Business Strategy Differentiation Cost Leadership and Integration Discussion

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Activity 1 Document Requirements: Identify or select a performance problem in a business activity that you believe could be resolved or substantially improved by the acquisition of IT services performed by a contractor selected in open competition as a result of an RFP (request for proposal). The acquisition of IT services may also include the acquisition of IT software and hardware, as needed. Document your performance problem as Activity 1 using Template 1 provided by IT Economics Corporation. Activity 2 Document Requirements: Define and document the requirements to solve the problem you identified in Activity 1. Use Template 2, located in the reference list reading titled T2-Requirements Development.pdf to document the requirements for solving the business performance problem. Activity 3 Document Requirements: Identify and document alternative solutions that meet the requirements identified in Activity 2. Use Template 3, located in the reference list reading titled T3T4-Identifying Alternatives.pdf. Fill in the template with your information to complete this activity. Provide at least three alternative solutions. Keep in mind that the status quo is not an alternative solution. Activity 4 Document Requirements: In this activity, you enter your three or more alternative solutions, analyze them, and rank them based on how well they meet the Activity 4 criteria. (In Activity 6, the risk analysis will be used to screen out all but the two best alternative solutions, taking into account benefits, cost, and risk.) Activity 5 Document Requirements: Develop a work breakdown structure (WBS) for each of your alternative solutions to your performance problem. The reading (T5-Work Breakdown Structure.pdf) in the reference list leads to the IT Economics WBS reading, which includes an explanation of how to develop a WBS and illustrations of work breakdown structures. The illustrations can serve as a model for your preparation of Activity 5. The explanation and illustrations should give you an idea of the level of detail appropriate for the WBS required for each of your alternative solutions. Activity 6 Document Requirements: Perform a Risk Analysis on each of your two or three best alternative solutions to your performance problem. The reading from IT Economics Corp., Risk Analysis of Alternative Solutions, includes a risk analysis template along with five broad risk criteria and their definitions. Also, there are three examples of the use of the template to document a risk analysis. Use this template and the risk criteria to conduct and document a risk analysis for each of your alternative solutions. In using this template for this course, you are not expected to do as thorough a risk identification as would be required in an actual project. You are expected, though, to identify the major risks associated with the alternative solutions for your project. Also, you need to have a minimum of two viable alternative solutions after you perform the risk analysis and screen out any too-risky solutions. The two best alternative solutions are needed in order to use the remaining templates. The risk analysis can help you to identify areas in which risk mitigate strategies can and should be used. Organization: Component: Submitted by: Date: Description of the Problem Business Activities and Processes Affected by the Problem Actual Performance (e.g., current baseline) Target Performance Performance Gap Organizational KPIs Affected Principal Stakeholders Tentative Solution Strategy Acquisition Need Confirmation Template 1 We/I confirm that this problem can only be solved through the acquisition of IT services (and IT products as needed) from a contractor selected in open competition. OBJECTIVE OF THE REQUIREMENTS: REQUIREMENTS CATEGORY 1. Stakeholder Considerations that Need to be Reflected in the Solution (including the expectations and satisfaction managers, internal users, and external customers) and factors related to the business environment) 2. Factors to Take Into Account Related to the Business Environment (including legal factors, regulations, competition, and business cycles) 3. New Capabilities and/or Functionality Required by a Solution (including requirements for ease of use, quality, interoperability, and data sharing) 4. Existing Business Process Shortfalls (why current business process and/or systems cannot meet the needs or be changed to meet the needs) 5. Cost Limitations (may be stated in terms of preferred cost range; may specify a maximum cost; cost figures need to include associated overhead costs; may be specified as an annual limit or life cycle limit or both) 6. Other Limitations or Constraints (e.g., availability of key personnel, such as subject matter experts, training methods and time available for training, limitations related to maintenance or to external support). 7. Security & Privacy Requirements (any requirements beyond those currently being used by the organization for non-critical and nonsensitive applications) 8. Number to be Implemented (e.g., specify the number of places the solution will need to be implemented and whether they are at different geographical locations) Reduce the amount of time required to prepare graphics for proposals and to integrate them with the text, as stated in the Performance Gap document REQUIREMENTS DEFINITION OBJECTIVE OF THE REQUIREMENTS: REQUIREMENTS CATEGORY 9. Schedule (explain any schedule constraint, whether for financial or non-financial reasons--e.g., if the solution be in place as of a certain date, specify the date and why) 10. Other Requirements Not Specified Above (e.g., any related to vendors, consultants, partnerships with other entities, unique user interface requirements, documentation needs, special certification requirements) Template 2 Reduce the amount of time required to prepare graphics for proposals and to integrate them with the text, as stated in the Performance Gap document REQUIREMENTS DEFINITION OBJECTIVE: Name of Solution Alternative Summary Description of Solution That Meets the Stated Requirements Alternative Solution #1: Alternative Solution #2: Alternative Solution #3: Alternative Solution #4: [Name of Alternative Solution #5] IT Acquisition Confirmation Template 3 [and so on, if there are additional alternative solutions] Each alternative solution described above requires the acquisition of IT services from an external IT service provider selected in open competition. [Note: Do not remove or change this statement.] Alternative Solution Altern. #1 Altern. #2 Altern. #3 Altern. #4 [and so on] Template 4 Responsiveness to Requirements Feasibility (Capable of Being Successful) Enterprise Architecture Risks and Constraints Affordability New Opportunities Rank Order Alternative Solution #1 (Tentative Solution Rank Order #1): Risk Category Probability Impact If Occurs Mitigation Strategy Organizational Risk Information Security and Privacy Risk Complexity Risk Infrastructure Risk External Risk Average Probability Total Approximate Risk Exposure: % Template 6. Alternative #1 Risk Analysis Results Approximate Risk Exposure Risk Priority Organization: Component: Submitted by: Date: XYZ Community Hospital Clinical Medication Compliance Group Salma Ashraf September 14, 2019 The problem is that the amount of time and cost related to the Description of the acquisition, packaging and distributions of pharmaceutical medications Problem decreased the effective service to the first line caregivers and decreases the overall timely care of the hospital patient population. Business Activities The problem directly affects preparation activities associated to and Processes medication distribution, medication waste, and inventory control. It also Affected by the has a major impact on all customer processes that depend on timely Problem delivery of service. At present, the hospital pharmacy uses a manual inventory system that comprises of a daily count of medication in order to know which Actual Performance medications to purchase. It uses manual personnel to package, date, (e.g., current baseline) and label medications for dispense. It uses manual personnel to count and inspect packaging for expirations and recalls. To increase medication acquisition and dispensing as well as to increase Target Performance inventory management and control. The performance gap is the opportunity to increase staff efficiency, Performance Gap decrease inventory waste, increase inventory efficiency, increase customer satisfaction, and increase patient safety. Organizational KPIs Return on asset, return on investment, customer satisfaction, patient Affected safety, cost reduction, inventory efficiency. Principal Stakeholders Department managers, department staff, direct and indirect customers. Investigate an IT solution that will assist with packaging at a high rate of Tentative Solution speed and efficiency that will interface with current systems that report Strategy on inventory, wastes and trends. We/I confirm that this problem can only be solved through the Acquisition Need acquisition of IT services (and IT products as needed) from a contractor Confirmation selected in open competition. Professor’s feedback: This is a great start to your problem definition. You mention amount of time and cost, but you do not state specifics. If you can add these metrics then your problem statement will be stronger. This will also allow decision makers to see that there is a real problem that needs to be addressed. Numbers will always get action! If you can tie lost revenue and time to this then you will have a problem definition that will be very strong. Identifying Organizational Performance Gaps IT Acquisition Template 1 This article explains what a performance gap is and how it is identified. It then describes the “value chain,” which demonstrates why even lower level activities, such as an employee training program, can affect the organization’s performance and its return on investment. It then points out that IT is in virtually every significant activity in the organization, which means there usually are many opportunities to employ IT to enhance the organization’s performance and its achievement of its strategic goals. The importance of including quantitative information in your Template 1 entries is then explained and examples are provided. Finally, Template 1 is provided along with two examples of its use. Template 1 is used to document a performance problem and a tentative solution strategy. Key Performance Indicators and Performance Gaps What is a KPI (key performance indicator)? Organizations perform strategic planning to establish strategic goals, related objectives, and key performance measures. The performance measures provide feedback to managers on how well specific objectives are being achieved in support of the strategic goals and objectives. The most important organizational performance measures are called key performance indicators, or KPIs, and are used by senior management. The performance of the organization and the performance of its chief executive are measured by the same high-level KPIs. These KPIs indicate how well strategic goals and objectives are being met. The number of these high-level KPIs various with the organization, its size, and its characteristics. The Balanced Scorecard is an approach used by many organizations to document their KPIs--much information is available about this on the Web. Also, many organization use “dashboards” to constantly monitor their performance on their KPIs. Individual departments and divisions in an organization define lower-level KPIs for themselves, but these KPIs must align with and support the higher-level KPIs for the organization and its chief executive. Template 1 refers to organization-level KPIs and not to the lower level KPIs of components of the organization. All references to KPIs in the following material refer to the high-level organizational KPIs. (For more information on KPIs, Wikipedia has an easy-to-read document, available at: http://en.wikipedia.org/wiki/Key_performance_indicators.) What is a Performance Gap? A “performance gap” exists when the actual performance on a KPI is below the planned or expected level of performance. Examples of KPIs include return on investment (ROI), product or service quality, and extent of customer satisfaction. Many organizations have more than one line of business. For example, one line of business may be to provide consulting services, another might be to manage IT applications that have been outsourced to it by customers, and a third might be to develop custom software for customers. The managers of each line of business use KPIs to measure performance, so they will know how well they are doing. Similarly, the senior executives and board members of the organization rely on organization-level KPIs to monitor how well the organization is performing in relation to its goals and performance objectives. One or more KPIs may indicate, for example, that production is lower than planned in one line of business, that costs in another line of business are higher than planned, and that risk exposures in a third line of business significantly exceed those planned for in the risk management plan. These constitute three “performance gaps” that the organization will have to close if it want to achieve its goals and objectives. Value Chains - Chains of Results in the Organization The terms “value chain” and “results chain” generally can be used interchangeably. Some like the term “value chain” because the generation of value is a critical goal of organizations. Others argue that the term “results chain” should be preferred because a critical goal of any organization is to produce certain desired results. We’ll use both terms, with a slight edge toward value chain. What is a Value Chain? The strategic goals and objectives of the organization generally focus on producing the products and services customers want and will pay for. How well these goals and objectives are being achieved are measured by the organization’s high level KPIs. A value chain (or results chain) consists of the work activities required to achieve one or more strategic goals as measured by the KPIs. In other words, it is the mix of direct and indirect work activities required to transform the inputs received by an organization into the outputs required by the customers. Typically, a value chain contains many interrelated work activities, which means that poor performance of any work activity in the chain can affect the output performance of the organization as measured by the KPIs. Here is a graphic that can be used to illustrate the value chain concept. Notice that some work activities are called “primary” and some are called “support.” Both classes of work activities are important to organizational performance. The high-level KPIs are inside the boundary of the organization at the end of the value chain. Figure 1. Value Chain Illustration (Based on the work of Michael E. Porter, Harvard Business School) When we look at Figure 1, it is not difficult to see that if any work activity represented by the orange boxes (the primary work activities) is significantly underperforming, it will affect the quality, timeliness, and/or cost of products delivered to customers. The result would be a “performance gap” because the KPIs for quality, timeliness, cost, and/or profit would communicate the underperformance to management. But what could be the cause of the underperformance? There are many possibilities. The four support work activities (pink circles) support all of the primary work activities. One of the sub-activities of the work support activity Human Resources Management is staff training. Whether the quality of the training is outstanding or poor, it will affect the performance of the primary work activities that receive the training. In other words, you could trace the positive or negative results of the Human Resources Management work activity (and its sub-activities) to the results provided to the customer. There is a results chain (or “value chain”) that can be traced from this support work activity through other work activities until it reaches the customer. What if the Procurement work activity (another pink circle) is significantly underperforming? Let’s say it is procuring parts that are of poor quality or that it is buying from vendors who cannot meet contractual delivery dates. The results of the underperformance by the Procurement work activity will flow through each of the primary work activities of the organization and produce poor results for the customers. This is another example of a results chain. The point is: If the quality, quantity, and or timeliness of a final product or service relies on a work activity, that work activity is in its value chain/results chain. Every service or product produced by an organization relies on the performance of a group of work activities. The group of work activities varies somewhat for each product and service because not every work activity supports every product or service. Knowing which work activities are responsible for producing the results being measured by specific KPIs of the organization is important. It aids in analyzing the causes of performance successes as well as performance gaps. It also demonstrates to the individuals performing those work activities how important their work activities are to the success of the organization. Primary and Support Work Activities In Figure 1, above, there are three internal primary work activities for this value chain and four internal support work activities. All of these are located within the organization. However, activities that are outside of the organization and provide inputs to a value chain can also affect the performance of the value chain. For example, external suppliers and customers are located outside of the organization. If their inputs to a value chain are faulty, they will negatively affect the performance of the value chain. For example, if an external vendor supplies software with numerous bugs, the bugs can in turn cause costly errors in the value chain. Similarly, the preferences of customers can change--they may decide that they no longer want wired networks, but instead want wireless networks. External factors must be monitored and taken into account in designing, revising, and otherwise managing a value chain. KPIs are at the organizational level (i.e., for the organization as a whole) as well as for specific lines of business. Every line of business (LOB) manager wants to know how well he or she is doing, and the KPIs for his or her LOB are intended to provide that information. There often are lower-level work activity performance measures that are linked to the higher level KPIs. The documented linkages make it possible to quickly identify the work activity or activities responsible for a performance gap. IT in Primary and Support Work Activities Virtually every work activity in the organization is supported by IT. IT is used in every one of the primary and support work activities shown in Figure 1. IT can be the cause of poor performance on a KPI (e.g., the current system lacks the needed capacity and speed) or it can be a principal enabler of performance improvement and customer satisfaction. A performance gap for an LOB can result from either a problem in a primary or a support work activity for that LOB. For example, the lack of a good training program (a support activity) may mean the employees in one primary work activity make many errors that result in poor quality products or services. Or it could be that the LOB does not track customer requirements well (primary work activity) and therefore develops a product (e.g., software) that fails to meet important customer requirements. The IT used by another LOB in the organization may be key to having a profitable price and value advantage over competitors. Solving Performance Problems It is always desirable to try to solve a performance problem without having to invest in a new capital asset, such as acquire new IT. Acquiring new IT should be considered only when analysis indicates that it is the best value solution to the problem. The individual or team sponsoring a proposal to acquire IT must always seriously investigate possible methods of solving the problem without acquiring IT. If the team concludes that the best value solution requires new IT, the team must be able to convincingly defend its recommendation that the acquisition and implementation of new or different IT is the best way to solve the performance problem and the best use of the funds that would be required. Of course, the team may not have information about all of the other possible uses of the funds, which is why the team must make the best possible case for the investment in IT. Management will make the ultimate decision about the best use of the investment funds. Importance of Including Quantitative Information When it is completed, Template 1 produces a document that identifies a performance problem and describes a preliminary solution strategy. In most organizations, there is much competition for funds to solve various performance problems. The Template 1 documents that appear to be the best use of the limited funds for such activities will be selected to continue to the next step (using Template 2 and others) and the other Template 1 documents will be rejected, delayed, or sent back for revision. It is very important for competitive purposes for the Template 1 information to communicate well with executive decision makers. The best way to do this is to include quantitative information to help describe the problem and the benefits of solving the problem. Failure to include quantitative information will seriously reduce the likelihood that a Template 1 document will earn an approval to continue to the next steps. What is quantitative information? It is information that is quantified. One definition of “quantify” is “to express as a number or measure or quantity.” Executives desire quantitative information because it tells them the dimensions of the problem and the value of solving it. The Description of the Problem section in Template 1 MUST provide a narrative description of the problem. It is not always necessary to include quantitative information in this section, but doing so can have advantages. Some executives may not read beyond this section unless it stands out from other Template 1 documents. One way to make it stand out is to selectively include summary quantitative information that will impress them. Where can you get such information? It comes from--that is, it summarizes--detailed quantitative information that must be provided in the Actual Performance, Target Performance, and Performance Gap sections of Template 1. The Actual Performance section MUST include quantitative information, such as how often the problem occurs, who and how many are affected, how are they affected (such as number of labor hours lost, number and severity of errors that result), and the estimated cost of the problem to the organization. Then the Target Performance section MUST show the target performance, such as the percentage decrease in the occurrence of the problem, the reduced number of labor hours achievable, the reduced number of errors achievable, the percentage increase in productivity achievable, and the estimated dollar savings or financial gain expected to result. The expected reduction in the risk exposure (and related financial exposure) should also be stated. The Performance Gap section MUST include quantitative information. It must state the difference between the Actual and the Target performance. If you’ve provided quantitative performance information in those prior sections, than it is simply a matter of subtraction to show the performance gap. See “Quantifying Information Illustration” below. Quantifying Information Illustration For example, let’s say the problem is that too many malicious attacks are getting through the organization’s firewall, an average of 50 per day. The analysis by the integrated project team (IPT) indicates that solving this information security problem can reduce the average number of daily attacks by 80% and the risk exposure from such attacks by 90%, from $1 million dollars to $100,000. The problem now requires 12 labor hours per day to combat the problem, which would be reduced to 4 hours per day with the solution. The IPT might create a table, such as the one below, to make the calculations. The table, “Daily Malicious Attacks Penetrating Firewall,” illustrates that the Performance Gap figures are arrived at by subtracting the Target Performance from the Actual Performance. Incidentally, saving 4 labor hours per day at a cost of, say, $60 per hour, times 240 work days a year results in an annual savings of $57,600 for labor cost alone. Daily Malicious Attacks Penetrating Firewall Actual Target Gap Number Malicious Attacks 50 10 40 Ongoing Risk Exposure $1,000,000 $100,000 $900,000 Labor Hours Required 12 4 8 Template 1 - Documenting a Performance Gap and Tentative Solution Strategy Two examples of using Template 1 are given below. Note that adding quantitative information does not have to be complicated but it can do much to communicate the dimensions of the problem. Note that Template 1 summarizes a performance problem and a tentative solution strategy. It is “tentative” because solution strategies tend to change as new information becomes available. It is a “summary” because it does not contain all of the detailed information developed by the IPT in analyzing the performance problem. It is of great importance that the information provided in the template be understandable and convincing to executive decision makers. These executives make the decisions about which Template 1 documents will be approved and their IPTs permitted to go to the next step and which Template 1 documents will be rejected, delayed for consideration in the future, or sent back for revision. The last row of the template is a confirmation from the IPT preparers that the problem can only be solved through the acquisition of IT services (and IT products needed) from a contractor selected in open competition. If you are a preparer, be sure you can correctly answer “yes.” If your answer is “no,” do not submit a Template 1 document because the acquisition of IT services is not needed. First Example of a Completed Template 1 Organization: Jaguar Consulting of America Component: Business Capture Group Submitted by: Iam Smart Date: January 26, 2010 The problem is that the amount of time required to prepare graphics for proposals and to integrate them with the text is costly in terms of time, money, and demands on proposal team members. This limits the number of proposals the organization is able to prepare which, in turn, limits the revenue to the organization. Description of the Problem Business Activities and Processes Affected by the Problem Actual Performance (e.g., current baseline) Target Performance Performance Gap Organizational KPIs Affected Principal Stakeholders Tentative Solution Strategy Acquisition Need Confirmation The problem directly affects proposal preparation activities. It also has a major impact on all processes that depend on proposals to generate their work. At present, we are able to provide graphics to support an average of 10 proposals per month. Graphics support for proposal preparation costs $6000 per month, or an average of $600 per proposal. Provide graphics to support an average of 15 proposals per month, which is the target established in the last strategic planning session, for the $6000 per month cost of graphics support. The average cost will be $400 per proposal. The performance gap is graphics support for an average of 5 proposals per month and the opportunity to increase sales revenue by about one third. The financial benefit from the solution is an expected increase in productivity of $3,000 per month or $36,000 per year. Sales revenue, return on assets, return on investment Chief Executive Officer, other chief officers, manager of Sales Department, and managers of departments that perform work resulting from proposals Investigate the feasibility of acquiring and implementing a speedy, easy-to-use tool or tool set for graphic creation, graphics inventory management, the integration of graphics with text, and the ability to interface with related systems. We/I confirm that this problem can only be solved through the acquisition of IT services (and IT products as needed) from a contractor selected in open competition. Template 1 (Example 1). Performance Problem and Tentative Solution Strategy Second Example of a Completed Template 1 Organization: Future Financial of America Component: Financial Services Department Submitted by: Elio Smith Date: January 26, 2010 The problem is the inefficiency and poor quality of our loan management system. Our Financial Services Department lends money to franchisees for special purposes, such as to further develop their property. We manage these loans through a series of complex spreadsheets, which is slow, labor intensive, and subject to human error. Description of the Problem Business Activities and Processes Affected by the Problem Actual Performance (e.g., current baseline) Target Performance Performance Gap Organizational KPIs Affected Principal Stakeholders Tentative Solution Strategy Acquisition Need Confirmation Loan management process; franchisee relations process At present, the loan management process requires an average of 160 labor hours per month to enter and manage loans and an average of 30 labor hours per month for resolving data entry problems An achievable target is for the loan management process to require an average of 80 labor hours per month to enter and manage loans and 10 labor hours per month to resolve data entry problems. In addition, there will be an improvement in the franchisee relations process, from a 70% satisfied rating to a target satisfied rating of 90%, which will help to retain franchisees and attract new franchisees. The performance gaps total 100 labor hours per month in excess of established target performance. At an average cost of $60 per hour, this is a savings of $6000 per month in labor cost. Also, a 20 percentage point improvement in satisfactory ratings from franchisees--to a target of 90%--is forecast. Return on investment, return on assets; franchisee relations Managers of the Franchisee Services Department and the Customer Relations Department; loan processing personnel; franchisees receiving loans. Investigate feasibility of acquiring and implementing a speedy, easy-to-use, commercially-available loan management software that will automate the loan management process, including entering loan information, tracking loan performance, sharing data with other systems, and generating timely loan reports. We/I confirm that this problem can only be solved through the acquisition of IT services (and IT products as needed) from a contractor selected in open competition. Template 1 (Example 2). Performance Problem and Tentative Solution Strategy IT Acquisition Requirements Analysis IT Acquisition Template 2 The left column of the table below summarizes most of the categories of information required for the requirements definition activity of the Acquisition Planning Process. The table can be used as a template for documenting a summary of the requirements. With the template, this is done by entering summary information in its right column. Many organizations have their own templates, some of which may be superior to this one. In using this template, all ten of the Requirements Categories in the left column must be answered in the right column. The example in the table (right column) is a relatively simple case because its purpose is to illustrate the use of such a template. The template helps to ensure that the correct requirements have been defined, agreed to, and documented, with no important requirement or constraint overlooked. The requirements generally evolve as comments are sought from experts, users, and other key stakeholders. Ideally, key stakeholders, including the users and others who will be directly affected by the acquisition, will all agree on the “final” requirements before the next steps in acquisition planning are taken. The final requirements that emerge from this process are intended to describe the solution needed. The acquisition planning team may identify and evaluation alternative solutions that meet these criteria. Contractors may be asked to submit proposals to implement one of these solutions or to propose other solutions to the problem that might be better. Proposed solutions that satisfy or exceed the requirements and are acceptable in terms of cost and risks will likely be considered by the organization. Often the one with the best value will be selected. In using this template, include all ten Requirements Categories. However, feel free to exclude the parenthetical statements in the left column, which merely elaborate on each of the requirements. If you wish to add one or more additional requirements, do so after the tenth one in the left column. In regard to column on the right, exclude the example case and substitute your text pertaining to your case requirements. Be sure to respond to all of the requirements categories. Although these are summaries of requirements, they must be understandable to stakeholders, executives, and others who may review this summary. This means your template entries need to clearly communicate the essential aspects of each requirement. OBJECTIVE OF THE REQUIREMENTS: REQUIREMENTS CATEGORY 1. Stakeholder Considerations that Need to be Reflected in the Solution (including the expectations and satisfaction managers, internal users, and external customers) and factors related to the business environment) 2. Factors to Take Into Account Related to the Business Environment (including legal factors, regulations, competition, and business cycles) 3. New Capabilities and/or Functionality Required by a Solution (including requirements for ease of use, quality, interoperability, and data sharing) 4. Existing Business Process Shortfalls (why current business process and/or systems cannot meet the needs or be changed to meet the needs) 5. Cost Limitations (may be stated in terms of preferred cost range; may specify a maximum cost; cost figures need to include associated overhead costs; may be specified as an annual limit or life cycle limit or both) 6. Other Limitations or Constraints (e.g., availability of key personnel, such as subject matter experts, training methods and time available for training, limitations related to maintenance or to external support). Reduce the amount of time required to prepare graphics for proposals and to integrate them with the text, as stated in the Performance Gap document REQUIREMENTS DEFINITION Chief officers seek increased ROI and ROA (return on assets) that can result from producing the target number of proposals. Sales Department Manager is responsible for proposal production. All department heads can benefit from achieving target proposal production. Competitors have the capabilities described here A software solution is needed that will speed up the development of quality graphics for use in proposals by 40%, which could result in millions of dollars of new business at the current proposal hit rate. Must be able to capture, store, and edit existing images, create photo compositions, draw vector graphics and take graphics and integrate them with text and take the result to the printed page, websites, video, and mobile devices. Must maintain an inventory of reusable graphics. System must be easy to use, fast and flexible, and function cross-platform. Must be extensible, scalable and open architecture. Must operate with Windows XP and Adobe publication systems. Current software being used is dependent on many manual graphics activities, has no inventory and output re-use capability, cannot integrate text and graphics, and cannot interface with related systems. Expected cost is $500 per software system. Cost of system is not a significant constraint up to $1000 per system. Total cost, including implementation and training and overhead, is expected to be in the $150,000 to $200,000 range. Must be easy to learn by individuals who are telecommuting and may not be available to attend a course. It must also have high reliability with automatic online updates. OBJECTIVE OF THE REQUIREMENTS: REQUIREMENTS CATEGORY 7. Security & Privacy Requirements (any requirements beyond those currently being used by the organization for non-critical and nonsensitive applications) 8. Number to be Implemented (e.g., specify the number of places the solution will need to be implemented and whether they are at different geographical locations) 9. Schedule (explain any schedule constraint, whether for financial or non-financial reasons--e.g., if the solution be in place as of a certain date, specify the date and why) 10. Other Requirements Not Specified Above (e.g., any related to vendors, consultants, partnerships with other entities, unique user interface requirements, documentation needs, special certification requirements) Reduce the amount of time required to prepare graphics for proposals and to integrate them with the text, as stated in the Performance Gap document REQUIREMENTS DEFINITION No special requirements aside from established network security. The solution must be provided for three workstations that are used to prepare graphics for proposals and other purposes. Acquire and implement within next six months (xx/xx/xx xx/xx/xx). Doing so within three months brings quicker financial benefits. Require minimal in-house support; must be returnable if factory defect or new version is issued within six months. Vendor must provide assurance of fast response times to requests for help. Template 2. Documentation of Requirements IMPORTANT NOTES: 1. This template should be used with a Microsoft Word (or other word processor) document. It should not be used in an Excel worksheet because this is not an appropriate medium for transmitting the document to others or for printing it for distribution. 2. The template is adjustable. After the template is copied to a Word document, replace the sample entries in the cells with your own information. You can change the length and width of the template and its cells after you copy the template to your document. If you put your cursor on a line in the template, the line can be moved horizontally or vertically, depending on the line, to best fit your information. There is no need to color any of the cells in your Word version, though color is used in the example above. Risk Analysis of Alternative Solutions IT Acquisition Template 6 Perceptions of Risk There is risk everywhere, which is why two basic considerations, probability and impact, are widely used to determine which risks are most important and should be managed. Even so, judgments of probability and impact vary based on past experience, organizational culture (which includes values), and professional competence. It is no surprise, therefore, that risk identification and assessment results for similar projects vary from organization to organization. Moreover, it is no surprise that not all use the same set of risk assessment criteria. The variations in risk perceptions and practices from organization to organization is why a buyer organization and its IT services contractor often have somewhat different views of the risks involved with an IT project. Allocating Risk Responsibilities Assuming the buyer and contractor can come to an agreement on the major risks associated with a project, the next question is which organization is in the best position to control a specific risk, the buyer or the contractor? This is important because sometimes a buyer will ask the contractor to be responsible for a risk that only the buyer can control. The contractor cannot make the mistake of accepting such a risk, especially in a fixed price contract. Both parties need to have sufficient understanding of each significant risk and who can best control it. Allocating risk between the buyer and the organization must always reflect which party is in the best position to control the risk. If neither party can control the risk, the best approach usually is for both parties to share the risk. Risk and Contract Price The contractor’s proposed price generally reflects the contractor’s understanding of the work, including the amount of risk the contractor expects to assume. If the contractor has a poor understanding of the risk, the price may be too high or too low and the allocation of risk might be detrimental to both parties. Similarly, if the buyer has a poor understanding of the risk, the buyer might pay too much or too little for the contractor’s services, and the allocation of risk could similarly be detrimental. This means that both the buyer and potential contractors need to have a good understanding of the project risks by the time contract negotiations take place Sometimes there are so many unknowns that it is not possible for either party to have a good understanding of the potential risks in advance of contract negotiations. The contractor cannot be expected to assume such risks at its own expense. The contractor normally takes this uncertainty into account in establishing its proposed price, usually with contingencies built into the contract. Use of Integrated Project Team (IPT) The principal reason for using an Integrated Project Team to identify and assess risk is because it brings many different perspectives, which is important in identifying and evaluating risk. The team members represent all of the key business areas affected by the proposed project. As a team, they are better able than a single person to know what the risks are and how they might be avoided or mitigated. Risk Analysis Process Identifying risk should begin at the beginning of the pre-solicitation the planning, well before the formal risk analysis documented in this template (Template 6). As risks are identified, they can be document for subsequent consideration. The risks identify for some alternative solutions will be eliminated when the solutions are screened out. The risks associated with the solutions that are not screened out need to be retained for further analysis in the formal risk analysis documented in Template 6. The risk analysis process consists of identifying the sources and types of risks associated with each alternative solution and its work breakdown structure, evaluating each risk in terms of probability and likely impact, and establishing a mitigation strategy for each risk. For the alternative solution that is ultimately selected, this risk information will become part of a risk management plan that is used to monitor and manage risks during the project. The process of identifying and evaluating risk, planning risk mitigation strategies, and monitoring risks takes place throughout the life cycle of the IT investment. The process ends with the disposal of the IT system at the end of its life cycle. The most critical time to use the risk analysis process is early in the planning--for two purposes: (1) to screen out alternative solutions that would present too much risk and (2) to determine how to modify otherwise acceptable alternatives to reduce their risk. Too many organizations do a poor job of identifying risk. In particular, they ignore the fact that many major risks can be avoided either by not selecting certain alternative solutions or by modifying an alternative to reduce its risk. In evaluating alternative solutions, risk analysis of alternative solutions generally precedes the economic analysis of the alternatives because the economic analysis must take risk into account. The economic analysis results (see Template 7) are “risk adjusted,” which requires that the risks associated with each alternative solution be identified and quantified. Risks Identified with the Work Breakdown Structures Work breakdown structures have been prepared for at least two or more of the “best” solutions based on prior analysis. The review of the work breakdown structures for Template 5 is likely to have identified risks that could not be avoided or otherwise eliminated by modifications of the solutions. Those risks need to be taken into account in the risk analysis. It is advisable for the IPT to perform a formal risk analysis of each WBS, not only to confirm the risks identified earlier, but also to identify risks that may have been missed. Risk Criteria Categories Leading organizations group related risks into a single “risk category” that is given a name that identifies the types of risks in that category. The organization may establish five, six, seven or more categories to represent all of the possible risks that might be identified. The table below illustrates the risk categories used by two different organizations. Organization B’s Risk Categories Organization A’s Risk Categories • • • • • • • Strategic/Commercial Risk Economic/Financial/Market Risk Legal and Regulatory Risks Organizational Management/People Issues Political/Societal Issues Environmental Factors/Acts of God Technical/Operational/Infrastructure Risks • • • • • • Business/Strategic External Factors Procurement Organizational Factors Management Technical Each risk identified by an organization must be documented in one of the risk categories. To facilitate this, organizations develop a detailed definition of each category and the risks that it includes and they provide checklists, examples, and other aids to help individuals identify risk and correctly document them in the correct categories. Leading organizations have policies and procedures that support a professional approach to risk identification, documentation, assessment, mitigation, and management. They are aware that most project failures occur because important risks were not identified until it was too late to avoid the risks or effectively mitigate them. Research-Based Risk Categories Listed below are a set of risk criteria categories and definitions that grew out of a number of years of research on planning and implementing IT projects. The risk category definitions have been abbreviated for use here, but as stated they give a good idea of the nature of each category. Also, none of the aids associated with each category (e.g, checklist, examples) is shown. It is important to keep in mind that, while organizations may use the same criteria categories, they will modify the definitions of these categories to best address their own situations. For example, a law firm is likely to have some different risk exposures related to its IT projects than a clothing manufacturer. 1. Organizational Risk: Extent of buy-in by key stakeholders (e.g., affected managers, users, other employees, customers). Extent to which qualified individuals will be available to manage and staff the project. Extent to which employees with the required knowledge and skills are likely to be available to staff the implemented system. Extent to which the organization is otherwise ready to successfully implement and use the system. Possibility for loss of senior management support at some point in the project and possibility for resistance to change by one or more managers who are or will be affected by the project. 2. Infrastructure Risk: The extent to which it places demands on the organization’s infrastructure, including its IT infrastructure (e.g., will it incur non-project costs elsewhere in the organization; will it slow up other processes or reduce needed flexibility; will it interoperate with other systems without undue cost or risk?) 3. Information Security and Privacy: The extent to which it meets the established standards for information security and privacy. 4. Complexity Risk: Degree of complexity of the project and/or the proposed solution. Extent to which all of the assumptions have been identified, are supported, and taken into account in the planning. Likely accuracy of forecasts for benefits, costs, and risks. 5. External Risk: The extent to which external risks pertain to this solution (e.g., affect on corporate partners, the environment, compatibility with law and regulation). Includes contractual relationships and regulations. Every risk associated with an alternative solution is documented and placed in its proper risk category. Risks that fall into the same risk category are often related and similar risk management strategies may be applicable. Sometimes an overarching strategy can help to control all of the risks in the category. A variety of sources of information may be used to estimate the probability of the risk occurring and the likely financial impact if it does occur. Analyzing the risk will be important in judging the probability and likely impact. Other important sources are the organization’s performance with past projects and any “lessons learned” from them. The probability and likely impact make it possible to calculate the organization’s financial “risk exposure” for each risk, which enable the risks to be prioritized. The highest priority risks based on the risk exposure calculation get the most attention and resources for managing them. Template 6 is used to summarize the findings of the detailed analysis of each alternative. Documentation of the detailed analysis should be maintained to support and defend the entries made in the template. One Template 6 form is used for each alternative. Here is an important finding based on the experience of organizations using the five risk criteria provided in the template: The greatest proportion of project failures are caused by risks that fall into the Organizational Risk category. Such risks include stakeholder buy-in and senior management support. This underlines the need for stakeholder participation in the project to help obtain and maintain stakeholder buy-in and the importance of appointing an executive to serve as an executive change manager and project champion. Using Template 6 - the Risk Analysis Template The use of Template 6 should follow a full risk identification and analysis process (e.g., using checklists and other aids). Template 6, below, uses the five research-based criteria categories and definitions provided above. A separate Template 6 is used for each alternative solution that is analyzed for risk. Enter the name of each alternative solution at the top of each template, as shown in the examples below. • Identify and Document the Risks. Use the risk categories and definitions above to identify and categorize the risks for each alternative solution. Specifically, use each of the five categories of risk and their definitions, one at a time, to help you determine if one or more important risks in a risk category is associated with your alternative solution. If it is, document the risk—as illustrated in the Template 6 examples below—under the proper category name. As shown in the first example below, three significant risks were identified in the Organization Risk category. • Estimate Probability of Occurring and the Impact if it Occurs. After you have identified and documented a risk, estimate its probability of occurring and then the likely financial impact if it does occur. The financial impact is usually indicated by a range of dollar costs because it is almost impossible to forecast a precise dollar figure. • State Mitigation Strategy for Each Risk. Next, state the mitigation strategy for the risk--your recommendation for avoiding or otherwise controlling and minimizing the risk. • Calculate Risk Exposure. Then calculate the approximate risk exposure for that risk and enter it in the Approximate Risk Exposure column. The purpose of calculating the risk exposure is to aid in prioritizing the risk—the greater the risk exposure, the higher the priority. Risks that fall into the same category tend to be interrelated, enabling certain risk management strategies to be applied at the aggregate level. Here is an explanation of how to calculate the risk exposure of individual risks: Calculating Risk Exposure The risk exposure of any given risk is the probability of the risk occurring times the total loss if the risk occurs. We are using a financial cost (loss) range, so you need to multiply the probability times the low-cost figure and the probability times the high cost figure. For example, if there is a 20% probability of risk “X” occurring and the impact cost (loss) is in the range of $20,000 to $50,000, the risk exposure range calculation would be as follows: 20% x $20,000 = $4,000 Low end of risk exposure 20% x $50,000 = $10,000 High end of risk exposure Risk exposure range for risk “X” = $4,000 - $10,000 • Prioritize the Risks. After the risk exposure range has been calculated for each risk, the risks need to be prioritized based on their risk exposure. The greater the risk exposure, the higher the priority. A simple way to prioritize them is to form three categories, Low, Medium, and High, and define each. The definitions of the ranges will vary with the organization. For the Template 6 examples below, the following ranges were used: L (low) = $1,000 - $5,000; M (medium) = $5,001 - $15,000; and H (high) = $15,001 and up. L, M, and H are used to identify the priorities in the Risk Priority column in the template. • Compute the Average Risk Probability. At the bottom of Template 6, there is a cell titled Average Probability. The entry to be made in this cell is merely the average probability of occurrence for the risks listed above for this alternative. For example, assume the sum of eight risk probability entries in the column is 170%. Dividing the 170% by eight, we find that there is a 21.5% average probability that the risks will occur. This average is simply a general reference point in assessing the riskiness of an alternative solution. [Note, the economic analysis software used with Template 7 requests entries for the “probability that this benefit will be achieved.” This is looking at risk from a different perspective. If the risk is, say, 21.5% that the benefit will NOT be achieved, the probability that it WILL be achieved is 78.5% (100% - 21.5% = 78.5%).] • Compute Total Approximate Risk Exposure. At the bottom of Template 6, there is a place for entering the sum of the risk ranges for the individual risks. It is titled Total Approximate Risk Exposure. The figures to enter are obtained by summing the dollar impact figures at the bottom of the range for each risk’s probability range and then summing the dollar impact figures at the top of each risk’s probability range. This produces the total cost impact range of from $X to $Y. These total impact figures permit a comparison of alternative solutions based on their risk probabilities and their likely impacts. • Make Recommendations for Alternative Solutions. After a Template 6 has been used to document and analyze the risks associated with each alternative solution, it is necessary to state which alternatives should be carried forward for further analysis and which should be eliminated because of risk. Generally, an alternative solution with even one unacceptable risk is screened out. Similarly, if the total amount of risk for an alternative solution is unacceptable to the organization, the alternative needs to be screened out. There needs to be at least two acceptable alternative solutions carried forward. If there are not two that are are acceptable, it will be necessary to modify the alternative solutions so at least two will be acceptable or to identify new ones that will be acceptable. Note the statement below following the fourth Template 6 form, which describes the recommendations regarding the four alternative solutions. The use of Template 6 is illustrated below. Four alternative solutions to a performance problem were assessed in terms of their risks. The Template 6 forms illustrate the risks that were identified and documented in each risk criteria category. This is followed by a statement recommending that two of the alternatives be eliminated and two retained. The entries are illustrative and are not meant to represent a full risk assessment. Alternative Solution #1 (Tentative Solution Rank Order #1): Acquire In-house Graphics Management System - Hire a contractor to recommend, acquire, and install the graphics management tool or tool set and provide training, using a performance-based contract Impact If Approximate Risk Risk Category Probability Mitigation Strategy Occurs Risk Exposure Priority Organizational Risk a. Use of representative IPT; frequent meetings with users to a. Scope creep (users a. $4,000 inform and prevent a. $20,000 may increase $10,000 misunderstandings $50,000 functionality a. M a. 20% requirements) b. $2,500 b. $5,000 - b. Pre-sell new system, provide b. M b. 50% $10,000 training; remove old systems as of $20,000 b. Users may resist a specified date use of new system c. M c. 20% c. $2,000 c. $10,000 $6,000 $30,000 c. Frequent executive briefings; c. Possible loss of stress link to the organization’s executive support key performance indicators during project due to new priorities Information Security and Privacy Risk Identify proprietary graphics at $3,000 $15,000 M2 outset; establish and test security 20% $10,000 $50,000 Potential loss of measures to safeguard them control of proprietary graphics Complexity Risk Require all estimates and assumptions to be justified; obtain a. $1,000 a. Possible a. $5,000 independent verifications of $4,000 a. L unrecognized a. 20% $20,000 assumptions and estimates; assign assumptions responsibility for specific assumptions b. $500 b. L b. 10% b. $5,000 and estimates to individuals by name $1,000 $10,000 b. Accuracy in and hold them accountable for their forecasting costs accuracy. and benefits Infrastructure Risk Require onsite pilots by vendors to $2,000 identify and address potential $300 - $1,500 L Possible 15% $10,000 problems interoperability Problem Require certification of the contractor External Risk by the software vendor; check related $20,000 $3,000 15% L past performance and staff to be $30,000 Contractor $4,500 assigned; use performance-based underperformance contract Average $16,300 Probability Total Approximate Risk Exposure: $47,000 21.25% Template 6. Alternative #1 Risk Analysis Results Alternative Solution #2 (Tentative Solution Rank Order #3): Outsource the Graphics Management Functions - Outsource the graphics design and management work to an expert graphics design and production company under a negotiated time and materials contract with incentives and penalties. Impact If Approximate Risk Risk Category Probability Mitigation Strategy Occurs Risk Exposure Priority Organizational Risk a. Scope creep (users may increase functionality requirements) b. Users may resist use of new system c. Possible loss of executive support during project due to new priorities a. 20% b. 40% c. 20% d. 40% d. Internal staff not able to qualify to manage outsourcing contract Information Security and Privacy Risk a. Potential loss of control of proprietary graphics a. 30% b. 15% b. Contractor security breach Complexity Risk a. Possible unrecognized assumptions b. Accuracy in forecasting costs and benefits c. Initial relationship policies and procedures may have defects and new ones will need to be developed. a. 20% b. 20% c. 30% a. $5,000 $50,000 b. $5,000 $20,000 a. Use of representative IPT; frequent meetings with users to inform and a. $1,000 prevent misunderstandings $10,000 b. Pre-sell new system, provide training; remove old systems as of a specified date b. $2,000 $8,000 c. $2,000 c. $10,000 c. Frequent executive briefings; $6,000 $30,000 stress link to the organization’s key performance indicators d. $12,000 d. $30,000 $20,000 $50,000 d. Hire or train to gain qualified personnel a. Identify proprietary graphics at outset; establish and test security a. $50,000 measures to safeguard them $150,000 b. $15,000 - b. Confirm contractor’s security controls; include contractual $50,000 penalties a. $5,000 $20,000 b. $5,000 $10,000 c. $10,000 $50,000 a & b. Require all estimates and assumptions to be justified; obtain independent verifications of assumptions and estimates; assign responsibility for specific assumptions and estimates to individuals by name and hold them accountable for their accuracy. c. Hire expert advisor to make recommendations; investigate and adopt suitable best practices in graphics outsourcing; establish integration monitors; give issue resolution high priority a. $3,000 $10,000 b. $2,250 $7,500 a. $1,000 $4,000 b. $500 $1,000 c. $3,000 $15,000 a. M b. M c. M d. H a. H b. M a. L b. L c. L Infrastructure Risk Possible interoperability Problem $5,000 $10,000 15% a. Hire experienced outsourcing legal experts to prepare, modify, and/or review proposed outsourcing a. $10,000 contract. Assess contractor’s past $20,000 performance in outsourcing; establish contractual penalties. b. $10,000 $20,000 b. Perform due diligence prior to selection; negotiate conflict of interest policies, procedures, and penalties External Risk a. Services are not as described b. Selected company has relationship with our competitor Onsite pilots by contractors to identify potential problems a. 20% b. 10% Average Probability Total Approximate Risk Exposure: 22.5% Template 6. Alternative #2 Risk Analysis Results $750 - $1,500 L a. $2,000 $4,000 a. L b. $1,000 $2,000 $42,950 $126,000 b. L Alternative Solution #3 (Tentative Solution Rank Order #2): Use Software as a Service - Use a graphics management system that is hosted on the computer of a service provider. This is a web-based solution that falls in the category of “cloud computing.” Impact If Approximate Risk Risk Category Probability Mitigation Strategy Occurs Risk Exposure Priority Organizational Risk a. Use of representative IPT; frequent meetings with users to inform and a. Scope creep (users prevent misunderstandings may increase functionality b. Pre-sell the host system approach a. $5,000 requirements) a. $4,000 via presentations, visit to host $50,000 $10,000 sites, and Q&A sessions; a. M2 b. Users may resist subsequently remove old systems a. 20% b. $5,000 use of a hosted b. $1,000 as of a specified date $20,000 b. L8 system $4,000 b. 20% c. Frequent executive briefings; c. $10,000 c. M4 c. Possible loss of c. $2,000 stress the value and potential of c. 20% $30,000 executive support $6,000 SaaS; stress the expected d. M1 during project due contributions to the organization’s d. 25% d. $20,000 to new priorities d. $5,000 key performance indicators $40,000 $10,000 d. Internal staff may d. Have internal users help to select not be satisfied the SaaS system, including test it with the host before selection, and after system selection be trained in its use by arrangement qualified training personnel Information Security and Privacy Risk a. Identify proprietary graphics at a. $1,500 outset; establish and test security a. $15,000 a. Possible a. L5 $5,000 measures to safeguard them $50,000 productivity loss a. 10% through internet or b. M3 b. $2,250 b. $15,000 - b. Confirm contractor’s security other network b. 15% $7,500 controls; include contractual $50,000 problems penalties b. Contractor security breach Complexity Risk a. Possible unrecognized assumptions b. Accuracy in forecasting costs and benefits c. Users may seek to use capabilities available from host that are beyond their training and experience a. $10,000 $25,000 a. 10% b. $5,000 $10,000 b. 15% c. 20% c. $5,000 $20,000 Infrastructure Risk Possible interoperability Problem $5,000 $10,000 15% b. Selected host has relationships with our competitor c. In coordination with host, block user access to host system capabilities that have not been approved for use by the users; establish a program to give users training and access to selected new capabilities that can strengthen our organization’s performance. Conduct tests to ensure that host system will interface smoothly with related internal systems. a. Hire experienced SaaS experts to assist in evaluating the host and developing a mutually beneficial c. $10,000 SaaS contract. Assess host’s past $20,000 performance in serving its clients; establish contractual penalties. d. $10,000 $20,000 b. Perform due diligence prior to selection of host; as needed, interest-protection policies, procedures, and penalties External Risk a. Services are not as described a & b. Require all estimates and assumptions to be justified; obtain independent verifications of assumptions and estimates; assign responsibility for specific assumptions and estimates to individuals by name and hold them accountable for their accuracy. c. 20% d. 10% Average Probability Total Approximate Risk Exposure: 16.67% Template 6. Alternative #3 Risk Analysis Results a. $1,000 $2,500 b. $750 $1,500 c. $1,000 $4,000 $750 - $1,500 a. $2,000 $4,000 b. $1,000 $2,000 $22,666 $80,666 a. L9 b. L11 c. L7 L12 a. L6 b. L10 Alternative Solution #4 (Tentative Solution Rank Order #4): Acquire Graphics Management Firm - Acquire a small graphics arts firm with demonstrated expertise in graphics creation and management in support of business proposals. Impact If Approximate Risk Risk Category Probability Mitigation Strategy Occurs Risk Exposure Priority Organizational Risk a. Use of representative IPT; frequent meetings with users to inform and a. Scope creep (users prevent misunderstandings may increase functionality b. Involve firm being acquired in all requirements) integration planning activities; pilot test each procedure involving a. $20,000 a. $4,000 b. Culture conflicts graphics support services; conduct $50,000 $10,000 (differences in two or more welcoming get-toa. 20% a. M3 values, priorities, know-each-other events b. $50,000 b. $25,000 expectations, and $100,000 b. 50% b. H1 $50,000 practices) c. Frequent executive briefings; stress link to the organization’s key c. $10,000 c. 20% c. M5 c. $2,000 c. Possible loss of performance indicators $30,000 $6,000 executive support d. 40% d. M2 during project due d. Ensure that the firm can afford the d. $20,000 d. $8,000 to new priorities cost of acquiring the firm, $30,000 $12,000 considering other demands on its d. Inability of firm to resources; establish minimum pay relatively large performance requirements for the up-front acquired firm; seek to negotiate expenditure to mutually-beneficial arrangement purchase the firm for paying the purchase cost over a period of time. Information Security Conduct briefing sessions with and Privacy Risk acquired group regarding proprietary $15,000 information and security measures; $750 - $2,500 L7 5% $50,000 Potential loss of as needed, conduct background control of proprietary checks graphics Complexity Risk a & b. Require all estimates and assumptions to be justified; obtain a. $1,000 a. Possible a. $5,000 independent verifications of $4,000 a. L6 unrecognized a. 20% $20,000 assumptions and estimates; assign assumptions responsibility for specific assumptions b. $500 b. L9 b. 10% b. $5,000 and estimates to individuals by name $1,000 $10,000 b. Accuracy in and hold them accountable for their forecasting costs accuracy. and benefits Infrastructure Risk Require monitored pilots by graphics $5,000 firm to identify and address potential $750 - $1,500 L8 Possible 15% $10,000 interoperability problems interoperability Problem External Risk Possible liabilities associated with the firm’s customers and past activities $10,000 $40,000 20% Average Probability 22.22% Require an audit of the graphic firm’s assets, liabilities, and other financial aspects; check past performance and reputation with customers; ensure that key staff will be retained if the firm is acquired; consider making purchase price contingent on postacquisition performance Total Approximate Risk Exposure: Template 6. Alternative #4 Risk Analysis Results $2,000 $8,000 $44,000 $95,000 M4 Recommendation: Eliminate Alternatives #2 and #4 and Retain Alternatives #1 and #3 Based on this risk analysis and in consideration of the likely benefits and the Template 4 ratings, Alternatives #2 (outsource the functions) and #4 (acquire a small firm) are eliminated from further consideration. Alternative #2 is eliminated principally because of the risk of losing control of proprietary information by placing it in the hands of a third party. Alternative #4 is eliminated for three reasons: the risk of not finding a qualified firm that wishes to be purchased, the relatively large up-front costs that would be involved, and the time it would likely take to integrate the small firm into the corporate culture. Alternatives #1 and #3 also have less risk than other two alternatives and are expected to cost less. Although the organization has no experience with the Alternative #3 solution (SaaS), this alternative is expected to be especially attractive financially and in terms of expected performance. It could be the least costly solution and the risks involved are only slightly greater than those of Alternative #1 but are outweighed by the potential for greater benefits. It is recommended that alternatives #1 and 3 be further analyzed to determine which is the better solution for our organization. Template 6. Recommendation of Alternative Solutions for Further Analysis IMPORTANT NOTES: 1. This template should be used with a Microsoft Word (or other word processor) document. It should not be used in an Excel worksheet because a worksheet is not an appropriate medium for electronically transmitting the document to others or for printing it for distribution. 2. The template is adjustable. After the template is copied to a Word document, replace the sample entries in the cells with your own information. You can change the length and width of the template and its cells after you copy the template to your document. If you put your cursor on a line in the template, the line can be moved horizontally or vertically, depending on the line, to best fit your information. There is no need to color any of the cells in your Word version, though color is used in the examples above. The Work Breakdown Structure IT Acquisition Template 5 Nature of This Template This template does not provide a standard form to be filled in. Instead, it provides guidance for the use of a standard approach for preparing work breakdown structures. A work breakdown structure (WBS) depicts the full scope of the project, including its phases and tasks. Since the great majority of projects are unique, there is no one-size-fits-all WBS that can be used. However, the same general approach can be used to prepare a WBS for any project. The material below describes how to create a WBS and how to follow established standards for labeling its various parts. A WBS is prepared for the two or three best alternative solutions. They will depict the scope and expected cost of each alternative. A WBS breaks the work down into task or work packages (we will refer to them as tasks). These tasks must be analyzed to determine the resources that will be required to successfully perform them. In preparing a WBS, it is very important to obtain good estimates of labor hours, labor costs, and the cost of other resources for the tasks in each phase. This makes it possible to make an informed estimate of the probable cost of a proposed solution. The cost information also serves as inputs into the Template 7 economic analysis software. The economic analysis enables the IPT to compare the two or three best alternative solutions from a financial standpoint. The initial WBSes--in this case, one for each of the final alternative solutions--will be subject to detailed evaluation and critique by the integrated project team (IPT) members, with representatives from the business and technical areas affected by the project. The team will examine such things as: • • • • • • • Accuracy of the WBS in depicting the solution Suitability and logic of the work breakdown Duplicate or overlapping tasks Omission of a needed task Unavailability of a critical resource Misuse of resources likely to cause conflicts and other problems Task costs and total solution cost This detailed examination generally results in revisions and improvements in the WBSes until each is believed to accurately and effectively encompass the complete project and its tasks and the resources required. Although this examination will identify risks and a WBS may be modified because of this, each WBS will be subjected to a formal risk analysis (Template 6). A financial comparison will then be performed using the economic analysis worksheets provided in Template 7. The results of the economic analysis serve as inputs to a "comparative analysis" (Template 8) to determine which of the final alternatives is the best solution to the problem. It is the WBS for the best solution, along with its supporting documentation, that becomes a major source of information for the preparation of the Gantt chart, which is a detailed project schedule that shows staffing and other resource usage over the life of the project. There is a standard method of numerically coding the WBS boxes (phases, tasks, etc.) and these are the same codes that will be used to identify the phases and other parts of the WBS in the Gantt chart (project schedule) prepared with Microsoft Project. Microsoft Project actually assigns the WBS numeric codes in the Gantt chart when the WBS information is entered properly (how to do this is explained in instructions provided by Microsoft Corp.). Having the same codes in the WBS and the Gantt chart enable ongoing coordination between the phases and tasks shown in the project management software and the phases and tasks shown in the related WBS. A change in one requires a change in the other. Creating a Work Breakdown Structure (WBS) A WBS is prepared for the two or three best candidate solutions to the problem. The process of preparing the WBS forces the integrated project team (IPT) to take a close look at each alternative solution because it must define all of the tasks required for its implementation and estimate the labor and resources costs of each task. As the WBS is being prepared, it will reveal risks that need to be avoided or otherwise mitigated. For example, it may be found that the project costs more than would be acceptable to management, that it requires skill that likely to be unavailable, that it assumes data from other are complete and accurate when they are neither, that certain tasks overlap, and so on. If the alternative solution is to proceed to the next step, the risks identified need to be avoided, transferred, worked around, mitigated through various strategies, and in some cases simply accepted because they will have a low impact if they occur. This information developed in preparing the WBSes make it possible to later compare and evaluate (in Template 8) the relative costs, benefits, and risks associated with each alternative solution. A WBS takes the form of a tree structure, as shown in the graphic below, Figure 5.1. Notice that the alternative solution to which the WBS applies is stated above the WBS. At the very top of the WBS structure is the name of the project (or possible project), over the box labeled "1.0." The objective now is to break the project down into smaller and smaller parts until the parts are equivalent to work packages or tasks that can be assigned to individuals or teams. The WBS development process identifies work packages/tasks that can be performed independent of other work packages/tasks. Usually, the WBS included by the buyer in the request for proposal is limited to only the top three levels. The contractor usually further breaks down the WBS to lower levels for project management purposes. In Figure 5.1, we see a relatively simple WBS. The first breakdown of the project is into three phases, which are given names as well as identified with the WBS numerical codes of 1.1, 1.2, and 1.3. Then each of these phases is broken down to the next lower level. For phase 1.1, a further breakdown is necessary before the work is at a task level. For phases 1.2 and 1.3, the next breakdown is at the task level. This process of breaking down the work until it is at a manageable task level is called "decomposition." In a large project, the tree structure can be rather complex. A WBS for a small project, however, would be more along the lines of the example shown in Figure 5.1. Note that the tasks are listed under each phase, with a milestone indicating the end of each phase. It is an established standard that each task name begins with an action verb. WBS for Alternative #2: Customize Off-the-Shelf Financial Analysis Software System 1.0 Modernize Financial Analysis System 1.1 Labor Hours: 440 Cost: $31700 Other Resources Cost: $5000 1.2 1.3 Design Phase Programming Phase Testing & Transition Phase Labor Hours: 140 Cost: $9800 Labor Hours: 120 Cost: $8400 Labor Hours: 180 Cost: $13500 Other Resources Cost: $500 Other Resources Cost: $3000 Other Resources Cost: $1500 1.1.1 1.1.2 Design Part 1 Design Part 2 Labor Hours: 60 Cost: $4800 Labor Hours: 80 Cost: $5000 Other Resources Cost: $250 Other Resources Cost: $250 Design Input Screens Design Input Processing Design Matrix Update Design Analysis Options Design Reporting Options Milestone Conduct System Test Conduct Integration Test Conduct Training Transition to Operations Milestone Program Input System Program Matrix Update Program Analysis Options Program Reporting Options Milestone What Is Excluded from the WBS for the RFP? It is possible to create a WBS that includes both the pre-solicitation planning activities as well as the implementation project that will be conducted with the aid of an IT services contractor. The presolicitation activities are generally funded differently from the post-solicitation project to be conducted with the IT services contractor. The post solicitation project must generally be approved via a business case or acquisition strategy document submitted to an executive committee. The cost justified in the business case/acquisition strategy document will be based on the cost of a WBS developed for post solicitation project. Accordingly, the WBS described below is limited to the project that will be conducted with the aid of an IT services contractor. This WBS will be included in the request for proposals that will be issued to IT services contractors. The WBS developed for the proposed project focuses on activities that will take place within the project rather than other activities that may be related to the project. Here are examples of activities that are normally excluded from this WBS: • • • • The preliminary study of the problem that led to the project Development of the request for proposal Activities related to selecting the contractor Activities related to monitoring the contractor's performance Excluding these activities from the WBS does not mean their costs are ignored. Rather, they will be accounted for in other budgets. For example, the cost of the preliminary study and the cost of developing the RFP may come from the budget of the department(s) sponsoring the RFP. The cost of the contract officer who will be a monitor of the project will probably be charged to the overhead of the buyer organization. These types of activities and costs are managed and controlled elsewhere and not from within the project. Accordingly, they are not included in the WBS. Of course, the buyer organization's chief financial officer will include all of these costs when calculating the total cost of solving the problem. The financial focus of the WBS, though, is the cost of the implementation project. The WBS prepared by the buyer organization may be agreed to without change by the selected contractor or agreed to only after negotiated changes in the WBS have been made. The contractor may provide valuable recommendations for improving the project that it is agreed should be in the WBS and the contract. The agreed-upon WBS is called the contract WBS. Costing WBS Tasks The WBS is costed at the task level and then summed for each phase and the complete project. Each task of the WBS requires resources to accomplish it. Each task is analyzed to determine how many labor hours will be required to complete the work, the cost of those specific hours, and any other resource costs associated with performing the task. Once the labor hours, their cost, and the cost of the other resources required to perform each task are estimated, the cost figures summed for the phases and the entire project and then entered into the WBS diagram as shown in the Figure 5.1 graphic above. As indicated, the costs at the task/work package level are rolled up into the phases and then up to the project as a whole. In Figure 5.1, only the rolled-up figures are shown. The total number of labor hours and their cost and the cost of other resources are shown in the top box of the WBS. Of course, there must be separate documentation of the basis for the cost figures. The costs need to include both "direct" and "indirect" costs. For example, there is usually an "overhead rate" that applies to the contractor's direct charges for labor. There are various ways of recording the supporting information for WBS costs. There can be separate online files. In addition, the project management software will maintain detailed cost figures, though it will not indicate how those figures were estimated. Organizations vary regarding the amount of cost information they place in a WBS graphic. Sometimes no cost is shown in the WBS graphic and all of the cost information is contained in an accompanying document. This means a second document must be referred to for any cost information. In other cases, just summary cost figures are provided, as in our example. The summary figures are often enough for some executives, though they are free to access and review the detailed cost information. An important point: The tasks shown in the WBS are intended to be all of the tasks necessary to conduct the project. If all of the tasks are not identified and all of their resource requirements not determined, the project will face problems of inadequate resources, incorrect schedule, and jeopardized objectives. A task appearing in the WBS may be broken down later during the project into several "subtasks" without any impact on the contract for the project. However, any "subtask" that cannot be traced to a task appearing in the WBS is out of scope and must not be performed without an official modification of the WBS and probably of the related contract for the project. Of course, many projects operate in dynamic environments, which means that after a project is underway and new information is obtained, there may be a need to make changes in tasks, resources, and the schedule. Such changes are not due to poor initial planning but to a need to adjust the project to take advantage of better information or changing requirements in a dynamic environment. The WBS facilitates efficient planning of resource allocation, assignment of responsibilities, performance measurement, and project control. The WBS example above is organized around phases of the project and their deliverables. Here is another example of how a WBS was created for a project. It is organized around deliverables and could provide you with some good insight if you have never developed a WBS before. Appearance of the WBS You Prepare A WBS that appears in a Request For Proposal (RFP) will exclude labor hours and cost information because competing contractors will provide such information in support of their response to the RFP. Some websites depict a WBS of the type that might be in an RFP—that is, without labor hours or cost information. The WBSes you are asked to prepared will resemble the one in Figure 5.1, which includes labor hours, labor costs, and the cost of other resources. (Note: If you are doing a college or university student project, the WBS that you prepare should generally resemble the one in the Figure 5.1 above, with labor hours, labor costs, and other resource costs entered as illustrated in the figure.) Preparation of a WBS for Each Final Alternative Solution If the final best two (or more) proposed solutions are to be compared, it is necessary to generate the information that makes it possible to compare them. Creating a WBS for the best two or three alternative solutions produces information that will help to compare them from a cost standpoint. If you wish to look ahead, Sheet 3 of the Economic Analysis Worksheet for Template 7 contains an example of how a WBS was used to generate data used in the Economic Analysis Worksheet. Cautionary Note About Microsoft Project and the WBS If the entries are made in Microsoft Project to create a Gantt chart (project schedule), that data can be used by Microsoft Project to generate a WBS. However, never use this backward approach. It is considered a poor and risky management practice to prepare a WBS from a Gantt chart (without first preparing the WBS). Moreover, Microsoft Project does not prepare a WBS in the graphical form shown above in Figure 5.1. The best practice approach is to first prepare the WBS, which provides data that helps you prepare a Gantt Chart. DRAWING YOUR WBS An attempt is being made to identify a low cost or no cost WBS preparation tool for students who use this website. A notice will appear here if and when such an arrangement is made. In the meantime, students can consider these alternative tools for preparing a WBS: 1. Use WBS-preparation software if you have access to it. Paste the result in a Word file for submission to your instructor, which will ensure that your instructor will be able to read the file. 2. Some students have used a trial copy of SmartDraw to create WBSes. I suspect that this software can have many other uses in most organizations. Since I do not have this software, my students who use this will need to paste the result in a Word file so I can read it. 3. Use PowerPoint to create and submit your WBS. Even if the WBS type looks small in a PowerPoint slide, your instructor can enlarge the text on his/her computer so the text can be read. Here is an example of a Visio WBS drawn using the 2007 version of Visio: In any submission, each WBS must be properly labeled with its alternative solution name and number. IT Acquisition Requirements Analysis IT Acquisition Template 2 The left column of the table below summarizes most of the categories of information required for the requirements definition activity of the Acquisition Planning Process. The table can be used as a template for documenting a summary of the requirements. With the template, this is done by entering summary information in its right column. Many organizations have their own templates, some of which may be superior to this one. In using this template, all ten of the Requirements Categories in the left column must be answered in the right column. The example in the table (right column) is a relatively simple case because its purpose is to illustrate the use of such a template. The template helps to ensure that the correct requirements have been defined, agreed to, and documented, with no important requirement or constraint overlooked. The requirements generally evolve as comments are sought from experts, users, and other key stakeholders. Ideally, key stakeholders, including the users and others who will be directly affected by the acquisition, will all agree on the “final” requirements before the next steps in acquisition planning are taken. The final requirements that emerge from this process are intended to describe the solution needed. The acquisition planning team may identify and evaluation alternative solutions that meet these criteria. Contractors may be asked to submit proposals to implement one of these solutions or to propose other solutions to the problem that might be better. Proposed solutions that satisfy or exceed the requirements and are acceptable in terms of cost and risks will likely be considered by the organization. Often the one with the best value will be selected. In using this template, include all ten Requirements Categories. However, feel free to exclude the parenthetical statements in the left column, which merely elaborate on each of the requirements. If you wish to add one or more additional requirements, do so after the tenth one in the left column. In regard to column on the right, exclude the example case and substitute your text pertaining to your case requirements. Be sure to respond to all of the requirements categories. Although these are summaries of requirements, they must be understandable to stakeholders, executives, and others who may review this summary. This means your template entries need to clearly communicate the essential aspects of each requirement. OBJECTIVE OF THE REQUIREMENTS: REQUIREMENTS CATEGORY 1. Stakeholder Considerations that Need to be Reflected in the Solution (including the expectations and satisfaction managers, internal users, and external customers) and factors related to the business environment) 2. Factors to Take Into Account Related to the Business Environment (including legal factors, regulations, competition, and business cycles) 3. New Capabilities and/or Functionality Required by a Solution (including requirements for ease of use, quality, interoperability, and data sharing) 4. Existing Business Process Shortfalls (why current business process and/or systems cannot meet the needs or be changed to meet the needs) 5. Cost Limitations (may be stated in terms of preferred cost range; may specify a maximum cost; cost figures need to include associated overhead costs; may be specified as an annual limit or life cycle limit or both) 6. Other Limitations or Constraints (e.g., availability of key personnel, such as subject matter experts, training methods and time available for training, limitations related to maintenance or to external support). Reduce the amount of time required to prepare graphics for proposals and to integrate them with the text, as stated in the Performance Gap document REQUIREMENTS DEFINITION Chief officers seek increased ROI and ROA (return on assets) that can result from producing the target number of proposals. Sales Department Manager is responsible for proposal production. All department heads can benefit from achieving target proposal production. Competitors have the capabilities described here A software solution is needed that will speed up the development of quality graphics for use in proposals by 40%, which could result in millions of dollars of new business at the current proposal hit rate. Must be able to capture, store, and edit existing images, create photo compositions, draw vector graphics and take graphics and integrate them with text and take the result to the printed page, websites, video, and mobile devices. Must maintain an inventory of reusable graphics. System must be easy to use, fast and flexible, and function cross-platform. Must be extensible, scalable and open architecture. Must operate with Windows XP and Adobe publication systems. Current software being used is dependent on many manual graphics activities, has no inventory and output re-use capability, cannot integrate text and graphics, and cannot interface with related systems. Expected cost is $500 per software system. Cost of system is not a significant constraint up to $1000 per system. Total cost, including implementation and training and overhead, is expected to be in the $150,000 to $200,000 range. Must be easy to learn by individuals who are telecommuting and may not be available to attend a course. It must also have high reliability with automatic online updates. OBJECTIVE OF THE REQUIREMENTS: REQUIREMENTS CATEGORY 7. Security & Privacy Requirements (any requirements beyond those currently being used by the organization for non-critical and nonsensitive applications) 8. Number to be Implemented (e.g., specify the number of places the solution will need to be implemented and whether they are at different geographical locations) 9. Schedule (explain any schedule constraint, whether for financial or non-financial reasons--e.g., if the solution be in place as of a certain date, specify the date and why) 10. Other Requirements Not Specified Above (e.g., any related to vendors, consultants, partnerships with other entities, unique user interface requirements, documentation needs, special certification requirements) Reduce the amount of time required to prepare graphics for proposals and to integrate them with the text, as stated in the Performance Gap document REQUIREMENTS DEFINITION No special requirements aside from established network security. The solution must be provided for three workstations that are used to prepare graphics for proposals and other purposes. Acquire and implement within next six months (xx/xx/xx xx/xx/xx). Doing so within three months brings quicker financial benefits. Require minimal in-house support; must be returnable if factory defect or new version is issued within six months. Vendor must provide assurance of fast response times to requests for help. Template 2. Documentation of Requirements IMPORTANT NOTES: 1. This template should be used with a Microsoft Word (or other word processor) document. It should not be used in an Excel worksheet because this is not an appropriate medium for transmitting the document to others or for printing it for distribution. 2. The template is adjustable. After the template is copied to a Word document, replace the sample entries in the cells with your own information. You can change the length and width of the template and its cells after you copy the template to your document. If you put your cursor on a line in the template, the line can be moved horizontally or vertically, depending on the line, to best fit your information. There is no need to color any of the cells in your Word version, though color is used in the example above. Identifying Alternative Solutions IT Acquisition Templates 3 and 4 There is a difference between “alternative solutions” to a problem and “alternative sources” of contractors to implement the solution. Do not confuse the two. You are not ready at this point to issue a request for proposal from competing or “alternative sources.” Identifying alternative solutions builds on the documented definition of the requirements for the solution. Its purpose is to identify the possible alternatives that could meet the requirements and thereby solve the problem. Organizations hope to find solutions that do not require an additional capital investment, but this cannot always be achieved. There are many techniques for identifying alternative solutions, including brainstorming, the use of group support systems (GSSs), and investigating the solutions that leading organizations have adopted. Each technique involves the use of a group, rather than relying on a single individual. The group--or groups--can include experts, the intended users, executives, and other stakeholders. Leading organizations use integrated project teams (IPTs) to define requirements and perform other acquisition activities. It is important to avoid personal biases and preferences. An IPT, which involves appropriately representatives from the affected components of the organization, must avoid being pressured into a pre-selected alternative, whether or not the pressure is intentional. This can happen when a senior executive is convinced that he or she knows the solution to the problem. Summarizing Alternative Solutions (Template 3) It is a best practice to identify at least three alternative solutions that will meet the requirements to solve the problem. Requiring a minimum of three alternative solutions forces the integrated project team to identify solutions that may not be obvious. It helps to prevent automatically adopting a “preselected” solution because of the prevailing biases. A meaningful investigation of alternative solutions can identify a solution that produces substantially superior results compared to what initially appeared to be the obvious solution. Individuals who have a pre-existing strong bias toward a specific solution are often not aware of other potential solutions, especially the latest, most innovative solutions. Template 3, below, is used document, in summary form, alternative solutions that meet the requirements identified in Template 2. The first column of Template 3 gives the name of an alternative solution and the second column summarizes it. The “Objective” of the alternative solutions is entered at the top of Template 3. Note: These templates are intended to help plan for acquiring IT services (and software and hardware as needed) from an external IT services contractor selected in open competition. The use of this and the other acquisition planning templates assume that the possibility of a solution using only internal resources or by making a commodity purchase from a product vendor have been analyzed and found to be not possible. Therefore, every alternative solution listed in Template 3 must require the use of an external IT services contractor because it has already been determined that one is required. Reduce the amount of time required to prepare graphics for proposals and to integrate graphics with the text OBJECTIVE: Name of Solution Alternative Summary Description of Solution That Meets the Stated Requirements Alternative Solution #1: Acquire an In-house Graphics Management System Alternative Solution #2: Outsource the Graphics Management Functions Hire a contractor to recommend, acquire, install, and integrate a graphics management and design tool or tool set and provide training, using a performance-based contract. Outsource the graphics creation, graphics management, and graphics-text integration functions to an expert graphics design and production company under a negotiated time and materials contract with incentives and penalties. Alternative Solution #3: Use Software as a Service Contract with a Software as a Service (SaaS) provider to obtain the functionality required via a Web connection Alternative Solution #4: Acquire Expert Small Graphics Arts Specialty Firm Acquire a small graphics arts specialty firm with state-of-the-art technology and demonstrated required expertise, to merge with our organization and function as a support department. [Name of Alternative Solution #5] [and so on, if there are additional alternative solutions] IT Acquisition Confirmation Each alternative solution described above requires the acquisition of IT services from an external IT service provider selected in open competition. [Note: Do not remove or change this statement.] Template 3. Summarizing Alternative Solutions Screening Alternative Solutions (Template 4) There should be at least three a...
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