PowerPoint PresentationSlide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Slide 33Slide 34Slide 3513.11313UNDERSTANDINGUNDERSTANDINGTHE BUSINESSTHE BUSINESSVALUE OF SYSTEMSVALUE OF SYSTEMSAND MANAGINGAND MANAGINGCHANGECHANGEChapter13.2Capital budgetingCapital budgeting•Process of analyzing and selecting Process of analyzing and selecting various proposals for capital expendituresvarious proposals for capital expendituresUNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMSEssentials of Management Information SystemsEssentials of Management Information SystemsChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing ChangeTraditional Capital Budgeting Models13.3•Do not express the risks and uncertainty Do not express the risks and uncertainty of own cost and benefits estimatesof own cost and benefits estimatesUNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMSEssentials of Management Information SystemsEssentials of Management Information SystemsChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing ChangeLimitations of Financial Models13.4The ProblemThe Problem•No automated way of tracking billable No automated way of tracking billable hourshours•No secure method for communicationNo secure method for communication•No client databaseNo client database•No system to track costsNo system to track costsUNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMSEssentials of Management Information SystemsEssentials of Management Information SystemsChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing ChangeCase Example: Primrose, Mendelson, and Hansen13.5The SolutionThe Solution•Local area networkLocal area network•Lotus Notes to handle client accounting, Lotus Notes to handle client accounting, document management, group document management, group collaboration, and e-mailcollaboration, and e-mailUNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMSEssentials of Management Information SystemsEssentials of Management Information SystemsChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing ChangeCase Example: Primrose, Mendelson, and Hansen13.6UNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMSEssentials of Management Information SystemsEssentials of Management Information SystemsChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing ChangeCosts and Benefits of the Legal Information SystemFigure 13-113.7UNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMSEssentials of Management Information SystemsEssentials of Management Information SystemsChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing ChangeFinancial ModelsFigure 13-213.8The Payback MethodThe Payback Method•Measure of time required to pay back the initial Measure of time required to pay back the initial investment on a projectinvestment on a projectAccounting Rate of Return on Investment Accounting Rate of Return on Investment (ROI)(ROI)•Approximates the accounting income earned Approximates the accounting income earned by the investmentby the investmentUNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMSEssentials of Management Information SystemsEssentials of Management Information SystemsChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing ChangeCase Example: Primrose, Mendelson, and Hansen13.9Present valuePresent value•Value of a payment or stream of payments Value of a payment or stream of payments to be received in dollarsto be received in dollarsNet present valueNet present value•Amount of money an investment is worth Amount of money an investment is worth UNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMSEssentials of Management Information SystemsEssentials of Management Information SystemsChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing ChangeCase Example: Primrose, Mendelson, and Hansen13.10Cost-benefit ratioCost-benefit ratio•Calculates returns from capital Calculates returns from capital expenditure expenditure Profitability indexProfitability index•Compares profitability of alternative Compares profitability of alternative investments by dividing the present value investments by dividing the present value of total cash inflow by initial costof total cash inflow by initial costUNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMSEssentials of Management Information SystemsEssentials of Management Information SystemsChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing ChangeCase Example: Primrose, Mendelson, and Hansen13.11Internal Rate of Return (IRR)Internal Rate of Return (IRR)•Rate of return or profit an investment is Rate of return or profit an investment is expected to earnexpected to earnResults of the Capital Budgeting Results of the Capital Budgeting AnalysisAnalysis•Cash flow positive over the time period Cash flow positive over the time period and returns more benefits than it costsand returns more benefits than it costsUNDERSTANDING THE BUSINESS VALUE OF INFORMATION SYSTEMSEssentials of Management Information SystemsEssentials of Management Information SystemsChapter 13 Understanding the Business Value of Systems and Managing ChangeChapter 13 Understanding the Business Value of Systems and Managing ChangeCase Example: Primrose, Mendelson, and Hansen13.12Portfolio AnalysisPortfolio Analysis•Analysis of portfolio of potential Analysis of portfolio of potential applications within a firm applications within a firm •Determines risks and benefitsDetermines risks and benefits•Selects among alternatives for information Selects among alternatives for information