IT Sourcing Portfolio Management for IT Services Providers - A Risk/Cost Perspective

Utilizing a global IT sourcing strategy bears enormous growth potential. With the main focus on cost reduction in valuation of sourcing alternatives, risk and risk diversification effects are often inadequately considered or completely neglected. This systematically results in wrong decisions about global sourcing. Correct decisions are in particular important for the success of IT services providers (ITSP), which are the major beneficiaries of the market growth, though being faced with intensifying competition. This paper proposes a decision model for allocating software development projects of an ITSP to available sites in a risk/cost efficient way by adapting Markowitz’s Modern Portfolio Theory to IT sourcing decision making. The suggested approach covers not only costs and sourcing risks but also interdependencies between both sites and projects. Additionally, we propose methods for quantifying the necessary input parameters. We demonstrate the practicability of our approach in a case study with data from a major ITSP

The Impact of Human Resource Sharing on IT Project Risk

The increasing number of sophisticated IT projects and the scarcity of skilled human resources increasingly challenge IT project portfolio managers with the need to do ‘more with less’. Consequently, resource sharing among projects provides a widely applied instrument to reduce project costs. However, resource sharing may not only result in cost synergies but also in risk effects. In contrast to cost synergies, these risk effects are rarely considered in business practice and quantification efforts of these risk effects are missing in the literature. Our research is the first to provide a systematic quantitative empirical analysis of the relationships between resource sharing and project risk. We find evidence that projects sharing their human resources are more likely to fall short in their planned scope while being more likely to comply with their planned timeline

Benefits Quantification in IT Projects

The probability of IT project failures can be mitigated more successfully when discovered early. To support an early detection, transparency regarding a project’s cash flows shall be increased. Therefore, an appropriate analysis and calculation of a project’s costs, benefits, risks and interdependencies is inevitable. Until today, however, a method that appropriately considers these factors when estimating the ex ante project business case does not yet exist. Using the Action Design Research approach, we designed, applied and tested a practicable and integrated method of determining the monetary value of IT projects to generate generalized insights to benefits management. This method was conjointly developed by practice and academia, to ensure practical applicability while upholding scientific rigor. Furthermore, to support understandability of the method, we provide an application example

Would i use my personal blog for commercial exchange?

As information-based processes are usually independent of the location or even the processor, they can be oftentimes either automated or relocated to foreign sites to profit from differences in wages. Both strategies bear enormous micro-economic potential in terms of cost savings. However, with the main focus on cost reduction, risk due to the uncertain development of effective labor costs or future transaction volumes are oftentimes either inadequately considered or neglected. This systematically leads to false decisions, in particular since the two strategies – relocation and automation – result in different risk profiles. In this paper, we analyze the conditions for automating or relocating parts of business processes and propose a decision model that suggests a risk/return efficient allocation to the alternatives. In particular, we consider how uncertainties of effective labor costs and transaction volumes influence the decision. As shifting tasks to other locations has effects on the workload at the original location, we also take into account costs for social effects. The practicability of our approach is demonstrated with an example that is based on real data of a major financial services provider

DETERMINING THE OPTIMAL INVESTMENT AMOUNT OF AN INTELLIGENT HOUSE - POTENTIALS OF INFORMATION AND TECHNOLOGY TO COMBINE ECOLOGY AND ECONOMY

Innovations in the field of information systems (IS) open up new possibilities to increase energy efficiency and carbon reduction. For this, real estate is an industry sector with remarkably high potential. Here IS are integrated into \u27Intelligent Houses\u27. But many of these ecologically advantageous investments are not made yet, because they do not seem to be economically profitable. We therefore develop an IS-specific model to identify investment alternatives out of all ecologically advantageous investment alternatives which are also economically profitable. For this, we compare the investment amount with the achievable energy cost reduction and the raise of the buildings\u27 resale returns. Out of all identified investments we determine the economically optimal investment amount. In this connection we put special emphasis on the valuation of risk and for the first time point out the applicability of Intelligent Houses as insurance against energy price volatility. Thus the quantity of all ecologically advantageous and economically profitable investments is enhanced as well as the economically optimal investment amount. IS\u27 potentials to combine economy and ecology can thus be detected and made useable. An example illustrates how the model can be applie

VALUE-BASED PROCESS IMPROVEMENT

For years, “improving business processes” has been and is the primary business priority of IT. In business process management (BPM), common criteria to evaluate the improvement of a process are time, costs, customer satisfaction and output quality. In contrast, the management of companies focuses on increasing the company’s value, using a value-based management approach, which is hard to be linked to these criteria. A value-based process improvement can alleviate this drawback by incorporating value-based management into the area of BPM. In this paper we introduce, based on the design science paradigm, an approach that is suitable for the value-based improvement of processes. Demonstrating the feasibility and the advantage of our approach, we show its applicability within a real world scenario and evaluate it by comparing it to a competing work in the field of value-based process management

An Approach for Portfolio Selection in Multi-Vendor IT Outsourcing

Companies increasingly extend their outsourcing strategies from single-sourcing to multisourcing combining best-of-breed vendors. This paper includes an analytical model to evaluate a company’s multisourcing strategy. The model can be applied for decision support to answer the questions, how many and which outsourcing vendors to integrate in the implementation of an IT project. We identify an optimal vendor portfolio considering monetary benefits and risk diversification as well as transaction costs arising from the integration and coordination of outsourcing vendors. Based upon a simulation, we find that it makes good economic sense to include a risk evaluation into the multisourcing decision process even if it is subject to misestimation. Therewith, companies are able to avoid unnecessary high risk and consequently a possible high damage. Furthermore, we find that it is better to be too cautious in risk assessment than to be too negligent

Analyzing the Trade-Off between Traditional and Agile Software Development - A Cost/Risk Perspective

Digitalization heralds a new era of enterprise IT. It challenges CIOs to find a balance between renovating legacy IT and seizing the opportunities of digital technologies to keep up with competitors and start-ups. This requires organizations to operate two software development modes simultaneously: the traditional and the agile mode. Despite substantial research on both modes, little is known about whether to implement distinct software development projects traditionally or agile. As a first step to addressing this gap, we propose a quantitative decision model that compares the cost and risk profiles of both modes associated with the implementation of a distinct project. The decision model integrates qualitative and quantitative characteristics of the project in focus and of the traditional and the agile mode. As for evaluation, we implemented the decision model as a software prototype and validated its behavior using sample projects as well as a sensitivity analysis