AIS CH 17

List the sequence of steps in the economic justification process in order of occurrence.

1.assess business requirement 2.identify potential solution 3.estimate cost, benefits and risk 4.assess value proposition

Which of the following are relevant costs of IT investments?

Acquisition costs Maintenance costs

Which of the following are categories of IT initiative risks that should be addressed?

Alignment risk Solution risk Change risk

Match the mitigation example with the risk category for IT initiatives.

Alignment risk-Use balanced scorecard strategy map Financial risk-Interview other users of similar IT Change risk-Create employee incentives for change Technological risk-Require vendors to demonstrate product's ability

Match the description with the name of the IT project risk category.

Alignment-solution is not aligned with firm strategy Solution-solution will not deliver projected benefits Financial-solution will not deliver expected financial performance Technological-technology will not deliver expected benefits Change-part of firm will not be able to change

is calculated as the sum of the present value of cash inflows minus the sum of the present value of cash outflows.

Blank 1: Net Blank 2: Present Blank 3: Value

As users, managers, designers, and evaluators of the firm's IT systems, are important members of the team that will develop business cases for AIS initiatives.

Blank 1: accountants or accountant

Both payback period and analysis both compare the costs with benefits of an IT project with considering the time value of money.

Blank 1: breakeven

Organizations need to create a business for an IT investment.

Blank 1: case

IT projects offer important benefits to organizations but also involve substantial .

Blank 1: costs

Internal rate of return is the rate that makes the project's net present value equal to zero.

Blank 1: discount

Present value equals the cash flow for each period divided by one plus the rate to the power "t."

Blank 1: discount

The project team evaluating IT projects should also consider other changes to the business processes that, in conjunction with the technology, will accomplish the desired business change.

Blank 1: enabling or complementary

The benefits of an IT investment should be measurable in terms.

Blank 1: financial

Accounting rate of return is defined as the average annual from the IT investment divided by the initial investment cost.

Blank 1: income

Business disruption and employee downtime costs would be examples of acquisition costs for information technology projects.

Blank 1: indirect

The total acquisition cost includes direct and costs required to acquire and deploy technology.

Blank 1: indirect

User downtime and lost productivity due to self-training, peer support, and end user data management are examples of operating costs.

Blank 1: indirect

The payback period equals the investment divided by the increased cash flow per period.

Blank 1: initial or total

The business case should specify how the project is expected to take.

Blank 1: long

Benefits should be measured in comparison to the revenues and costs that will occur if the IT initiative is implemented.

Blank 1: not

The term "benefit dependency" indicates that IT functionality must be combined with complementary changes to deliver business change that results in improved performance.

Blank 1: process or processes

The final step in the process is to assemble the analyses for alternative IT initiatives and the preferred alternative.

Blank 1: recommend or recommended

In considering alternative IT investments, costs include incremental expenses of developing, implementing, and operating proposed IT initiatives.

Blank 1: relevant

Because each financial metric has both strengths and weaknesses, IT initiatives should be evaluated using metrics.

Blank 1: several, multiple, or various

Firms can use software to test the impact of change in a key performance indicator on the firm's financial statements under a variety of assumptions.

Blank 1: simulation

To align with business requirements, IT initiatives should reduce one or more gaps between the firm's current and desired performance levels as indicated by the firm's map.

Blank 1: strategy

The relevant time frame for most IT initiatives is years or less, since technology changes rapidly.

Blank 1: three or 3

The last step in the economic justification process is to describe the proposition for the preferred alternative.

Blank 1: value

The business case should determine the company is doing the project.

Blank 1: why

Which of the following is not an example of direct acquisition costs?

Business disruption costs

Which of the following could be potential sources of cost savings from an IT investment?

Elimination of manually intensive activities Reducing errors

Which of the following will allow firms to assess the potential benefits from IT investments?

External benchmarks Simulation Real option theory

Which are not examples of indirect acquisition costs?

Hardware costs

Which of the following are examples of direct costs of acquiring information technology?

Hardware costs Training costs Software costs

All but the following are examples of direct operating costs incurred after implementing an IT project.

IT implementation costs

Which of the following financial metrics consider the time value of money?

Internal rate of return Net present value

Which of the following are reasons that companies develop business cases for major IT investments?

Justification of anticipated value Thorough consideration of alternatives

All but the following are examples of indirect operating costs.

Maintenance contracts

Which of the following are examples of direct operating costs after implementing an IT project?

Maintenance contracts Software upgrades Disposal costs

Which of the following are reasons that organizations employ specific, formal techniques for evaluating IT projects?

Resources are limited. Choosing one project means foregoing others. Changes in process will have broad impact.

The benefits of an IT investment should be measured in which of the following terms?

Revenue enhancement Cost avoidance Revenue protection

Which of the following must be determined to use capital budgeting techniques for each IT alternative?

Select appropriate discount rate Assess sensitivity to assumptions Establish relevant time frame

_____ risk is mitigated by performing sensitivity analysis to consider likely alternative benefit levels.

Solution

The business case should focus on which of the following?

The change and proposed technology The likelihood of achieving the benefits The anticipated benefits

Which of the following are true about IT investments?

They involve substantial costs. They offer opportunities to create value. As much as 20% of IT spending is wasted.

True or false: The firm's senior executives need to understand the financial implications of the IT initiative so they can decide whether to allocate resources to it.

True

The average annual income from the IT initiative divided by the initial investment cost is called the _____.

accounting rate of return

Total operating costs include the costs necessary to operate, maintain and ____________ an IT initiative.

administer

_____ prioritizing the alternative IT initiatives based on the financial metrics, the project team should test the impact of changes in assumptions on the various financial metrics of the project.

before

Capital _________ techniques provide a systematic approach to evaluating investments.

budgeting

IT projects often require large amounts of ________, and capital resources are limited for firms.

capital

When considering "benefit dependency", IT functionality and _____ are precursors to business process change.

complementary changes

Total acquisition costs include all direct and indirect costs to acquire and ____________ the IT initiative.

deploy

IT projects are _____ to evaluate due to the _____ characteristics of IT.

difficult; unique

The discount rate that makes the project's net present value equal to zero is called the _____.

internal rate of return

A weakness of the payback period is _____.

it ignores the time value of money

Total operating costs include the costs necessary to operate, ________, and administer an IT initiative.

maintain

The first step in the economic justification process is _____.

to assess business requirements

True or false: As users, managers, designers and evaluators, accountants are sometimes asked to review business cases for IT initiatives in general.

true

True or false: Many organizations find it difficult to evaluate IT projects using traditional capital budgeting techniques.

true