1)
1. Strategic Uncertainty (SU)
  Strategic uncertainty is an assessment of the degree to which the business strategy is likely to succeed.
  That is, information technology projects associated with a risky business strategy are also at risk, a fact to
  consider in assessing a project's viability.


2. Organizational Risk (OR)
  Organizational risk is an assessment of the degree to which an information systems project depends on
  new or untested IT or Business skills, management capabilities, or experience.


3. IT Infrastructure Risk (IR)
  The assessment of IS infrastructure risk is essentially an environmental assessment, involving such factors
  as data administration, communications, distributed systems, etc. It assesses the degree to which the
  entire IT organization is both required to support the project and the degree to which it is prepared to do
  so.
Main used Risk Indicators (2)
4. Definitional Uncertainty (DU)
  Generally, definitional uncertainty assesses the specificity of the user's or business' objectives that are
  communicated to the IT project personnel. When the user cannot properly describe a problem, the
  technology department is hard-pressed to supply an answer (quality of requirement engineering).



5. Technology Uncertainty (TU)
  Technology uncertainty assesses a project's dependence on new or untried technologies, which may
  involve a single technology or a combination of new technical skills sets, hardware, or software tools.
Framework for Assessment of Projects
  Every participant is scoring the project at the assessment items. The individual
  scores are added and a mean result is calculated in order to prevent
  manipulation of outcomes. Large differences between individual scores should
  be discussed.
Assessment of an individual project

                                      Assesment
Name               Function                 ROI        SM       CA   MI   CR       SV     SA     SU      OR        IR   DU   TU
A
B
C
D
Average W ei ght

                   ROI =              Return on Investment                     Score tabel
                   SM =               Strategi c M atch                        0=      Of no Importance
                   CA =               Competi ti ve Advantage                  1=      Of somewhat i mportance
                   MI =               M anagement Informati on                 2=      Of l i ttl e i mportance
                   CR =               Competi ti ve Respons                    3=      Of i mportance
                   SV =               Servi ce and Val ue                      4=      Of great i mportance
                   SA =               Strategi c IT Archtecture                5=      Of very hi gh i mportance
                   SU =               Strategi c Uncertai nty
                   OR =               Orgi ni zati onal Ri sk
                   IR =               IT Infrastrcuture Ri sk
                   DU =               Defi ni ti onal Uncertai nty
                   TU =               Technol ogy Uncertai nty
Framework for Assessment of Projects
• The framework can also be used in
  communication with the business or from the
  business.
• Scoring can be done by a fixed group and/or
  by project related stakeholders (However one
  should take into account that stakeholders
  tend to over/under-estimate scoring).
• A variance based on the statistical deviation
  can be used to analyse the effect of mavericks.
Framework for Portfolio Assessment
The whole portfolio is assessed on al criteria. All criteria have received there
own weight. Based on added value and risk a score of importance can be
calculated.
Assesment of Project Portfolio

                              Added Value                                      Risks
Cri teri a                ROI    SM     CA     MI       CR       SV       SA      SU       OR       IR       DU       TU
Rel ati ve i mportance




                                                                                                                                               Score T
                                                                                                                           Score +



                                                                                                                                     Score -
W ei ght +/-                    +   +      +        +        +        +          -     -        -        -        -
Project                Scoring
A                                                                                                                             0         0         0
B                                                                                                                             0         0         0
C                                                                                                                             0         0         0
D                                                                                                                             0         0         0

                    Score tabel
                    0=      Of no Importance
                    1=      Of somewhat i mportance
                    2=      Of l i ttl e i mportance
                    3=      Of i mportance
                    4=      Of great i mportance
                    5=      Of very hi gh i mportance
Assessment Matrix
The results of a portfolio assessment can also be plotted in a matrix table. The
matrix provides more information on Added Value vs Risks.




                                 Execute                Reduce
                                                        Risk
           Added Value Score




                                Redefine
                                                          Kill
                                Project



                                           Risk Score
Example
A ssessm en t of Pr oject A


                                      A ssesm en t
N am e                 Fu n ct i on           RO I           SM        CA        MI     CR             SV           SA          SU            OR              IR    DU            TU
A                                                    3            4        3        2        5             3            0            2         3               2              4     1
B                                                    4            5        3        4        5             2            1            2         3               3              5     1
C                                                    4            5        3        4        5             1            1            2         3               1              5     1
D                                                    4            4        3        2        5             0            0            2         4               3              5     1
A v er age W ei gh t Pr oj ect A                3,8          4,5       3,0       3,0        5,0        1,5          0,5             2,0       3,3             2,3     4,8         1,0


Assesment of Project A within Portfolio

                           Added Value                                            Risks
Criteria               ROI    SM     CA        MI            CR       SV       SA    SU           OR           IR        DU           TU
Relative importance      4      5      4        3             2        4        3      2           4            3         3            2




                                                                                                                                                                                   Score T
                                                                                                                                                    Score +



                                                                                                                                                                    Score -
W eight +/-                  + +         +               +        +        +         -   -             -            -           -
Project             Scoring
A                        3      4      5         3            3        5        2       1          2           3            2             5         74              37             37
B                        4      4      4         4            4        4        4       3          2           2            5             3         80              32             48
C                        3      3      1         5            2        5        1       1          1           1            1             1         60              11             49
D                        4      3      3         3            3        3        3       3          3           3            3             3         60              33             27


In this example project A has a positive score, but is only third in line within the
portfolio.
Assessment Matrix example




The assessment matrix shows that none of the projects is good enough to
be executed.
The model can be extended with a weight for Project costs in order to make
choices from a scarcity point of view.
Assesment Matrix with size
   Added value
  120
  110            Execute
                                            Reduce
  100                                       Risk

    90
    80                       B   30
                                      100     A
    70
    60
                    C
    50
    40
    30           25 D
    20
                 Redefine
    10           Project
                                             Kill
     0                                                    Risk
         0   5   10 15 20 25 30 35 40 45 50 55 60

It is not only possible to have analysis per project, but also it is
possible to cluster projects to themes.
Prioritizing
                                                            In PPM Deci si on process
• Continuity (Maintain)                                                     Budget
    –   Budget needed to keep to keep business momentum     Pri ori ty      < K€ 250    >= K€ 250
                                                            Mai ntai n      No          Yes
    –   Budget needed for mandatory changes                 Improve         No          Yes
                                                            Leadershi p     Yes         Yes
• Efficiency (Improve)
    –   Budget needed based on ROI for => K€ 250,-

• Business Innovation (Leadership)
    –   Budget reserved for high risk business innovation

• IT Innovation (Leadership)
    –   Budget reserved for high risk IT innovation

• Budget limits (<K€ 250,- change)
Literature
R.J. Benson (1991), Determining the value of
  information Technology, in: “Handboek
  bestuurlijke informatiekunde”.
J.A. Oosterhaven (2007), ICT-strategie en –
  organisatie in theorie en praktijk, Sdu
  Uitgevers BV, Den Haag.
2control4IT
2control4IT is a consultancy company specialized on IT cost management, activity
based costing, IT charge back systems and added value analysis. 2control4IT creates
insight and transparency. These two elements are basic requirements for both
reducing IT costs and increasing IT added value. Transparency also works as a lever for
the quality delivered and is the basis for trust based management.

Services:
• Create transparency in IT costs
     –   Total cost of ownership
     –   Indirect costing analysis
     –   Cost modeling
     –   Benchmark support
     –   KPI Frameworks
•   Create transparency in IT volumes
     –   CMDB cleaning
     –   Uniformity in incident and problem registration
•   Create relations between costs and volumes
     –   Activity based costing
     –   Activity based management
     –   Activity based budgeting (including internal transfer prices)
     –   Scenario planning for strategic decisions


                                                                                          17
2control4IT
•   Create strong business control
     –   Coaching
     –   IT business control training
     –   Interim IT business control
     –   Performance dialogues
     –   Change programs




                                            Contact
                                            2control4IT
                                        Jeroen Hoevenberg
                                         +31(0)6-5894 6176
                                 Jeroen.hoevenberg@2control4IT.nl

                                                                    18

More Related Content

What's hot

E-commerce and M-commerce
E-commerce and M-commerceE-commerce and M-commerce
E-commerce and M-commerceganesh_channa
 
Impact of information technology in business perspective
Impact of information technology in business perspectiveImpact of information technology in business perspective
Impact of information technology in business perspectiveDinesh Babu Pugalenthi
 
4. Fundamental MIS Information Systems Presentation
4. Fundamental MIS  Information Systems Presentation4. Fundamental MIS  Information Systems Presentation
4. Fundamental MIS Information Systems PresentationMirMdAkhiruggaman
 
Management Information System
Management Information SystemManagement Information System
Management Information SystemPinaki Basu
 
Information technology
Information technologyInformation technology
Information technologyfaizlap
 
Computer Science & Information Systems
Computer Science & Information SystemsComputer Science & Information Systems
Computer Science & Information SystemsLuis Borges Gouveia
 
INTRODUCTION TO ICT
INTRODUCTION TO ICTINTRODUCTION TO ICT
INTRODUCTION TO ICTKak Yong
 
Automation & use of computer in food analysis
Automation & use of computer in food analysisAutomation & use of computer in food analysis
Automation & use of computer in food analysisNISHANK WAGHMARE
 
Economics of information
Economics of informationEconomics of information
Economics of informationSudeshnaDatta6
 
Introduction to Information and Education Technology 1
Introduction to Information and Education Technology 1Introduction to Information and Education Technology 1
Introduction to Information and Education Technology 1Mohamed EL Zayat
 
1 sistem informasi manajemen
1 sistem informasi manajemen1 sistem informasi manajemen
1 sistem informasi manajemenanis fuad
 

What's hot (20)

E-commerce and M-commerce
E-commerce and M-commerceE-commerce and M-commerce
E-commerce and M-commerce
 
Impact of information technology in business perspective
Impact of information technology in business perspectiveImpact of information technology in business perspective
Impact of information technology in business perspective
 
4. Fundamental MIS Information Systems Presentation
4. Fundamental MIS  Information Systems Presentation4. Fundamental MIS  Information Systems Presentation
4. Fundamental MIS Information Systems Presentation
 
Management Information System
Management Information SystemManagement Information System
Management Information System
 
INFORMATION TECHNOLOGY FOR BUSINESS
INFORMATION TECHNOLOGY FOR BUSINESSINFORMATION TECHNOLOGY FOR BUSINESS
INFORMATION TECHNOLOGY FOR BUSINESS
 
Information technology
Information technologyInformation technology
Information technology
 
Information system
Information systemInformation system
Information system
 
Computer Science & Information Systems
Computer Science & Information SystemsComputer Science & Information Systems
Computer Science & Information Systems
 
INTRODUCTION TO ICT
INTRODUCTION TO ICTINTRODUCTION TO ICT
INTRODUCTION TO ICT
 
ERP MARKET
ERP MARKETERP MARKET
ERP MARKET
 
Value chain
Value chainValue chain
Value chain
 
Information technology
Information technologyInformation technology
Information technology
 
Application of mis
Application of misApplication of mis
Application of mis
 
Automation & use of computer in food analysis
Automation & use of computer in food analysisAutomation & use of computer in food analysis
Automation & use of computer in food analysis
 
Data Processing
Data ProcessingData Processing
Data Processing
 
Economics of information
Economics of informationEconomics of information
Economics of information
 
Introduction to Information and Education Technology 1
Introduction to Information and Education Technology 1Introduction to Information and Education Technology 1
Introduction to Information and Education Technology 1
 
1 sistem informasi manajemen
1 sistem informasi manajemen1 sistem informasi manajemen
1 sistem informasi manajemen
 
Characteristics of computer.ppt tamoor
Characteristics of computer.ppt tamoorCharacteristics of computer.ppt tamoor
Characteristics of computer.ppt tamoor
 
Data processing
Data processingData processing
Data processing
 

Viewers also liked

Information economics
Information economicsInformation economics
Information economicsramncsi
 
Economics of information (final term)
Economics of information    (final term)Economics of information    (final term)
Economics of information (final term)amir subhani
 
Economics of Information/Technology
Economics of Information/TechnologyEconomics of Information/Technology
Economics of Information/TechnologyKathy Gill
 
The Information Economy
The Information EconomyThe Information Economy
The Information EconomyShaishav Dahal
 
Information as a commodity
Information as a commodityInformation as a commodity
Information as a commodityNirmal Singh
 
Applying Information Economics
Applying Information EconomicsApplying Information Economics
Applying Information EconomicsTrisnadi Wijaya
 
Management information system
Management information systemManagement information system
Management information systemSikander Saini
 
Информационная экономика как метод оценки инвестиций в ИТ
Информационная экономика как метод оценки инвестиций в ИТИнформационная экономика как метод оценки инвестиций в ИТ
Информационная экономика как метод оценки инвестиций в ИТIrina Pokrovskaya
 
The economics of information (1)
The economics of information (1)The economics of information (1)
The economics of information (1)WiLS
 
Bec doms ppt on the economics of information and uncertainty
Bec doms ppt on the economics of information and uncertaintyBec doms ppt on the economics of information and uncertainty
Bec doms ppt on the economics of information and uncertaintyBabasab Patil
 
Information Seeking Theories And Models
Information Seeking Theories And ModelsInformation Seeking Theories And Models
Information Seeking Theories And Modelsguestab667e
 
Information Formats
Information FormatsInformation Formats
Information FormatsKbrunetti
 
Oklahoma City Economic Development Information System
Oklahoma City Economic Development Information SystemOklahoma City Economic Development Information System
Oklahoma City Economic Development Information System GIS Planning
 
Mis gathering information
Mis gathering informationMis gathering information
Mis gathering informationKanz Desh
 
The Over-The-Counter Drug Industry
The Over-The-Counter Drug IndustryThe Over-The-Counter Drug Industry
The Over-The-Counter Drug IndustryPiyush Tripathi
 
Information Overload in the Attention Economy
Information Overload in the Attention EconomyInformation Overload in the Attention Economy
Information Overload in the Attention EconomyOlivier Serrat
 
Management Information System
Management Information SystemManagement Information System
Management Information SystemLone Ranger
 

Viewers also liked (20)

Information economics
Information economicsInformation economics
Information economics
 
Economics of information (final term)
Economics of information    (final term)Economics of information    (final term)
Economics of information (final term)
 
Economics of Information/Technology
Economics of Information/TechnologyEconomics of Information/Technology
Economics of Information/Technology
 
The Information Economy
The Information EconomyThe Information Economy
The Information Economy
 
Information as a commodity
Information as a commodityInformation as a commodity
Information as a commodity
 
Applying Information Economics
Applying Information EconomicsApplying Information Economics
Applying Information Economics
 
Management information system
Management information systemManagement information system
Management information system
 
The paper
The paperThe paper
The paper
 
Информационная экономика как метод оценки инвестиций в ИТ
Информационная экономика как метод оценки инвестиций в ИТИнформационная экономика как метод оценки инвестиций в ИТ
Информационная экономика как метод оценки инвестиций в ИТ
 
The economics of information (1)
The economics of information (1)The economics of information (1)
The economics of information (1)
 
Bec doms ppt on the economics of information and uncertainty
Bec doms ppt on the economics of information and uncertaintyBec doms ppt on the economics of information and uncertainty
Bec doms ppt on the economics of information and uncertainty
 
Information seeking ppt
Information seeking pptInformation seeking ppt
Information seeking ppt
 
Information Seeking Theories And Models
Information Seeking Theories And ModelsInformation Seeking Theories And Models
Information Seeking Theories And Models
 
Information Formats
Information FormatsInformation Formats
Information Formats
 
Mis ppt
Mis pptMis ppt
Mis ppt
 
Oklahoma City Economic Development Information System
Oklahoma City Economic Development Information SystemOklahoma City Economic Development Information System
Oklahoma City Economic Development Information System
 
Mis gathering information
Mis gathering informationMis gathering information
Mis gathering information
 
The Over-The-Counter Drug Industry
The Over-The-Counter Drug IndustryThe Over-The-Counter Drug Industry
The Over-The-Counter Drug Industry
 
Information Overload in the Attention Economy
Information Overload in the Attention EconomyInformation Overload in the Attention Economy
Information Overload in the Attention Economy
 
Management Information System
Management Information SystemManagement Information System
Management Information System
 

Similar to Information economics

IT Investment Management
IT Investment ManagementIT Investment Management
IT Investment ManagementBill Wimsatt
 
Chapter 9 risk & return
Chapter 9 risk & returnChapter 9 risk & return
Chapter 9 risk & returnMadhana Gopal
 
Information Security in the Gaming World
Information Security in the Gaming WorldInformation Security in the Gaming World
Information Security in the Gaming WorldDimitrios Stergiou
 
Portfolio management 101
Portfolio management 101Portfolio management 101
Portfolio management 101SmartOrg
 
Building a Credible Performance Measurement Baseline
Building a Credible Performance Measurement BaselineBuilding a Credible Performance Measurement Baseline
Building a Credible Performance Measurement BaselineGlen Alleman
 
Graphical Analysis of Simulated Financial Data Using R
Graphical Analysis of Simulated Financial Data Using RGraphical Analysis of Simulated Financial Data Using R
Graphical Analysis of Simulated Financial Data Using RIRJET Journal
 
Pm0016 project risk management
Pm0016 project risk managementPm0016 project risk management
Pm0016 project risk managementconsult4solutions
 
IRJET- Optimisation of Risk on Returns by Portfolio Analysis
IRJET- Optimisation of Risk on Returns by Portfolio AnalysisIRJET- Optimisation of Risk on Returns by Portfolio Analysis
IRJET- Optimisation of Risk on Returns by Portfolio AnalysisIRJET Journal
 
Building A Credible Measurement Baseline
Building A Credible Measurement BaselineBuilding A Credible Measurement Baseline
Building A Credible Measurement BaselineGlen Alleman
 
Building a Credible Performance Measurement Baseline
Building a Credible Performance Measurement BaselineBuilding a Credible Performance Measurement Baseline
Building a Credible Performance Measurement BaselineGlen Alleman
 
Master IT balanced scorecard (final).pptx
Master IT balanced scorecard (final).pptxMaster IT balanced scorecard (final).pptx
Master IT balanced scorecard (final).pptxGlen Alleman
 
SEPG_2010_RiskKnowItAll_REV2
SEPG_2010_RiskKnowItAll_REV2SEPG_2010_RiskKnowItAll_REV2
SEPG_2010_RiskKnowItAll_REV2pbaxter
 
BA 3010 Assignment #1During this course, you will be graded on.docx
BA 3010 Assignment #1During this course, you will be graded on.docxBA 3010 Assignment #1During this course, you will be graded on.docx
BA 3010 Assignment #1During this course, you will be graded on.docxwilcockiris
 
BA 3010 Assignment #1During this course, you will be graded on.docx
BA 3010 Assignment #1During this course, you will be graded on.docxBA 3010 Assignment #1During this course, you will be graded on.docx
BA 3010 Assignment #1During this course, you will be graded on.docxrosemaryralphs52525
 
To Explore the Role of Artificial Intelligence in Digital Branding of a Firm
To Explore the Role of Artificial Intelligence in Digital Branding of a FirmTo Explore the Role of Artificial Intelligence in Digital Branding of a Firm
To Explore the Role of Artificial Intelligence in Digital Branding of a FirmNavin Sood
 

Similar to Information economics (20)

IT Investment Management
IT Investment ManagementIT Investment Management
IT Investment Management
 
Chapter 9 risk & return
Chapter 9 risk & returnChapter 9 risk & return
Chapter 9 risk & return
 
Information Security in the Gaming World
Information Security in the Gaming WorldInformation Security in the Gaming World
Information Security in the Gaming World
 
Dispersion stati
Dispersion statiDispersion stati
Dispersion stati
 
Portfolio management 101
Portfolio management 101Portfolio management 101
Portfolio management 101
 
Building a Credible Performance Measurement Baseline
Building a Credible Performance Measurement BaselineBuilding a Credible Performance Measurement Baseline
Building a Credible Performance Measurement Baseline
 
Graphical Analysis of Simulated Financial Data Using R
Graphical Analysis of Simulated Financial Data Using RGraphical Analysis of Simulated Financial Data Using R
Graphical Analysis of Simulated Financial Data Using R
 
Pm0016 project risk management
Pm0016 project risk managementPm0016 project risk management
Pm0016 project risk management
 
IRJET- Optimisation of Risk on Returns by Portfolio Analysis
IRJET- Optimisation of Risk on Returns by Portfolio AnalysisIRJET- Optimisation of Risk on Returns by Portfolio Analysis
IRJET- Optimisation of Risk on Returns by Portfolio Analysis
 
BCSITv3.1
BCSITv3.1BCSITv3.1
BCSITv3.1
 
Building A Credible Measurement Baseline
Building A Credible Measurement BaselineBuilding A Credible Measurement Baseline
Building A Credible Measurement Baseline
 
Ch189
Ch189Ch189
Ch189
 
Nitish resume
Nitish resumeNitish resume
Nitish resume
 
Building a Credible Performance Measurement Baseline
Building a Credible Performance Measurement BaselineBuilding a Credible Performance Measurement Baseline
Building a Credible Performance Measurement Baseline
 
Master IT balanced scorecard (final).pptx
Master IT balanced scorecard (final).pptxMaster IT balanced scorecard (final).pptx
Master IT balanced scorecard (final).pptx
 
SEPG_2010_RiskKnowItAll_REV2
SEPG_2010_RiskKnowItAll_REV2SEPG_2010_RiskKnowItAll_REV2
SEPG_2010_RiskKnowItAll_REV2
 
Risk Ana
Risk AnaRisk Ana
Risk Ana
 
BA 3010 Assignment #1During this course, you will be graded on.docx
BA 3010 Assignment #1During this course, you will be graded on.docxBA 3010 Assignment #1During this course, you will be graded on.docx
BA 3010 Assignment #1During this course, you will be graded on.docx
 
BA 3010 Assignment #1During this course, you will be graded on.docx
BA 3010 Assignment #1During this course, you will be graded on.docxBA 3010 Assignment #1During this course, you will be graded on.docx
BA 3010 Assignment #1During this course, you will be graded on.docx
 
To Explore the Role of Artificial Intelligence in Digital Branding of a Firm
To Explore the Role of Artificial Intelligence in Digital Branding of a FirmTo Explore the Role of Artificial Intelligence in Digital Branding of a Firm
To Explore the Role of Artificial Intelligence in Digital Branding of a Firm
 

Recently uploaded

India Economic Survey Complete for the year of 2022 to 2023
India Economic Survey Complete for the year of 2022 to 2023India Economic Survey Complete for the year of 2022 to 2023
India Economic Survey Complete for the year of 2022 to 2023SkillCircle
 
CLMV-Outlook-March-2024-ENG-20240327.pdf
CLMV-Outlook-March-2024-ENG-20240327.pdfCLMV-Outlook-March-2024-ENG-20240327.pdf
CLMV-Outlook-March-2024-ENG-20240327.pdfSCBEICSCB
 
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTESACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTESKumarJayaraman3
 
20240314 Calibre March 2024 Investor Presentation (FINAL).pdf
20240314 Calibre March 2024 Investor Presentation (FINAL).pdf20240314 Calibre March 2024 Investor Presentation (FINAL).pdf
20240314 Calibre March 2024 Investor Presentation (FINAL).pdfAdnet Communications
 
Work and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingWork and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingHenry Tapper
 
MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.Arifa Saeed
 
The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?Stephen Perrenod
 
Buy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptxBuy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptxPrecize Formely Leadoff
 
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdfLundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdfAdnet Communications
 
LIC PRIVATISATION its a bane or boon.pptx
LIC PRIVATISATION its a bane or boon.pptxLIC PRIVATISATION its a bane or boon.pptx
LIC PRIVATISATION its a bane or boon.pptxsonamyadav7097
 
Stock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdfStock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdfMichael Silva
 
The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...Antonis Zairis
 
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINT
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINTACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINT
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINTindexPub
 
Taipei, A Hidden Jewel in East Asia - PR Strategy for Tourism
Taipei, A Hidden Jewel in East Asia - PR Strategy for TourismTaipei, A Hidden Jewel in East Asia - PR Strategy for Tourism
Taipei, A Hidden Jewel in East Asia - PR Strategy for TourismBrian Lin
 
Sarlat Advisory - Corporate Brochure - 2024
Sarlat Advisory - Corporate Brochure - 2024Sarlat Advisory - Corporate Brochure - 2024
Sarlat Advisory - Corporate Brochure - 2024Guillaume Ⓥ Sarlat
 
Monthly Market Risk Update: March 2024 [SlideShare]
Monthly Market Risk Update: March 2024 [SlideShare]Monthly Market Risk Update: March 2024 [SlideShare]
Monthly Market Risk Update: March 2024 [SlideShare]Commonwealth
 
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.KumarJayaraman3
 
Contracts with Interdependent Preferences
Contracts with Interdependent PreferencesContracts with Interdependent Preferences
Contracts with Interdependent PreferencesGRAPE
 

Recently uploaded (20)

India Economic Survey Complete for the year of 2022 to 2023
India Economic Survey Complete for the year of 2022 to 2023India Economic Survey Complete for the year of 2022 to 2023
India Economic Survey Complete for the year of 2022 to 2023
 
CLMV-Outlook-March-2024-ENG-20240327.pdf
CLMV-Outlook-March-2024-ENG-20240327.pdfCLMV-Outlook-March-2024-ENG-20240327.pdf
CLMV-Outlook-March-2024-ENG-20240327.pdf
 
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTESACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
 
20240314 Calibre March 2024 Investor Presentation (FINAL).pdf
20240314 Calibre March 2024 Investor Presentation (FINAL).pdf20240314 Calibre March 2024 Investor Presentation (FINAL).pdf
20240314 Calibre March 2024 Investor Presentation (FINAL).pdf
 
Work and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingWork and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB funding
 
MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.
 
E-levy and Merchant Payment Exemption in Ghana
E-levy and Merchant Payment Exemption in GhanaE-levy and Merchant Payment Exemption in Ghana
E-levy and Merchant Payment Exemption in Ghana
 
The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?
 
Commercial Bank Economic Capsule - March 2024
Commercial Bank Economic Capsule - March 2024Commercial Bank Economic Capsule - March 2024
Commercial Bank Economic Capsule - March 2024
 
Buy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptxBuy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptx
 
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdfLundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
 
LIC PRIVATISATION its a bane or boon.pptx
LIC PRIVATISATION its a bane or boon.pptxLIC PRIVATISATION its a bane or boon.pptx
LIC PRIVATISATION its a bane or boon.pptx
 
Stock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdfStock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdf
 
The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...
 
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINT
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINTACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINT
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINT
 
Taipei, A Hidden Jewel in East Asia - PR Strategy for Tourism
Taipei, A Hidden Jewel in East Asia - PR Strategy for TourismTaipei, A Hidden Jewel in East Asia - PR Strategy for Tourism
Taipei, A Hidden Jewel in East Asia - PR Strategy for Tourism
 
Sarlat Advisory - Corporate Brochure - 2024
Sarlat Advisory - Corporate Brochure - 2024Sarlat Advisory - Corporate Brochure - 2024
Sarlat Advisory - Corporate Brochure - 2024
 
Monthly Market Risk Update: March 2024 [SlideShare]
Monthly Market Risk Update: March 2024 [SlideShare]Monthly Market Risk Update: March 2024 [SlideShare]
Monthly Market Risk Update: March 2024 [SlideShare]
 
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.
 
Contracts with Interdependent Preferences
Contracts with Interdependent PreferencesContracts with Interdependent Preferences
Contracts with Interdependent Preferences
 

Information economics

  • 1. Information Economics The classical approach Jeroen Hoevenberg 2control4IT Jeroen.Hoevenberg@2control4IT.nl
  • 2. Classic Information Economics Information Economics regards the ex-ante assessment of IT investments. It is regarding both the individual project and the project portfolio and is meant as a frame work in order to assign the scarce IT budgets in such a way that the highest Added value is generated. Information economics is a multi criteria analysis instrument taking into account both tangible indicators as intangible indicators. The subject of Information Economics was developed by Parker and Benson (see Benson, 1991).
  • 3. Main used Benefit Indicators (1) 1. Return on Investment (ROI) A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. The return on investment formula: It is also possible to use similar indicators as net present value, etc 2. Strategic Match (SM) Strategic match assesses the degree to which the proposed project responds to established corporate and business strategies and goals. This dimension emphasizes the close relationship between IT planning and corporate planning, and it assesses the degree to which a potential project contributes to corporate strategy.
  • 4. Main used Benefit Indicators (2) 3. Competitive Advantage (CA) Competitive advantage evaluates the degree to which the proposed project provides an advantage in the marketplace, for example, inter-organizational collaboration through electronic data interchange. 4. Management Information (MI) Management information is an assessment of a project's contribution to management's need for information on core activities, e.g., activities directly involved in the realization of the firm's mission, as distinguished from support and accounting activities. 5. Competitive Response (CR) Competitive response evaluates the degree of business risk associated with not undertaking the project.
  • 5. Main used Benefit Indicators (3) 6. Service and Value (SV) Measurements of customer satisfaction (service and value) must be made from the customer's viewpoint. This measurement takes into consideration such things as ease of access, credibility, competence, reliability, courtesy, security and responsiveness. It also attempts to measure the degree to which customers "like" to do business with the company. 7. Strategic IT Architecture (SA) Strategic IT architecture assesses the degree to which the proposed project fits into the overall information systems direction. It assumes the existence of a long-term IT plan, i.e., an architecture or blueprint that provides the top-down structure into which future data and systems must fit.
  • 6. Main used Risk Indicators (1) 1. Strategic Uncertainty (SU) Strategic uncertainty is an assessment of the degree to which the business strategy is likely to succeed. That is, information technology projects associated with a risky business strategy are also at risk, a fact to consider in assessing a project's viability. 2. Organizational Risk (OR) Organizational risk is an assessment of the degree to which an information systems project depends on new or untested IT or Business skills, management capabilities, or experience. 3. IT Infrastructure Risk (IR) The assessment of IS infrastructure risk is essentially an environmental assessment, involving such factors as data administration, communications, distributed systems, etc. It assesses the degree to which the entire IT organization is both required to support the project and the degree to which it is prepared to do so.
  • 7. Main used Risk Indicators (2) 4. Definitional Uncertainty (DU) Generally, definitional uncertainty assesses the specificity of the user's or business' objectives that are communicated to the IT project personnel. When the user cannot properly describe a problem, the technology department is hard-pressed to supply an answer (quality of requirement engineering). 5. Technology Uncertainty (TU) Technology uncertainty assesses a project's dependence on new or untried technologies, which may involve a single technology or a combination of new technical skills sets, hardware, or software tools.
  • 8. Framework for Assessment of Projects Every participant is scoring the project at the assessment items. The individual scores are added and a mean result is calculated in order to prevent manipulation of outcomes. Large differences between individual scores should be discussed. Assessment of an individual project Assesment Name Function ROI SM CA MI CR SV SA SU OR IR DU TU A B C D Average W ei ght ROI = Return on Investment Score tabel SM = Strategi c M atch 0= Of no Importance CA = Competi ti ve Advantage 1= Of somewhat i mportance MI = M anagement Informati on 2= Of l i ttl e i mportance CR = Competi ti ve Respons 3= Of i mportance SV = Servi ce and Val ue 4= Of great i mportance SA = Strategi c IT Archtecture 5= Of very hi gh i mportance SU = Strategi c Uncertai nty OR = Orgi ni zati onal Ri sk IR = IT Infrastrcuture Ri sk DU = Defi ni ti onal Uncertai nty TU = Technol ogy Uncertai nty
  • 9. Framework for Assessment of Projects • The framework can also be used in communication with the business or from the business. • Scoring can be done by a fixed group and/or by project related stakeholders (However one should take into account that stakeholders tend to over/under-estimate scoring). • A variance based on the statistical deviation can be used to analyse the effect of mavericks.
  • 10. Framework for Portfolio Assessment The whole portfolio is assessed on al criteria. All criteria have received there own weight. Based on added value and risk a score of importance can be calculated. Assesment of Project Portfolio Added Value Risks Cri teri a ROI SM CA MI CR SV SA SU OR IR DU TU Rel ati ve i mportance Score T Score + Score - W ei ght +/- + + + + + + - - - - - Project Scoring A 0 0 0 B 0 0 0 C 0 0 0 D 0 0 0 Score tabel 0= Of no Importance 1= Of somewhat i mportance 2= Of l i ttl e i mportance 3= Of i mportance 4= Of great i mportance 5= Of very hi gh i mportance
  • 11. Assessment Matrix The results of a portfolio assessment can also be plotted in a matrix table. The matrix provides more information on Added Value vs Risks. Execute Reduce Risk Added Value Score Redefine Kill Project Risk Score
  • 12. Example A ssessm en t of Pr oject A A ssesm en t N am e Fu n ct i on RO I SM CA MI CR SV SA SU OR IR DU TU A 3 4 3 2 5 3 0 2 3 2 4 1 B 4 5 3 4 5 2 1 2 3 3 5 1 C 4 5 3 4 5 1 1 2 3 1 5 1 D 4 4 3 2 5 0 0 2 4 3 5 1 A v er age W ei gh t Pr oj ect A 3,8 4,5 3,0 3,0 5,0 1,5 0,5 2,0 3,3 2,3 4,8 1,0 Assesment of Project A within Portfolio Added Value Risks Criteria ROI SM CA MI CR SV SA SU OR IR DU TU Relative importance 4 5 4 3 2 4 3 2 4 3 3 2 Score T Score + Score - W eight +/- + + + + + + - - - - - Project Scoring A 3 4 5 3 3 5 2 1 2 3 2 5 74 37 37 B 4 4 4 4 4 4 4 3 2 2 5 3 80 32 48 C 3 3 1 5 2 5 1 1 1 1 1 1 60 11 49 D 4 3 3 3 3 3 3 3 3 3 3 3 60 33 27 In this example project A has a positive score, but is only third in line within the portfolio.
  • 13. Assessment Matrix example The assessment matrix shows that none of the projects is good enough to be executed. The model can be extended with a weight for Project costs in order to make choices from a scarcity point of view.
  • 14. Assesment Matrix with size Added value 120 110 Execute Reduce 100 Risk 90 80 B 30 100 A 70 60 C 50 40 30 25 D 20 Redefine 10 Project Kill 0 Risk 0 5 10 15 20 25 30 35 40 45 50 55 60 It is not only possible to have analysis per project, but also it is possible to cluster projects to themes.
  • 15. Prioritizing In PPM Deci si on process • Continuity (Maintain) Budget – Budget needed to keep to keep business momentum Pri ori ty < K€ 250 >= K€ 250 Mai ntai n No Yes – Budget needed for mandatory changes Improve No Yes Leadershi p Yes Yes • Efficiency (Improve) – Budget needed based on ROI for => K€ 250,- • Business Innovation (Leadership) – Budget reserved for high risk business innovation • IT Innovation (Leadership) – Budget reserved for high risk IT innovation • Budget limits (<K€ 250,- change)
  • 16. Literature R.J. Benson (1991), Determining the value of information Technology, in: “Handboek bestuurlijke informatiekunde”. J.A. Oosterhaven (2007), ICT-strategie en – organisatie in theorie en praktijk, Sdu Uitgevers BV, Den Haag.
  • 17. 2control4IT 2control4IT is a consultancy company specialized on IT cost management, activity based costing, IT charge back systems and added value analysis. 2control4IT creates insight and transparency. These two elements are basic requirements for both reducing IT costs and increasing IT added value. Transparency also works as a lever for the quality delivered and is the basis for trust based management. Services: • Create transparency in IT costs – Total cost of ownership – Indirect costing analysis – Cost modeling – Benchmark support – KPI Frameworks • Create transparency in IT volumes – CMDB cleaning – Uniformity in incident and problem registration • Create relations between costs and volumes – Activity based costing – Activity based management – Activity based budgeting (including internal transfer prices) – Scenario planning for strategic decisions 17
  • 18. 2control4IT • Create strong business control – Coaching – IT business control training – Interim IT business control – Performance dialogues – Change programs Contact 2control4IT Jeroen Hoevenberg +31(0)6-5894 6176 Jeroen.hoevenberg@2control4IT.nl 18