A Method for Prioritising IT Investments at

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Thesis MScBA Business & ICT

A Method for Prioritising IT Investments at

the N.V. Nederlandse Gasunie

René Frieswijk

Rijksuniversiteit Groningen

Faculty of Economie Management & Organisation

Faculty of Economics

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Thesis MSc BA Business & ICT

A Method for Prioritising IT-Investments at

the N.V. Nederlandse Gasunie

Place: Groningen

Date: 12 May 2005

Version: Definite

Study: Msc BA Business & ICT

Author: René Frieswijk

Mentor Gasunie: Mr. E.E. Lycklama à Nijeholt

Mentor Rijksuniversiteit

Groningen: Prof. Dr. E.W. Berghout

Examinator: Prof. Dr. Ir. J.C. Wortmann

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PREFACE

This was the first time that I focused and deepened on a study subject as thoroughly as I did during the past five months. The internship took from 1^st of November 2004 till 31^st of March 2005. This research offered me very interesting insights to IT related issues IT investment appraisal in particular. I would like to thank my mentor Egon Berghout who shared his interesting vision with respect to IT with me and who taught me how to conduct a thorough research. Coming to this point, I would like to thank the members of BS for their support during writing this thesis. Especially, I am grateful to my mentor within Gasunie, Eddie Lycklama à Nijeholt, for providing me with insights to the management of IT in a large organisation and for supervising me during the process of writing this thesis. I would like to thank Dirk-Jan Scholing for explaining to me the basics of IT control that were needed to understand the problematic nature of IT. Special thanks go to my colleagues who received draft versions of this thesis. I would like to thank Eddie Kiemel, Alef Tuinman for the amusing and interesting discussions during lunch break. I would like to thank both for reading and providing comments on my thesis as well as Anne Spijkstra and Paul Bloemen who also contributed to my work. I would like to express gratitude to the head of the BS department, Johan Stäbler, for offering me the opportunity to carry out my internship within an IT department operating on a strategic level, which was very valuable for me.

I would like to thank Andrea Bos for providing comments to my English language. And last but not least, I would like to show my appreciation to my family and friends for offering me support and understanding during the writing process.

Thank you all!

René Frieswijk

Groningen, 12 May 2005

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MANAGEMENT SUMMARY

The goal of this research is to analyse the current IT investment appraisal method within Gasunie and to provide suggestions for improvement of this method. An IT investment appraisal methodology consists of four elements that contribute to making the right choices regarding applying IT effectively and efficiently into an organisation:

1. Method – which methodology and criteria must be used in the IT investment appraisal process?

2. Business cases – what are the specifications of the business cases?

3. Decision making process – how should the decision making process proceed?

4. Stakeholder involvement – who are the main stakeholders involved in the decision making process?

Method

During the period of conducting this research, Gasunie implemented the IT investment appraisal method suggested by the Novius consultancy company¹. The Novius method (see paragraph 4.4) assesses IT projects on business value for the organisation and risk of the project when carrying it out. The Novius method is an improvement compared to the previously used ‘categories’ method (see paragraph 4.4). For this method a number of recommendations are made:

1. A financial analysis should be conducted based on, for example, payback period, net present value, return on investment or profitability index. Payback period is preferred, because this technique is easy to understand and graphically clear to present.

2. It is recommended to use the strategic elements from Information Economics for the criteria of business value of the Novius method, namely strategic match, competitive advantage, management information support and competitive response (see paragraph 3.2 and 5.1).

3. It is recommended to conduct a risk assessment at IT projects:

• Technical risk – the degree to which the technology is not feasible with the current technology.

• Project risk – the IT technology that Gasunie seeks to develop is too large or too complex, or the staff’s technical skills are insufficient.

• Internal politics – an IT investment can be undermined by vested interests in the Gasunie organisation.

1 www.novius.nl

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• External risk – the sources of the risk are unanticipated responses from competitors, customers or regulatory bodies.

• Investment risk – the degree to which other, non-project investments (business projects) are required to make the project successful.

4. It is recommended to install a threshold level as part of clustering of the Novius method, for example 400 man days of resources. In that case , the candidate project should contain minimal 400 man days.

5. It is recommended to range the scoring numbers from -1 for a negative contribution and a score of 0 to 4 for positive contributions. Negative contributions of IT projects become visible. The goal of the method is to support the decision-making by providing an incentive for the discussion.

6. It is recommended to analyse also on the level of the project, compared to the level of the person. Momentarily, the analysis is based on the preferences of one person. The improvement is to analyse on the level of the project and if scores differ largely between stakeholders, discussion should take place.

7. Top management should confine that anyone who wants to join the approval round, has to hand in a complete and accurate investment proposal.

Business cases

Within Gasunie, the business case is underexposed. The aspects of the investment proposals are described or calculated moderately. The first reason for using business cases is that scope extensions remain a bottleneck in the process. The current investment proposal allocated resources to a project without knowing the exact scope of a project. The comprehensive business case is a measure to change the way the scope extensions of projects is determined. Secondly, the business case will reduce the uncertainty because the investment proposal and business case provide the complete and accurate information on the burdens and benefits of the IT investment to all stakeholders involved, thus leading to better decisions. Thirdly, the business case makes it possible to quantify the value of the IT investment to other investments.

Fourthly, the investment proposal functions as the base for the approval of the business plan. Finally, the business case functions as the base for planning and control to acquire ‘value for money’ of IT investments. Recommendations for the business case are:

1. To perceive the comprehensive business case as a process in which the case is build up. The investment proposal is used for the prioritisation of IT projects.

The business case is used for the decision to invest in a project (GO / NO GO), thus for the release of budget. The final business case is used for the decision to realise and implement the application.

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2. To develop a template for the investment proposal that functions as the case for prioritisation. A template for this is presented in appendices 8 and 9 of this thesis. Concerning the current situation it is recommended to extent the description/calculation with respect to content. A more extended description improves the comprehensibility and shares a vision regarding the potential of the investment.

3. To distribute instructions that describe how an investment proposal should be completed and to offer support from BS to the business sponsor, who is responsible for submitting the investment proposal.

4. To use the model of Remenyi (see paragraph 3.2.4) for the improvement of the comprehensive business case. This model discerns five elements a comprehensive business case contains:

• Business outcome – an assessment of the value for the business of the IT solution on a macro, meso and micro level.

• Stakeholder analysis – the stakeholder groups are the organisation, users, projects team, supporters and other stakeholders involved.

• Strategic alignment – the strategic alignment of the IT solution with the strategy of Gasunie / business unit.

• Technological issues – the assessment IT infrastructure, hardware, software, people skills, budgets and timing of technology with respect to the IT project.

• Risk assessment – further risk assessment of the assessment risk, technical risk, project risk, functional risk, internal politics risk, external environmental risk, investment risk.

Decision making process

Previously, the Categories method was used for allocating IT budgets to projects.

Some members of Gasunie were dissatisfied with respect to that process. Business, BS, BI, IT control and a member of the board decided on the final project portfolio in the so called IT forum. This research offers a possible process of a decision making process for IT investment appraisal. The recommendations with respect to this decision making process are:

1. To use three decision making moments. The decision :

• To set priorities between IT projects (based on the case for prioritisation, the investment proposal). This has to be done at the moment before the business plan is written and after the mapping of IT opportunities took place. After the prioritisation one can chose to build a business case

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depending on the certainty of the view one has of the expected costs and benefits of the IT project.

• To invest in the project and to release the budget (based on the case for investment, the business case). This has to be done at the moment after the study phase of the IT application. The study phase should deliver a project plan and a comprehensive business case.

• To realise and implement the IT solution to exploit the expected benefits (based on the comprehensive business case). This should be done at the moment after the PVO phase, where a thorough view exists of the costs to build the application (primarily the cost of data migration and collection) and thus before the application is build.

2. To install an application that supports the decision making process (already in progress during this research). The decision making process will proceed more effectively and efficiently.

3. To conduct a post evaluation of IT projects to see if the expectations set in advance are reached. Through a thorough evaluation, Gasunie can learn about and improve its cost/benefit management.

4. To re-allocate budget savings to the next project in the prioritisation. If a project can be completed with fewer resources than it is recommended to re- allocate the remaining resources to the next project of the priority list, instead of spending it on ‘nice-to-have’ functionality in the same project.

Stakeholder involvement

Previously, business, BS (strategic IT), BI (IT implementation), IT control and a member of the board decided on IT investments. In the near future, the business will have the responsibility for deciding on IT investments. The IT budget will be allocated at BU-level. The business will have to decide how it wants to spend this budget. A part will be reserved for Gasunie wide projects. As a result of this shift the number of projects in the project portfolio will decrease, because the method is delegated to business unit level. The method should be used by the business to prioritise IT project.

The recommendations for dealing with the involvement of stakeholders in the decision making process are:

1. To clarify the roles and responsibilities:

• The business is responsible for its own IT and has the responsibility to decide on IT. Business is responsible for the realisation of benefits from IT solutions and for submitting the comprehensive investment proposals / business cases.

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• BS advises and provides instructions on the completion of the investment proposal, the business case and the prioritisation process. By advising and providing instructions BS can clarify its role in the organisation. That role is to get business and BI closer.

• The IT component in the business project will be carried out by BI. BI is responsible for carrying out the IT part of the project on the right way.

2. To acquire top management support. Top management should confirm the division of responsibilities. Top management should confine to the IT investment decision-making.

3. To provide information on the new method to all stakeholders involved. The goal of this is to acquire more support and understanding for the new method and the corresponding decision making process.

Conclusions

The recommendations made in this thesis are based on the four research issues of IT investment appraisal (method, business cases, decision making process and

stakeholders involved). It is recommended to set up a change process to implement these recommendations by:

• Improving the Novius method (7 recommendations)

• Developing templates for the investment proposals and business cases including the distribution of instructions (appendices 8 and 9).

• Distinguishing three major decision moments where agreement consists between all stakeholders involved:

- The decision to prioritise IT investments (investment proposal) after collecting all investment proposals.

- The decision to invest in IT projects (business case) after conducting the study phase of a project.

- The decision to realise and implement the IT application and exploit the expected benefits (comprehensive business case) after the design phase of a project.

• Clarifying the responsibilities including the approval from top management.

• Conducting an evaluating of IT projects.

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TABLE OF CONTENTS

Preface

Management summary

Chapter 1: Introduction... 17

1.1. Outline... 18

1.2. Gasunie ... 19

1.2.1.Gasunie Trade & Supply (T&S) ... 20

1.2.2.Gasunie Technology and Assets (GTA) ... 21

1.2.3.Gas Transport Services (GTS) ... 21

1.3. Business support / IT strategy department ... 21

Chapter 2: Research approach ... 24

2.1. Conceptual design ... 24

2.2. Technical design ... 27

Chapter 3: Overview of IT appraisal theory ... 28

3.1. IT investment appraisal methods ... 29

3.1.1.The process of creating a portfolio of IT projects ... 31

3.1.2.A literature review IT investment appraisal theory... 32

3.1.3.The Criteria for comparing appraisal methods ... 40

3.2. Business cases ... 40

3.2.1.Investment proposals... 43

3.2.2.Why use business cases? ... 45

3.2.3.Description concerning content of the available cases ... 45

3.2.4.The model of Remenyi... 46

3.3. Decision making process ... 55

3.4. Stakeholders involvement ... 58

3.4.1.Stakeholders involved in the decision making process ... 59

3.4.2.The implementation of a method ... 62

3.4.3.The political aspects of decision-making ... 64

3.5. IT governance ... 65

3.6. Summary... 67

Chapter 4: Gasunie IT ... 69

4.1. Budgeting ... 69

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4.2. IT management ... 72

4.3. The prioritsation Method from 2004: The Categories method ... 75

4.3.1.Project identification... 75

4.3.2.Project prioritisation ... 76

4.3.3.Resource allocation ... 78

4.4. The prioritisation Method for 2005: The Novius method... 78

4.4.1.Project identification... 78

4.4.2.Project prioritisation ... 80

4.4.3.Resource allocation ... 81

4.5. Business cases within Gasunie ... 81

4.6. Summary... 83

Chapter 5: Analysis... 86

5.1. Comparison of appraisal methods ... 87

5.1.1.Recommendations concerning methods ... 92

5.2. Analysis of the business cases ... 94

5.2.1.Analysis of business outcome ... 95

5.2.2.Analysis of stakeholders ... 98

5.2.3.Analysis of strategic alignment ... 99

5.2.4.Analysis of technology ... 100

5.2.5.Analysis of risk ... 101

5.2.6.Recommendations concerning business cases ... 101

5.3. Analysis of the decision making process ... 103

5.3.1.Recommendations concerning the decision making process ... 112

5.4. Analysis of stakeholders in the decision making process... 113

5.4.1.Stakeholders in the decision making process ... 113

5.4.2.Interest in relation to a prioritisation method... 116

5.4.3.Recommendations concerning stakeholder involvement ... 119

Chapter 6: Conclusions and recommendations ... 122

Literature ... 128

Overview of figures Figure 1: Full-Life-Cycle concept (Berghout and Nijland, 2002) ... 17

Figure 2: Organisation chart of N.V. Nederlandse Gasunie... 20

Figure 3: Timeline of liberalisation developments... 20

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Figure 4: Research model for the research of providing methodological support for

decision-making regarding IT investments ... 25

Figure 5: Perception of the financial controller (Wiggers et. al, 2004) ... 30

Figure 6: Perception of the IT professional (Wiggers et. al, 2004) ... 30

Figure 7: The process of creating a portfolio of IT projects (Keen and Smith, 2003) .. 32

Figure 8: Example of the investment portfolio (Berghout and Meertens, 1992) ... 37

Figure 9: IT performance grid (Wiggers et. al, 2004) ... 38

Figure 10: The four perspective of the balanced scorecard (Kaplan and Norton, 1992) ... 39

Figure 11: Framework for making the business case (Hogbin and Thomas, 1994) .... 42

Figure 12: The pipeline management process (Wiggers et. al, 2004) ... 42

Figure 13: Cost-benefit analysis as a sub-set of the business case (Remenyi, 1999) 46 Figure 14: An overview of the IT business case (Remenyi, 1999) ... 47

Figure 15: Relationship between macro, meso and micro model for business outcomes ... 49

Figure 16: The three value propositions (Treacy and Wiersema, 1993)... 52

Figure 17: The rationale blue print of the decision making process (Harrison, 1987) . 57 Figure 18: Multiple subjectivity in the decision making process (Berghout, 1997) ... 58

Figure 19: Stakeholders of an evaluation (Farbey et. al, 1993) ... 61

Figure 20: Stakeholders position (Boddy and Boonstra, 2005) ... 63

Figure 21: Stakeholders commitment (Boddy and Boonstra, 2005) ... 63

Figure 22: Stakeholders map (Boddy and Boonstra, 2005)... 63

Figure 23: Budgeting-cycle within Gasunie... 70

Figure 24: Budgeting cycle continued (project management) ... 72

Figure 25: IT management within Gasunie ... 73

Figure 26: Man years allocation ... 76

Figure 27: Graphical presentation of the Novius method (in Dutch)... 81

Figure 28: The prioritisation process... 105

Figure 29: The responsibilities division model of the benefits realisation approach (Thorp, 1998) ... 115

Figure 30: Stakeholders concerning the use of an IT investment appraisal method . 117 Figure 31: Stakeholders map (Boddy and Boonstra, 2005)... 119

Overview of tables Table 1: Negative and positive aspects of the legitimating activity (Berghout and Nijland, 2002)... 18

Table 2: Techniques to estimate incoming cash flows (Parker et. al, 1988)... 35

Table 3: Business and technical domain; risks and values (Parker et. al, 1988)... 36

Table 4: Example of micro model (Remenyi, 1999) ... 50

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Table 5: Stakeholder in IT projects (Milis and Mercken, 2004; Remenyi, 1999) ... 51

Table 7: Rational versus political models (Daft, 1986)... 64

Table 8: Resource distribution in 2004... 69

Table 9: Categories used for IT prioritisation within the Gasunie ... 77

Table 10:Comparison of the origins of the available business cases ... 82

Table 11: Comparison of appraisal methods ... 87

Table 12: McFarlan's strategic matrix versus Categories method ... 88

Table 13: Macro model... 95

Table 14: Meso model... 96

Table 15: Micro model... 98

Table 16: Stakeholder analysis ... 98

Table 17: Non-quantitative benefits ... 99

Table 18: Technology aspects ... 100

Table 19: Assessment of risks ... 101

Table 20: Rationalised steps of the decision making process ... 111

Table 21: Stakeholder commitment towards IT investment appraisal technique (Boddy and Boonstra, 2005) ... 118

Table 22: Recommendations concerning stakeholders responsibilities ... 120

Overview of appendices

Appendix 1: The business information planning pyramid ...Error! Bookmark not defined.

Appendix 2: The business information planning pyramid; a reference framework Error!

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Appendix 3: Project organisation ...Error! Bookmark not defined.

Appendix 4: Financial techniques for IT investment decision-making (Schniederjans et al., 2004) ...Error! Bookmark not defined.

Appendix 5: Operations research / management science techniques for IT investment decision-making (Schniederjans et al., 2004)...Error! Bookmark not defined.

Appendix 6: Techniques specifically designed for IT investment decision-making (Schniederjans et al., 2004)...Error! Bookmark not defined.

Appendix 7: Other techniques for IT investment decision-making (Schniederjans et al., 2004; Wiggers, 2004; Van Grembergen, 2001).Error! Bookmark not defined.

Appendix 8: Investment proposal template part 1...Error! Bookmark not defined.

Appendix 9: Investment proposal template part 2...Error! Bookmark not defined.

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CHAPTER 1: INTRODUCTION

At Gasunie there is an increasing amount of resources for IT. The IT related costs at the Gasunie concern approximately 20 percent of the total yearly costs. Currently, the IT budget at Gasunie has increased with almost 60 percent during the past 5 years. IT investments also have a considerable large impact on business. Therefore this thesis will help to improve the methodology for appraisal of IT investments within Gasunie.

This research covers the four areas of IT investment assessment (Berghout, 1997;

Berghout E.W. and Nijland, 2002; Boonstra, 2005; Farbey, 1992; Hogbin and Thomas, 1994; Nijland, 2004; Remenyi, 1999; Wiggers et. al, 2004; Willcocks, 1996):

1. Method 2. Business case

3. Decision making process 4. Stakeholder involvement

These four areas cover the research topic in such a way that all relevant issues of IT investment appraisal and prioritisation of IT projects are investigated. These activities should be seen as a part of a larger process. Figure 1 illustrates the information systems application full-life-cycle, which includes, legitimating IT projects (Berghout and Nijland, 2002). The upper most text box represents the legitimating activity of the full-life-cycle of IT investments. Prioritisation of IT projects and appraisal of IT investments are part of this legitimating activity. This model helps to comprehend the

‘bigger picture’ of IT investment assessment.

Identify

Evalu

ate Operate

Re alise Legitimate

What projects have the most impact on business and how should they be prioritised?

How can an organisation control its costs and maximise its benefits during operation of

IT systems?

How can an organisation control its

costs and benefits during the development

stage?

What are the interesting areas for an

organisation to invest in?

How can an organisation control measure the performance of an IT system

compared with the initial goals?

Figure 1: Full-Life-Cycle concept (Berghout and Nijland, 2002)

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Berghout and Nijland (2002) conclude a general number of positive and negative aspects with regard to the legitimating activity. Table 1 gives an overview of the negative and positive aspects of the legitimising activity that their research found at other organisations. Some of these aspects are common to Gasunie as well. The aspects relevant for Gasunie will be further investigated in this research.

Negative Positive

Goals are not verifiable or measurable. All organisations have an eye for tangible and intangible costs and benefits.

Criteria are not used or different for each proposal.

In all organisations strategic management is involved in the legitimating activity.

IT cost/benefit analyses are often incomplete

Table 1: Negative and positive aspects of the legitimising activity (Berghout and Nijland, 2002)

1.1. OUTLINE

This thesis focuses on the methodology used for IT appraisal by describing theoretical insights and testing them to the current situation within Gasunie. An analysis is conducted and recommendations are made to improve the current methodology used at the organisation. For the reader who is interested in IT governance, it is

recommended to read paragraph 3.5. This paragraph presents recent theoretical insights on the issue centralisation versus decentralisation. IT investment appraisal is part of an IT governance approach. For the reader who is interested in the available methods, it is recommended to read paragraph 3.1 and 5.1. Chapter 6 contains the conclusions of this research. In the other chapters relevant information on the IT investment appraisal issue will be given.

• Chapter 2 describes the research approach that is used for conducting this research.

• Chapter 3 discusses the theoretical background of IT investment appraisal.

This chapter provides information concerning the investment appraisal method, business cases, decision making processes and stakeholders involved.

• Chapter 4 presents the budgeting cycle, the prioritisation method and the business cases within Gasunie.

• Chapter 5 analyses the current situation within Gasunie applying the theoretical models from literature and presents recommendation concerning the respective topics.

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• Chapter 6 summarises the conclusions and reviews the initial problem statement and research questions.

The chapters of this thesis will provide an answer to the management issue ‘IT investment appraisal’ and provide scientific material in the area of business and ICT.

Now, paragraph 1.2 describes the Gasunie organisation.

1.2. GASUNIE

In 1959 the Nederlandse Aardolie Maatschappij B.V. (NAM) discovered gas at the town of Slochteren. This resulted in the foundation of the N.V. Nederlandse Gasunie in 1963. A fast penetration of the national market followed which later expanded over the Dutch borders. The N.V. Nederlandse Gasunie consists of a trade and transport division. The N.V. Nederlandse Gasunie buys, sells and transports over 80 billons cubic meters of gas to the domestic as well as to the foreign market each year. The N.V. Nederlandse Gasunie is a leading European supplier of gas. Trade partners come from Germany, Belgium, France, England, Italy, Norway, Russia and Switzerland. Besides that, the N.V. Nederlandse Gasunie owns the Dutch gas transportation network, which consists of more than 12.000 kilometres of pipe lines.

During operations the N.V. Nederlandse Gasunie gives special attention to safety, environment and durability (Information folder Gasunie, Facts 2004; Methanet).

The liberalisation of the gas energy market has led to a division of the company into a trade part and a transportation part. During 1999, the firewall between the trade and transport division was installed by establishing the transport division as a separate department. The Transport department was situated at a separate building. Since the beginning of 2002, the N.V. Nederlandse Gasunie has been organisationally divided into a trade part and a transportation part. At that time Trade & Supply was placed outside the holding as a separate B.V and Transport is placed inside the Gasunie building. As a result of the second European gas regulation agreement, all members of the European Union have accepted into their national legislation that there will be appointed a legal, independent administrator of the national gas transport network.

That is why on the 1^st of July 2004 the national network operator of gas has been established which operates under the name of Gas Transport Services B.V. (GTS).

From July 1^st 2004 the Gasunie is organisationally separated into three parts, namely Gasunie Transport Services, Gasunie Technology and Assets and Trade & Supply.

These three separate divisions are shown in the organisation chart (see Figure 2)

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Finance & Control Business Support

Technology & Assets Gastransport Services B.V.

Corporate N.V. Nederlandse Gasunie

FA BM (P&O)

FD FP

FF

FC FB

BO (P&O) BE (P&O)

BS (stategy

& ICT) BP (P&O)

BI (IT development)

Operations

Finance

&

General Market &

Regulation Asset

management

Transport Services Network

Management Staff

Trade & Supply B.V.

Purchase Export Sales Marketing

Figure 2: Organisation chart of N.V. Nederlandse Gasunie

Furthermore the GTS division has its own board of commissioners. On the 1^st of July 2005 Trade & Supply will officially be separated from the Nederlandse Gasunie N.V.

The shareholders reached an agreement in October 2004. Then , the government, Shell and Exxon are the owner of the trade division (T&S). From 1^st of July 2005 the transport division (GTS/GTA) will be owned by the government. For this transition retrospective actions will be taken from 1^st of January 2005 until 1^st of July 2005. On this date the division of the trade division and the transport division has to be finalised.

This historical perspective is illustrated graphically on the next timeline. The dates in question are added to the timeline (see figure 3).

organisationally organisationally retrospective definite Firewall divided separated actions separation

1999 2002 1 juli 2004 1 jan. 2005 1 juli 2005

Figure 3: Timeline of liberalisation developments

1.2.1. GASUNIE TRADE & SUPPLY (T&S)

Gasunie Trade & Supply (T&S) is responsible for the purchase and sales of gas in and outside the Netherlands. The trade division is also one of the major suppliers of services that are related to the supply of gas such as capacity, flexibility and back up.

The T&S department is a separate B.V. Primary processes are allocation-to-bill and

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commercial dispatching. From 1 July 2005 this division will continue under the flag of Gasunie Trade.

1.2.2. GASUNIE TECHNOLOGY AND ASSETS (GTA)

Gasunie Technology and Assets (GTA) is the owner of the network. GTA is responsible for the physical maintenance of the gas transport network as well as adjustments to the network. The transport network consists of more than 12.000 kilometres of gas pipes, 1100 gas receiving stations, 75 regulation and control stations, a LNG installation, two installations to gauge metering instruments and a nitrogen installation. At the gas receiving stations the Gasunie delivers the gas to the customers. Behind these stations you find the network of pipes of the energy distribution companies or big industrial clients. Employees are stationed on different locations throughout the country. Primary processes are integrity management and license-to-operate. From 1 July 2005 this division will continue under the flag of N.V.

Nederlandse Gasunie.

1.2.3. GAS TRANSPORT SERVICES (GTS)

Gas Transport Services B.V. (GTS) manages the domestic gas transport network and offers gas transport services to the market with the goal to increase market regulation.

The customer is a central theme. GTS takes care for gas transport on a transparent and non-discriminating reliable, safe and efficient way. GTS has a strong position within Europe. The employees of GTS are on the payroll of N.V. Nederlandse Gasunie but have been contracted for Gas Transport Services. Primary processes are meter- to-bill and physical gas transporting planning. From 1 July 2005 this division will continue under the flag of N.V. Nederlandse Gasunie.

“The dynamic energy market is constantly moving, not only because of changing regulatory rules, but also because of the quest for durable energy sources.²”

1.3. BUSINESS SUPPORT / IT STRATEGY DEPARTMENT

This research is conducted for the department Business Support / IT strategy. The BS department is part of the corporate company the N.V. Nederlandse Gasunie. The position of the Business Support / IT strategy department, which is referred to as the BS department, within organisation of the Gasunie is shown in Figure 2. BS is a staff

2 Gasunie annual report 2003

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department. BS is responsible for the integral, strategic decisions concerning IT within Gasunie. The BS department has the following mission statement:

BS develops the integral IT policy for Gasunie, it provides insight and control to the implementation of this policy and advises on the application of IT resources³.

Ten FTE are on the payroll at the BS department. Besides the head of the department it consists of two programme managers, two architecture officers, three business process analysts and one security officer:

• The two programme managers are responsible for formulating, managing and carrying out the project portfolios.

• The three business process analysts are responsible for the improvement and redesign of corporate business processes.

• The two architecture officers are responsible for the corporate-wide IT architecture.

• The security officer is responsible for safeguarding the availability, integrity and confidentiality of IT provision.

This team supports the Business Units (BU) by advising on facilitating, supporting and enabling IT on an integral manner. The BS department sets out the project plan for IT development by providing IT policy and preparing an annual project plan. Next to the BS department we find the BI department that implements IT solutions. The BI department implements the proposed IT projects. This department offers work to 150 in-house employees and 150 temporary workers.

Since May 2004, the members of the BS team have been working on a plan that is called the Business Information Plan (BIP). The BIP is under development. At this moment, it is limited to describing the business processes and IT systems, but in the future it will contain the IT projects for the year to come. For 2005 BS has worked with requests which have been set up by the different business departments. This process will be described further in chapter 4. The Business Information Planning will serve as the basis for IT appraisal within Gasunie.

3 Methanet

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CHAPTER 2: RESEARCH APPROACH

Paragraph 2.1 discusses the conceptual model that is used for this research and paragraph 2.2 examines the technical design of this research. The design for this thesis is based on the work of Verschuren and Doorewaard (2000).

2.1. CONCEPTUAL DESIGN

The conceptual model has a primary function to give direction to this research. Two secondary functions are the motivation and evaluation functions (Verschuren and Doorewaard, 2000). This paragraph discusses five issues concerning setting up a conceptual model. Firstly, this paragraph discusses the primary objective of this research. Secondly, it discusses the research model. As a third point, it examines the problem statement of this research. Fourthly, it discusses the subquestions to deepen the problem statement. Finally, the main concepts of this research are considered.

Objective

As a result of the Business Information Plan the management of the BS department wants to know more about the investment methodology that is used for the appraisal of IT. Within the strategic IT department of the Gasunie (BS, see chapter 1) members are working on a project that has the objective to clarify the desired IT within the organisation. This results in a ‘Business Information Plan’ plan for each division. This plan contains all the elements of strategic planning of IT. This plan will provide the basic information for the appraisal of IT. Previously, another student, Maurits Muskee, has been working on the Business Information Planning with other members of Gasunie and the consultancy agency Novius. In the beginning of his research internship, the topic of investment decision-making was his primary target of his research, but later Maurits Muskee, the RUG and the Gasunie redefined his research topic into helping to develop the Business Information Planning, because information provision was not sufficient before proper IT appraisal could be conducted. The Gasunie perceives the current method used for IT appraisal as inadequate, firstly because decision-making is not based on underpinned arguments and is primarily based on ‘one-liners’ and, secondly, because it does not use underpinned business cases. This research objective is described below.

Analyse the currently used method for IT investment appraisal and provide suggestions for improvement of decision-making regarding IT investments.

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Research model

The research model is a on a global level a schematic representation of the steps that should be taken during the research period to reach the research objective. Figure 4 illustrates the research model that is used for this research.

Investment evaluation methodologies

Business cases

Decision making process

Stakeholders

Recommendations Interviews IT-

controller Interviews programma

manager

Interviews Novius consultants

Analyse results

Theory Practice

Analyse results Analyse

results

Internal documents

Analyse results

Figure 4: Research model for the research of providing methodological support for decision-making regarding IT investments

Problem statement

The problem statement meets the requirements that De Leeuw (1996) sets for a research. These requirements are that research must provide insights to the management on this issue (1). Research must be feasible to the organisation (2).

There is no underpinned method for IT evaluation. Research contains a cost/benefit element derived from the savings of the application of a thorough methodology (3).

The problem statement, which will be answered in this thesis, is described below.

What methodology should be used on deciding about IT investments at the Gasunie?

In the next part, the subquestions of this research, which help deepening the problem statement, are discussed. These subquestions help to focus on the subject.

Subquestion 1:

By what methodology and criteria should IT investment evaluation take place?

Literature study will provide the necessary appraisal methods that are applicable for the Gasunie case. After investigating the current situation and conducting a thorough literature study, these two combined will result in an applicable model for Gasunie

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which can be used for proper decision making support. Within Gasunie some factors such as risk, legislation and benefit are important in the IT investment decision process. Also, momentarily, BS is working on an appraisal practice to help

understanding the nature of IT investment appraisal. The background theory is given in paragraph 3.1.

Subquestion 2:

What are the specifications of the business cases?

The business case is the underlying document for the IT investment appraisal method.

Information about investment proposals for IT investment decisions is available within the Gasunie. However, the kind of format available is not widely used in the

organisation. This research will examine the available documents in the decision making process according to the theory from the literature. The background theory is given in paragraph 3.2.

Subquestion 3:

How should the decision-making proceed?

The management would like to investigate whether the current budgeting process is sufficient. Gasunie wants recommendations to improve or redesign the process of their IT investment appraisal methodology. Here, a process description for rational decision-making will be provided also. The background theory is given in paragraph 3.3.

Subquestion 4:

Who are the main stakeholders in the decision process?

The main stakeholders are the people who are involved in the decision making process. This question concerns the people that make the decision concerning IT investments and it also concerns the issue of interest towards an IT investment appraisal method. The background theory is given in paragraph 3.4.

Definitions

The main concepts are IT investment, IT evaluation, IT appraisal, IT prioritisation, IT justification, Business case and investment proposal, stakeholders, decision making process. The definitions of the main concepts are described in the introduction of each paragraph of chapter 3.

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2.2. TECHNICAL DESIGN

This paragraph discusses three issues concerning setting up a technical design for this research. Firstly, this paragraph discusses the research material that will be used to gain insights to the topic. In the second place, this paragraph discusses the research strategy used for a structured and systematic manner of conducting this research and writing the report. In the 3^rd place, this paragraph provides a research plan.

Research material

A literature study will provide the necessary knowledge concerning IT investment methodologies. Much is written on the topic of IT investment. There are numerous methods explained in books, in articles and on websites. These address the issues of IT investment methods, business cases, decision processes and stakeholder

involvement. Insights on the current situation within Gasunie will be gained by conducting interviews with key information resources in the process and by reading interviews that were conducted previously. Key stakeholders are the programme manager, the IT-controller and consultancy professionals. People who have

knowledge and experience concerning the topic of IT investment within the Gasunie will also be interviewed. Another important source of information will be the

documents that are available within Gasunie.

Research strategy

This research focuses on testing the Gasunie organisation to the models available from literature. The literature study will provide applicable models that will be used for the analysis of current situation. The differences between the theory and practice, which will be observed, are going to provide the base for recommendations to the Gasunie.

Research plan

The major topics in this research will be the study and analysis of IT investment methodologies, the study and analysis of business cases, design of the decision making process and a stakeholders analysis. The first month will be used for setting up a research approach. The next two months will be used for a literature study and conducting interviews. The last one and a half month will be used for analysing research data and providing recommendations. Moreover, in the last two to three weeks this research report will be presented to the members of the BS department so they can come up with improvements to the final report.

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CHAPTER 3: OVERVIEW OF IT APPRAISAL THEORY

This chapter discusses an overview of IT appraisal theory. The literature presents a number of models that will be used for analysing the current situation within Gasunie.

The definitions of the concepts are discussed in the beginning of each paragraph.

Paragraph 3.1 describes the models found in the literature and provides a model for analysing the current method and the available methods. Paragraph 3.2 shows information concerning business cases and presents the model of Remenyi (1999) that will be used for the analysis of the business cases currently available within Gasunie. Paragraph 3.3 provides information on decision-making and presents the rationalised model of decision-making (Harrison, 1987). Paragraph 3.4 discusses involvement of stakeholders in the decision making process and it also present the stakeholders map of Boddy and Boonstra (2005). Paragraph 3.5 presents theoretical knowledge concerning IT governance. Finally, paragraph 3.6 gives a summary of the available theory.

First an overview is given that provides various objectives of IT investment appraisal methods:

1. As part of the process of justification for an IT project (Willcocks and Lester, 1996).

2. Enabling an organisation to make comparisons of the merit of a number of different investment projects competing for limited resources (King and McAulay, 1997).

3. Providing a set of measures which enable the organisation to exert control over the investment (Farbey, 1992).

4. As a learning device which is necessary if the organisation is to improve its system appraisal and system building capability (Willcocks and Lester, 1996;

Berghout, 1997; Berghout and Renkema, 1997).

5. Ensuring the systems will continue to perform well by selecting the best alternative in the beginning of the project (Ballantine et. al, 1996).

6. Supporting the information systems broader business objectives and providing for future business expansions (Ballantine and Stray, 1998; Berghout and Renkema, 1997).

7. Enabling organisations to gain competitive advantage, to develop new business, to improve productivity and performance, as well as to provide new ways of managing and organising (Earl, 1989, Berghout and Renkema, 1997).

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3.1. IT INVESTMENT APPRAISAL METHODS

An IT investment may be referred to as any acquisition of software and/or hardware which is expected to expand or increase the business benefits of an organisation’s information systems and render long-term benefits (Apostolopoulos and Pramataris, 1997). Other authors (Weill and Olsen, 1989; Boonstra, 2002; Berghout, 2002) add to this definition the people issue. Organisations must also invest in the acquisition of knowledge of technology and must also invest in the training of people. An IT investment project contains several features (Berghout and Renkema, 1997):

• IT investment projects connect to a whole set of IT provisioning in which is invested.

• Financial and non-financial resources are allocated to this provisioning.

These resources are expected to render (by preference) profits for several years. Investments are money resources put into assets for a period longer than one year.

• An IT investment project has been set to a limited period of time. If one decides to stop putting resources into a project before the planned life expectancy has gone by, this is called disinvestment. Investments that are done after the initial investment decision and need a separate justification are called maintenance investments or enhancement investments (Benson, et al, 2004).

Wiggers et. al (2004) encountered two hidden misperceptions in the field of IT investments due to the fact that two worlds collide: the IT professionals and the financial professionals. The financial controller perceives an investment project as the investment and its operational use. Figure 5 depicts how the financial controller perceives the full-life-cycle of an IT investment. For an IT professional, the term project is usually not related to the whole life-cycle of an IT investment (see Figure 6).

The IT professional usually refers to the project that develops and implements a new IT service. After the project is finished, the IT application is in operation. A lot of IT professionals involved in the development of new IT solutions regard the operational phase of the IT solution as relatively unimportant. However, this does not mean that the IT professional does not take operational costs into account when developing a business case for an IT project, but the focus is on the development phase, and there is a considerable chance that operational costs and benefits are underestimated (Wiggers et. al, 2004).

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Investment project

Investment Operation

Figure 5: Perception of the financial controller (Wiggers et. al, 2004)

Investment

IT project Operation

Figure 6: Perception of the IT professional (Wiggers et. al, 2004)

Three other concepts in this research are appraisal, prioritisation and evaluation.

These concepts are defined below.

Appraisal is often considered as: “a process to diagnose malfunctions and to suggest appropriate planning and treatment by providing feedback information and contributing to organisational planning. It is generally aimed at the identification of costs and benefits (Symons, 1994).”

Prioritisation is defined as: “to ensure that the portfolio of investment in applications and technology produce the maximum return from resources available (Peppard and Ward, 2004).”

IT evaluation is defined as: “a process, or group of parallel processes, which take place at different points in time or continuously, for searching and for making explicit, quantitatively or qualitatively, all the impacts of an IT project and the programme and strategy of which it is a part (Farbey et. al, 1999).” Willcocks and Lester (1996) give support to this definition. They define IT evaluation as: “establishing by quantitative and/or qualitative means the worth of information systems to the organisation.”

The term IT evaluation is often used imprecisely. In this thesis the point where the commencement of a project takes place is called appraisal, reserving evaluation for a post-implementation review of achieved benefits (Farbey et. al, 1999).

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Farbey et. al (1992) suggest that the environment in which a decision has to be made may constrain the choice of the evaluation method. IT decisions do not occur in a vacuum and the choice of a method of evaluation should match the culture of the company. Serafeimidis and Smithson (2003) support this proposition. They argue that different appraisal orientations (control, social learning, sense-making and exploratory) require different approaches. However, this thesis discusses various available

methods used for IT investment appraisal and bases its recommendations partly on these methods. Gasunie chose to apply the Novius method that is discussed later.

Paragraph 3.1.1 presents the process of creating a project portfolio of IT projects using the model of Keen and Smith (2003).

3.1.1. THE PROCESS OF CREATING A PORTFOLIO OF IT PROJECTS

The model of Keen and Smith (2003) is used for analysing the previous and current processes of creating a portfolio of IT projects within Gasunie. In relation to the full- life-cycle concept this model describes the legitimating activity in a more detailed manner. The model discerns three process steps of getting from an idea to a planned project portfolio on a global level. The process starts with the identification of projects.

The identification process is used to discover and present potential IT solutions to the business. The prioritisation process is used for ranking the IT projects by preference.

This results in a list of preferred projects. The resource allocation process is the process of committing budget to projects until available budgets are fully depleted.

Figure 7 illustrates the process steps graphically.

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Project identification

Project prioritisation

Resource allocation

IT projects evaluated on individual aspects

IT projects force ranked against all others

Current portfolio of IT

projects Development schedule

for IT projects

Figure 7: The process of creating a portfolio of IT projects (Keen and Smith, 2003)

3.1.2. A LITERATURE REVIEW OF IT INVESTMENT APPRAISAL THEORY

The (better) theories tend to emphasise the complexity and richness of the evaluation problem situation while the available methodologies tend to over-simplify the process through ‘cookbooks’ that focus on the more measurable aspects of the outcome of information system investments (Serafeimidis and Smithson, 2003; Nijland, 2004).

Meanwhile, the actual use of such methodologies in practice is often largely

determined by the subjective views of individual stakeholders facing a combination of business, organisation and technological pressures (Serafeimidis and Smithson, 2003). Most IT investment appraisal methods are designed to compare the cost of investment alternatives, or to provide procedures for the quantification of benefits and risks. Such methods tend to rely on the help of technical personnel and accounting data for the appraisal. On the other hand, methods for intangible benefits put

emphasis on the process of obtaining agreement on objectives and continuous mutual learning (Renkema, 2000).

The benefits that result from the implementation of an IT project can be split up in three categories (Milis and Mercken, 2004):

• tangible

• intangible

• hidden benefits

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Tangible benefits address the part of the investment that management can easily identify and attach a quantifiable value to (1). The intangible benefits are benefits that are known to the management, but which are difficult to measure or quantify (2). The third category are benefits that are ‘hidden’ from the decision maker. These are benefits that management overlooks or chooses to ignore or, for one reason or another, fall beyond the boundaries established by existing investment approaches, for example, improving the effectiveness of executives (3).

This paragraph starts with the description of the available financial methods from literature. It discusses multi-criteria methods, portfolio methods, a relatively new method, the balanced scorecard method and a relatively difficult method, the analytic hierarchy process method. This research found 55 methods available in literature.

Appendix 4, 5, 6 and 7 present an overview of these methods. The overview characterises the methods on tangible and intangible cost and benefits characterisation and characterises ex ante and ex post methods. The ex ante methods are used prior to the IT decision as a means to prioritise and compare alternatives. The ex post methods are used after the IT decision as a means of post evaluation to see if the IT investment met with desired success (Schniederjans et. Al, 2004).

Financial methods

Methods with a financial approach to investment appraisal only consider impacts that can be monetarily valued. Traditionally, they are prescribed for the justification and selection of all corporate investment proposals. They focus on the incoming and outgoing cash flows as a result of the investment made (Renkema, 2000). One example of a finance-based method is the Payback Period. The PP⁴ is the period between the moment that an IT investment gets funded and the moment that the total sum of the investment is recovered through the net incoming cash flow (Renkema, 2000). Schniederjans et. al (2004) define the PP as the amount of time required to recover the cost of the initial investment. For example, if a proposed project, for instance, requires an investment of 1 million euro and realises cost savings of 500k euro, the payback time is two years. The investing organisation decides on a time period in which the sum must be recovered.

4 PP = Payback Period, NPV = Net Present Value, PI = Profitability Index, ROI = Return On Investment, IE

= Information Economics, IP = Investment Portfolio, BSC = Balanced Scorecard, AHP = Analytical Hierarchy Process

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A second method that is regularly used is the Net Present Value (NPV) technique. The starting point in the net present value method is the opportunity cost of capital. By using a discounting technique the costs and revenues that do not occur at the same moment in time become comparable. The NPV method considers the time value of money (Schniederjans et. al, 2004). To illustrate this, one puts 100 euro in a savings account, this will be worth 105 euro when receiving an interest of 5 percent. This also works the other way around, if one has to pay 105 euro in a year, this liability would be worth 100 euro now. By calculating like this, all costs and revenues become their present value (Renkema, 2000).

The Profitability Index (PI) is a ratio that can be used to rank projects when the size of the initial investment varies for the alternative investments in the portfolio. The PI is the ratio of NPV to the cost of the initial investment (Schniederjans et. al, 2004).

Return On Investment (ROI) is a productivity measure, which is defined as the annual profit or return divided by the investment required. The ROI method is supported by a number of capital appraisal techniques (Farbey et. al, 1993). Financial methods should be the choice of a company that is committed to rigorous financial disciplines and expecting directly measurable savings from their IT investments (Sylla and Wen, 2002).

Multi-criteria methods

Apart from financial impacts, an IT investment will generally have non-financial impacts. There are positive and negative non-financial contributions that can not or not easily be expressed in monetary terms. Because of the difference between financial and non-financial contributions it is difficult to compare the different contributions on an equal base (Renkema, 2000). Methods from the multi-criteria approach solve this problem by creating one single measure for each investment. One method that has had widespread publicity is the Information Economics method (IE). IE has been proposed and described by Parker and Benson (1988). IE is a framework of concepts and tools that maps the tangible and intangible benefits. At the centre of the approach are four techniques for financial justification. All of these aim to identify and quantify the potential benefits of a project. The financial factor consists of the following techniques.

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Technique Explanation

Traditional cost/benefit analysis Enhanced ROI (NPV, Payback period, PI).

Value linking and acceleration In which benefits are achieved by other departments, and are achieved more quickly, than those benefits projected for the department in which the investment was primarily made.

Value restructuring In which the effects of modifying an existing job function or department are analysed.

Innovation valuation In which alternatives among new applications of IT are assessed.

Table 2: Techniques to estimate incoming cash flows (Parker et. al, 1988)

Additionally, nine other factors are proposed to extend the analysis beyond the techniques to estimate incoming cash flows. These factors relate to business performance and to business and technical risk.

Business domain values and risks Meaning

Strategic match The extent to which the investment matches the strategic business goals.

Competitive advantage The extent to which the investment contributes to an improvement of positioning in the market.

Management information support The extent to which the investment will inform management on core activities of the company.

Competitive response The extent to which not investing implies a risk. A timely investment contributes to strategic advantage.

Project or organisational risk The extent to which new competencies are required.

Technical domain values and risk

Strategic systems architecture The extent to which the investment matches the IT plan and the required

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integration of IT applications.

Definitional uncertainty The extent to user requirements can be clearly defined.

Technical uncertainty The extent to which new technical skills, hardware and software are required.

Systems infrastructure risk The extent to which the investment requires additional infrastructure investments and the IT department is capable of supporting the proposed system.

Table 3: Business and technical domain; risks and values (Parker et. al, 1988)

The importance of corporate cultures and management involvement and consensus in this process is emphasised by Parker and Benson (1988).

Portfolio methods

Portfolios are widely used tools that support decision-making in organisations⁵. The portfolio presents the investment proposal assessed with regard to chosen decision criteria (Berghout and Renkema, 1997). An example of a portfolio method is the Investment Portfolio method (Berghout and Meertens, 1992; Berghout and Renkema, 1997). The Investment Portfolio (IP) can be used to evaluate information systems on three dimensions:

1. The contribution to the business domain using a weighted scoring of a number of business aspects.

2. The contribution to the IT domain using a weighted scoring of a number of technology aspects.

3. The financial consequence, using a NPV calculation.

5 One familiar portfolio is the ‘Growth-Share’ matrix of the Boston Consultancy Group for strategic market analysis

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0.5m euro

4m euro

7m euro 3m euro high

low

low high

Contribution to IT domain Contribution to

business domain Expert system to

support order entry

Information system to analyse customer

profiles

Development of prorietary working capital management

system

Conversion of hierachical database management system to

a relational database management system

Figure 8: Example of the Investment Portfolio (Berghout and Meertens, 1992)

An example of the IP is given in Figure 8. The portfolio serves as a framework to make the preferences of stakeholders explicit and debatable. Important stakeholders are, senior management, IT management and project management of the information systems under consideration. These three parties evaluate the information systems on one of the three dimensions. Scoring high on both of the domains implies that the project has a large potential. Scoring high on one of the domains implies discussion between stakeholders. The goal is to reach consensus and to agree on the

responsibilities. The NPV determines the size of the circle in the investment portfolio.

The larger the circle, the higher the net present value is expected to be. The contribution to the business domain focuses on the long term benefits, leading to improvement in the organisation’s products or services. The authors suggest that the criteria of Parker and Benson’s Information Economics can be used for this. The contribution to the IT domain is assessed through aspects such as conformance to the organisations technology standards, market acceptance of the technologies used and the continuity of the suppliers.

Another portfolio method is the Performance Grid (Wiggers et. al, 2004). This method distinguishes an IT demand and IT supply dimension (see

Figure 9). The IT supply and IT demand provide for a grid that will be the basis for strategic decision-making on IT. The main focus of IT demand is on value and the main focus of IT supply is on cost. Managing the IT demand axis is the most

challenging and most rewarding dimension of managing the IT portfolio. The quality of service is the result of the matching of the demanded capabilities with the provided services in every cell of the grid. By categorising the proposed investments in one (or

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more) of the cells of the matrix, the management objectives, which are important in the justification and prioritisation of the investment proposals, become evident in this model.

IT demand

Value added services

Mission critical IT-based

offerings Business

support

Infrastructure services Application

services

IT supply

Impact on the value drivers in the business

value tree/key performance indicators (KPI)

Added value of the functionality to the business and the functional fit (=IT effectiveness)

Impact on the cost level of IT (=IT

efficiency)

Impact on the business

risk Impact on

the profitability:

Gross profit Impact on the

business cost effectiveness:

cost to serve

Figure 9: IT performance grid (Wiggers et. al, 2004)

Balanced scorecard method

Kaplan and Norton (1992) introduced the ‘Balanced Scorecard’ concept. The balanced scorecard received much attention from business and finance managers. This method can be seen as an extension of the traditional accounting-based financial methods and can also be applied to IT investment appraisal and evaluation. The balanced scorecard has been developed in order to get a broader perspective in management accounting metrics than is available by using only financial methods (Schniederjans et. al, 2004; Wigger et. al, 2004). A distinction is made between four perspectives (see Figure 10). Milis and Mercken (2004) elaborate on these four perspectives in their work. The balanced scorecard method contains a mixture of traditional capital appraisal techniques and new evaluation methods (Milis and Mercken, 2004). The finance-based appraisal techniques are not abandoned and the other metrics used in a balanced scorecard framework are aligned to the company’s goals and strategies that stimulate strategic fit. The financial perspective contains the traditional financial performance measures. The underlying question is: “Which financial measures are important to our stakeholders?” The company should set financial goals and select a limited set of financial measures. The customer perspective deals with the questions: