Chapter 8

Question 1

The Horner/Alcoa Story

Answer 1

High-performing tech worker—almost dismissed as CIO

Question 2

The Alcoa lesson: Business Demands

Answer 2

IT offerings need to be aligned with business demands

IT complexities should be translated to business needs

Question 3

What The IT Organization Does Not Do

Answer 3

Does not perform core business functions such as:
Selling
Manufacturing
Accounting.
Does not set business strategy.
General managers must not delegate critical technology decisions.

Question 4

Chief Information Officer (CIO) The Senior-Most IT Executive

Answer 4

Responsible for technology vision
Leads design, development, implementation, and management of IT initiatives
Is a business technology strategist or strategic business leader
Uses technology as the core tool in
creating competitive advantage
aligning business and IT strategies

Question 5

CIO’s Focus

Answer 5

CIO’s focus has shifted:
From efficiency to effectiveness in a constantly changing/competitive marketplace
Formerly: reported to the CFO. Now: reports to the CEO.
Shift over time towards helping executive team formulate business strategy

Question 6

CTO, CPO, and Other Roles

Answer 6

CIO Can’t have all skills—can’t know everything!
    Other roles are important:
CTO: Chief Technology Officer (tracks technologies)
CKO: Chief Knowledge Officer
CDO: Chief Data Officer
CAO: Chief Analytics Officer
CTO: Chief Telecommunications Officer
CNO: Chief Network Officer
CRO: Chief Resource Officer
CISO: Chief Information Security Officer
CPO: Chief Privacy Officer
CMO: Chief Mobility Officer
CSMO: Chief Social Media Officer

Question 7

So Who Should Make the Decisions?

Answer 7

Ross & Weill say
The CEO should not make those decisions alone
C-level executives should not even make those decisions
Input is needed from both IT and the business units alike
Steering (or Executive) Committee solution

Question 8

Building a Business Case - Components

Answer 8

Executive Summary
Overview and Introduction
Assumptions and Rationale
Project Summary
Financial Discussion and Analysis
Benefits and Business Impacts
Schedule and Milestones
Risk and Contingency Analysis
Conclusion and Recommendation
Appendices

Question 9

IT Portfolio Management

Answer 9

IT investments should be managed as any other investment.
Evaluate and approve IT investments as they relate to other potential investments of all kinds
Goals:
Pick the right mix of investments
Invest in the most valuable IT initiatives

Question 10

Asset Classes

Answer 10

Weill and Aral say that there are four asset classes of IT investments:
Transactional systems – systems that streamline or cut costs on business operations.
Informational systems – any system that provides information used to control, manage, communicate, analyze or collaborate.
Strategic systems – any system used to gain competitive advantage in the marketplace.
Infrastructure systems – the base foundation or shared IT services used for multiple applications.

Question 11

Valuing IT Investments

Answer 11

Soft benefits, such as the ability to make future decisions, make it difficult to measure the payback of IT investment
IT is expensive, thus under close scrutiny.
IT is complex; calculating the costs is an art, not a science.
Payback period for infrastructure is much longer than other types of capital investments.
With necessary systems (due to laws, etc.), the payback period cannot be calculated
Many valuation methods are available…

Question 12

IT Investment Monitoring

Answer 12

Old saying: “If you can’t measure it, you can’t manage it”
Management needs to achieve organizational benefits from IT investments
Must agree upon a set of metrics for monitoring IT investments.
Often financial in nature (ROI, NPV, etc.).

Question 13

The Balanced Scorecard

Answer 13

Focuses attention on the organization’s value drivers (which include financial performance).
Assesses the full impact of corporate strategies on customers and workforce, as well as financial performance.
Allows managers to look at a business from four related perspectives:

Question 14

The IT Balanced Scorecard

Answer 14

Using it within the MIS department helps senior IS managers
Understand their organization’s performance
Measure it in a way that supports its business strategy
Linked to the corporate scorecard
By ensuring that the measures used by IT are those that support the corporate goals.

Question 15

IT Dashboards

Answer 15

Snapshot of metrics at a given point in time (often “right now”)
Offer “at a glance” idea of how things are going
Often colors depict conditions:
Areas with problems (red)
Areas in good shape (green)
In-between or average (yellow)

Question 16

Funding the IT department

Answer 16

How are costs of design, development, delivery and maintenance of IT systems recovered (or simply covered)?
Chargeback
Allocation
Corporate budget
The first two are done for management reasons
The latter covers costs using corporate coffers

Question 17

How to Determine Cost

Answer 17

Basic method: add up costs of hardware, software, network, and people involved in IS.
Real cost is not always easy to determine
Remains a mystery for many firms

Question 18

Total Cost of Ownership (TCO)

Answer 18

Has become the industry standard.
Looks beyond initial capital investments to include costs often forgotten. For example:
technical support
administration
training
Estimates total annual costs per user for each potential infrastructure choice.
Provide the best foundation for comparing to other IT and non-IT investments.

Question 19

TCO Component Breakdown

Answer 19

Shared components (servers and printers):
TCO divided among all users who access each
When only certain groups of users possess certain components, segment the hardware analysis by platform.
Soft costs, such as technical support, administration, and training are important to include

Question 20

Activity-Based Costing (ABC)

Answer 20

Activity‐based costing (ABC): The costing method that calculates costs by counting the actual activities that go
into making a specific product or delivering a specific service.

Question 21

Allocation Funding Method

Answer 21

Allocation funding method: The method for funding IT costs by recovering costs based on something other than
usage, such as revenues, log‐in accounts, or number of employees.

Question 22

Balanced Scoreboard

Answer 22

Balanced scorecard: The method that focuses attention on the organization ’ s value drivers (which include, but are
not limited to, fi nancial performance). Companies use it to assess the full impact of their corporate strategies on
their customers and workforce as well as their fi nancial performance.

Question 23

Business Case

Answer 23

Business case: A structured document that lays out all the relevant information needed to make a go/no‐go
decision. It contains an executive summary, overview, assumptions, program summary, financial discussion and
analysis, discussion of benefits and business impacts, schedule and milestones, risk and contingency analysis,
conclusion, and recommendations.

Question 24

Business-IT Maturity Model

Answer 24

Business‐IT maturity model: A framework that displays the demands on the business side and the IT offerings
on the supply side to help understand differences in capabilities and suggests the degree to which the IT function
should be engaged with the rest of the organization.

Question 25

Business Technology Strategist

Answer 25

Business technology strategist: The strategic business leader who uses technology as the core tool in creating competitive advantage and aligning business and IT strategies.

Question 26

Chargeback Funding Method

Answer 26

Chargeback funding method: The method for funding IT costs in which costs are recovered by charging individuals, departments, or business units based on actual usage and cost

Question 27

Chief Information Officer (CIO)

Answer 27

Chief information officer (CIO): The most senior officer responsible for the information systems activities within the organization. The CIO is a strategic thinker, not an operational manager, is typically a member of the senior management team, and is involved in all major business decisions that come before that team, bringing an information systems perspective to the team.

Question 28

Corporate Budget Funding Method

Answer 28

Corporate budget funding method: The method for funding IT costs in which they fall to the corporate bottom line rather than being levied to specific users or business units.

Question 29

Dashboard

Answer 29

Dashboard: A common management monitoring tool that provides a snapshot of metrics at any given point in time.

Question 30

Economic Value Added (EVA)

Answer 30

Economic value added (EVA): The valuation method that accounts for opportunity costs of capital to measure true economic profit and revalues historical costs to give an accurate picture of the true market value of assets.

Question 31

IT Portfolio Management

Answer 31

``` Information technology (IT) portfolio management: The evaluation of new and existing applications collectively on an ongoing basis to determine which applications provide value to the business in order to support decisions to replace, retire, or further invest in applications across the enterprise ```

Question 32

Net Present Value (NPV)

Answer 32

Net present value (NPV): The valuation method that takes into account the time value of money in which cash inflows and outflows are discounted.

Question 33

Payback Period

Answer 33

Payback period: The length of time needed to recoup the cost of an investment.

Question 34

Return on Investment (ROI)

Answer 34

Return on investment (ROI): The amount of financial benefit (either revenue or reduced expense) over and above an investment in a particular IS, divided by the investment amount itself. The result is a percentage.

Question 35

1. This is a plan designed to counter a manmade or natural disaster that could cripple an enterprise. a) Business Continuity Plan b) Disaster Recovery Plan c) Business Disaster Plan d) Disaster Business Case e) Business-IT Maturity Model

Answer 35

a) Business Continuity Plan

Question 36

2. Which of the following should a manager expect from the IS organization? a) Promoting enterprise security. b) Participating in setting and implementing strategic direction. c) Innovating current processes. d) Managing data, information and knowledge e) All of the above

Answer 36

e) All of the above

Question 37

3. According to the research by Peter Weill, a firm that boosts investments in infrastructure is typical of those firms with a focus on (1) _______ and a firm that boosts investments in transaction systems is typical of those firms with a focus on (2) ______

Answer 37

d) (1) agility (2) cost

Question 38

4. The responsibility of the IT organization is to: a) Manage core business functions like selling, accounting and manufacturing. b) Partner with business managers to ensure the right IS exists to support the business strategy. c) Set the business strategy. d) Have sole responsibility for building information systems for the organization. e) Design business processes.

Answer 38

b) Partner with business managers to ensure the right IS exists to support the business strategy.

Question 39

5. A company that seeks an IT portfolio that lowers costs as the primary business objective will be more likely to increase spending on ___________ because these applications can help automate processes. a) strategic systems b) infrastructure c) informational systems d) transactional systems e) social media

Answer 39

d) transactional systems

Question 40

6. This method of IT funding is the most equitable, as the costs associated with IT are based on use. However, it can be difficult and tedious to calculate the usage costs. a) Allocation b) Corporate budgeting c) Usage d) Distributed e) Chargeback

Answer 40

e) Chargeback

Question 41

7. Sam has just purchased 10 new high speed color laser printers for his company. He is very excited because he got a 40% discount and paid only $2,990 for each unit. His boss, Joe, wants to know things such as operating costs, support, overhead, etc. for the printers. Joe wants to know this value: a) RCO b) TCO – Total Cost of Ownership c) ROI d) NPV e) EVM

Answer 41

b) TCO – Total Cost of Ownership

Question 42

8. Activity based costing _____________ a) groups costs into meaningful buckets that are then distributed based on the activity or product they support. b) is useful for allocating small project work. c) charges all costs to “cost centers”. d) considers only initial capital investments. e) calculates ongoing maintenance costs.

Answer 42

a) groups costs into meaningful buckets that are then distributed based on the activity or product they support.

Question 43

9. This financial calculation provides a percentage rate that measures the relationship between the amount the business gets back from an investment and the amount invested. a) IRR b) ROI – Return on Investment c) Payback d) NPV e) EVA

Answer 43

b) ROI – Return on Investment

Question 44

10. Scorecards provide a summary of information gathered over a period of time. Another common IT monitoring tool is the _____________. a) baseline b) metrics c) portfolio d) dashboard e) monitor

Answer 44

d) dashboard

Question 45

11. Joe works for a company where the IT department charges him for the number of CRM login accounts that are in his department. What type of IT funding model is his company deploying? a) Allocation b) Corporate budgeting c) Usage d) TCO e) Chargeback

Answer 45

a) Allocation

Question 46

12. Denise works for a company where the IT department charges her department for actual usage of a SharePoint server, determining how often users log in and how much storage space her department consumes. What type of IT funding model is the company deploying? a) Allocation method b) Corporate budget method c) Usage method d) Distributed method e) Chargeback method

Answer 46

e) Chargeback method

Question 47

13. To justify an IT investment and receive necessary support and approval, a manager must often create a(n) ________________. a) IT portfolio b) community plan c) business case d) workflow diagram e) business technology plan

Answer 47

c) business case

Question 48

14. Building a business case for an IT investment: a) Allows management to establish priorities for investing in different projects. b) Helps gain commitment for the IT investment from business managers. c) Creates a basis for monitoring the investment. d) Identifies the benefits of the investment. e) All of the above.

Answer 48

e) All of the above.

Question 49

15. Critical to the business case is the identification of both _________ and ________. a) costs, risks b) costs, benefits c) advantages, disadvantages d) assumptions, risks e) benefits, detriments

Answer 49

b) costs, benefits

Question 50

16. A local marketing firm is considering launching a new and extensive social media marketing campaign. This investment of resources is being looked at through the length of the project since it is anticipated to last at least 5 years. What financial calculation should be used to compute the investment’s value, taking into account the time value of money? a) ROI b) NPV – Net Present Value c) EVA d) IRR e) TCO

Answer 50

b) NPV – Net Present Value

Question 51

17. Mary is recommending IT investments in the neighborhood of $250 million for her company. However, the board is hesitant since it’s such as capital-intensive project. If the project fails the company could go out of business. What financial calculation should they use? a) ROI b) NPV c) EVA – Economic Value added d) IRR e) FV

Answer 51

c) EVA – Economic Value added

Question 52

18. A CIO must spend part of the day performing _____ tasks and the some part of the day working on operational tasks. Rarely can a CIO focus on just one task in any given day. a) Administrative b) Strategic c) Database d) Financial e) Technology

Answer 52

b) Strategic

Question 53

19. In the early days of IT, the CIO would report to the ____ as IT was seen as a way to control costs. As technology has become more strategic and able to deliver a competitive advantage, CIOs now report directly to the ____. a) CFO; CEO (look up definitions) b) CEO; CFO c) CFO; COO d) COO; CEO e) CEO; CTO

Answer 53

a) CFO; CEO (look up definitions)

Question 54

20. Which dimension of the balanced scorecard answers the question “How do customers see us?” a) Customer perspective b) Innovating and learning perspective c) Internal business perspective d) Financial perspective e) Supplier perspective

Answer 54

a) Customer perspective

Question 55

21. Which dimension of the balanced scorecard answers the question “How do we look to shareholders?” a) Customer perspective b) Innovating and learning perspective c) Internal business perspective d) Financial perspective e) Supplier perspective

Answer 55

d) Financial perspective

Question 56

22. All of the following are new roles found in an IT organization today EXCEPT: a) Community manager b) Chief Social Media Officer c) Chief Knowledge Officer d) Chief Privacy Officer e) Chief administrative assistant

Answer 56

e) Chief administrative assistant

Question 57

23. WalMart, the world’s largest retailer, uses RFID tags to track movement of goods across its intense supply chain. One identifiable benefit is that pallets of goods no longer need to be manually logged by a worker when received. Instead, an information system automatically logs the goods as they arrive. This benefit is identified as which type of business change: a) Innovation b) Efficiency c) Cessation - the fact or process of ending or being brought to an end. d) Work force reduction e) Doing new things

Answer 57

c) Cessation - the fact or process of ending or being brought to an end.

Question 58

24. Valuing an IT investment is difficult because of many reasons. One of the reasons is: a) Many IT investments are necessities and payback is hard to calculate. b) Increased customer satisfaction is not valued enough to justify costs. c) IT investments often add no real business value. d) IT managers do not see the need to value an investment whose payback period is relatively short. e) IT is seen as “a necessary evil”.

Answer 58

a) Many IT investments are necessities and payback is hard to calculate.

Question 59

25. The balanced scorecard: a) Is a tool used to communicate the organizational metrics using a traffic light approach (red/yellow/green). b) Is a method used to evaluate the health of an organization by looking at all value drivers such as the customers, the workforce, the financials and business processes. c) Focuses its attention on an organization’s financials. d) Is used to communicate the TCO for an IT investment. e) Is one of many metrics used to evaluate the value of an IT investment.

Answer 59

b) Is a method used to evaluate the health of an organization by looking at all value drivers such as the customers, the workforce, the financials and business processes.

Question 60

26. All of the following are methods used to value an IT investment EXCEPT: a) Payback analysis b) ROI c) NPV d) CTO – Chief Technology Officer e) IRR

Answer 60

d) CTO – Chief Technology Officer

Question 61

27. An IT dashboard provides: a) Summary information gathered over a period of time. b) Statistics on system usage. c) A distraction from where more IT attention should be focused. d) Current and critical measurements for the organization in an easy to read manner. e) A snapshot of a firm’s financial data at any given point in time.

Answer 61

d) Current and critical measurements for the organization in an easy to read manner.

Question 62

28. All of the following are qualities of a dashboard EXCEPT: a) Highly summarized b) Key metric driven c) Raw data d) Effective Visualization e) Alerts

Answer 62

c) Raw data

Question 63

29. While a relatively simple method for funding, corporate budgeting ¬¬______________ a) helps control the costs of IT. b) may result in an IT organization that is less end-user oriented. c) encourages sharing of funding resources between IT and business units. d) levies charges on specific users or business units. e) gives business managers sole control over IT decisions.

Answer 63

Ans: b (Hard) Response: See page 184

Question 64

30. Four asset classes of IT investments include: a) Financial Systems b) Marketing systems c) Control systems d) all the above e) none of the above

Answer 64

Ans: e (Medium)

Question 65

31. Corporate budgeting is a wise choice for funding newer technologies and innovation.

Answer 65

T

Question 66

32. The allocation method is the most equitable funding method used by many IT organizations.

Answer 66

F

Question 67

33. The business side of IT is very different from the business itself.

Answer 67

F

Question 68

34. The scope of responsibilities for an IT organization seems to expand with increased IT maturity.

Answer 68

T

Question 69

35. Financial measures are the sole means for making management decisions.

Answer 69

F

Question 70

36. Often the customer of an IT organization is not an external customer but rather an internal customer.

Answer 70

T

Question 71

37. A CIO must have a strong understanding of technology and a limited understanding of the business.

Answer 71

F

Question 72

38. Labor costs associated with an IT infrastructure far outweigh the actual capital investment cost.

Answer 72

T

Question 73

39. There are three main ways to handle funding for IT, including chargeback to users, allocation of costs to users, and providing IT services from a corporate budget.

Answer 73

T

Question 74

40. TCO, discussed by Gartner, stands for Technology Chief Officer

Answer 74

F

Question 75

41. Traditional valuation methods such as ROI, NPV, and IRR cannot be applied to information technology because it is technical, not business-oriented.

Answer 75

F

Question 76

42. IT leaders must be part of the business strategy discussion.

Answer 76

T

Question 77

43. Avon uses this to monitor the status of its IT projects, knowing that a red-coded item indicates a serious problem.

Answer 77

Ans: Dashboard

Question 78

44. This model is helpful in teasing out the differing needs for managing IT at different levels of sophistication of the IT function.

Answer 78

Ans: Business-IT Maturity Model

Question 79

45. Two methods for communicating metrics are dashboards and _______.

Answer 79

Ans: Scorecards

Question 80

46. This is the senior-most executive in the enterprise responsible for IT vision and leadership for IT initiatives.

Answer 80

Ans: CIO or Chief Information Officer

Question 81

47. This costing technique looks beyond the initial capital investment of an IT solution and includes costs associated with technical support, administration, training and system retirement.

Answer 81

Ans: Total cost of ownership (TCO)

Question 82

48. What does TCO stand for?

Answer 82

Ans: Total cost of ownership (TCO)

Question 83

49. What does CIO stand for?

Answer 83

Ans: Chief Information Officer

Question 84

50. The process called “true up” is used to balance true expenses against payments made for this particular funding method.

Answer 84

Ans: Allocation

Question 85

51. This is a term used to describe a person who aligns business and IT strategies and uses technology to create a competitive advantage.

Answer 85

Ans: Business technology strategist