Week 51 (6.4.08)

Learn - In corporate IT

No IT Project; but only Business Project

To engage any IT project which is actually a business project, need to determine:

1) What was the SCOPE in terms of size of the business; geographical location?
2) What kind of SERVICE LEVEL provided to client?
3) How does it compare EXISTING OPERATIONS?

It is important to determine where the business is in TODAY versus the FUTURE where the business vision and mission set to be.

Therefore, the traditional financial measures when accepting a business project is:

1) Net Present Value > 0 AND
2) Internal Rate of Return > Discount Rate (Hurdle Rate) of the project AND
3) Certainty of Cash Flow

All these are based on assumptions on the likely scenarios and possible outcomes.
To go ahead with a project, the IT Value/Benefits > IT Cost

In this Cost Benefit Analysis,

IT Cost consists of Direct Cost (hardware, software) & Indirect Cost (personnel, downtime)
IT Value/Benefit are Increase Revenue (development of new product), Reduce Cost (business cost & IT cost) & Reduce Risk (will not jeopardise company image)

Summary: Benefit-Cost>0

Unlearn

NIL

Relearn

Further enhance my knowledge from previous module in Strategy & Financial Management to see the link and apply the NPV & IRR to a business project.

However, the drawback is needed to work closely with Finance Department to advice on the sensitivity analysis on what is the percentage of discount rate or hurdle rate (= to support cost of the project + pay the investment of the stakeholder) for each option of the business project. Then, this will allow senior managers, after considering the IRR and business risk, in deciding which business options to take incorporating the business technology.