2.3.3 Approving
IT Projects
Once a project has been evaluated and a formal project proposal
exists, there are a variety of mechanisms that are used to determine
which projects should be funded. Most institutions have some form
of committee structure, similar to capital budgeting committees, which
is responsible for evaluating, modifying and approving projects.
Most of the previous literature on the management of IT has focused
on the so-called "IT steering committee" which is an executive
level group, often comprised of the heads of business units or their
direct reports. The objective of this committee is to ensure that
IT strategy is aligned with business unit strategy, projects are coordinated
across business units where there are possible synergies and to educate
the business unit managers on the both the actual activities of the
IT group and the potential IT opportunities.
2.3.4 Make-Buy
Decisions(Outsourcing)
At the inception of any project, a firm has the choice of whether
to utilize their internal resources in the IT department (insource)
or utilize an outside vendor for any or all of a project(outsourcing).
While the market for outsourced services has existed since sale
of the first corporate computers, the size of the outsourcing market
has grown dramatically in recent years and is expected to grow substantially.
In 1997 the market for information technology outsourcing has been
estimated at $26.5 billion in the U.S. and at $90 billion worldwide.
Growth estimates of this market range from 15% to 25%.
In general , an outside firm may be advantaged in providing a
service previously produced internally, because of economies of
scale, scope or specialization. By aggregating demands for multiple
clients, vendors can smooth variations in demand increasing capacity
utilization and reducing risk, make investments that trade larger
fixed costs for lower variable costs, and have stronger incentives
to invest in cost-reducing technology. By narrowly focusing on technology,
they may be better able to attract, hire , manage and retain high
quality personnel due to better ability to tailor management practices,
career paths and incentive structures to a specific activity. The
value of these benefis is tempered by explicit and implicit costs
of using the market or some intermediate form of governance rather
than vertical integration. These problems manifest themselves in
three types of risk: shirking(under-performance in hard-to-measure
tasks), poaching (misappropriaiton of shared resources ) and opportunistic
re-negotiation (exploitation of bargaining disadvantages in ongoing
relationships) . Some authors have argued that in IT these risks
are so severe that outsourcing has, overall, a poor value proposition.
However , there are a number of very successful agreements and the
growth in the market over the long term suggests that some economic
benefits of outsourcing are present.
In pratice, outsourcing can take many forms and the complexity
of these arrangements is increasing. The simplest arrangement is
the use of contract workers; the worker is not employed by the firm,
but is managed more or less as if they were an employee. This pratice
is so common in IT that the presence of contract employees is assumed
to be a standard feature of IT departments. At the next level is
selective outsourcing in which a firm outsources particular projects
or parts of projects to an outside vendor. This is also quite common
in software development and technical support activities, although
any well-defined task could presumably be outsourced in this way.
Finally, the firm may choose to outsource the entire IT function,
a practice that began in the late 1980s and has continued today.
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