Looking Forward Chapter 12 Copyright 2001 Prentice Hall

Looking Forward Chapter 12 Copyright 2001 Prentice Hall

Budgeting and Procurement Planning how to spend money Selecting and purchasing technologies and services

The Budget Realities • Exploding demand but stagnant or slowlygrowing budgets – Must buy only what you really need in every system Demand Budget Time

Costs • Total Purchase Costs – Network products and services are sold with many options – Base price is misleading because of the absence of needed options – It is crucial to cost out the total purchase cost of a system fully configured for your needs

Costs • Initial Installation Cost – The purchased product or service – Labor needed to implement • Central staff labor • User labor, including training costs • Losses due to implementation disruptions • May exceed purchase cost

Costs • Ongoing Costs over Life Span – Often exceed initial costs • Labor • Upgrades • Etc. – Especially high in products that are not mature • When possible, avoid the “bleeding edge”

The Timing of Costs and Benefits • Discounting – Money can be invested • If the investment rate is 20%, then • $1 invested today will bring $1. 20 next year • So $1 received today is worth $1. 20 received next year • Or, $1. 20 received next year is worth $1 today • Or, $1 received next year is worth only $0. 80 today

The Timing of Costs and Benefits • When Costs and Benefits Come Over Time – Hurdle rate: minimum rate of return expected by a corporation for investments • Often around 20% – If the hurdle rate is i then • Money received or spent a year from now should be discounted (divided) by (1+i) • Money received or spent n years from now should be discounted (divided) by (1+i)n

Procurement • User Needs – Must drive everything else – Sometimes difficult to assess – But the only way to drive evaluations of alternatives

Procurement • Request for Proposals (RFP) – Call for proposals to bid on the project – Specifies what should be provided – RFP will form the basis for resolving subsequent contract disputes • Must be very detailed • A legal document – If something is left out, negotiating for it after the contract is signed will be done at the contractor’s advantage

Procurement • Proposals – Several companies are likely to submit proposals – These proposals must be evaluated so that you can select the best one – You must lay out your evaluation criteria in the RFP and follow them in selection, or you can be sued by a loser

Procurement • Evaluating Proposals with Multicriteria Decision Making – First, you must have specific criteria • For instance, price, performance, and reliability • Same criteria must be applied to each proposal – Second, you must give a weight (importance) to each • Often of 5 -point or 10 -point scale • Same weights must be applied to each proposal

Procurement • Evaluating Proposals with Multicriteria Decision Making – Third, you must evaluate each proposal on each criteria • Perhaps on scale of 1 to 10 or some other scale • Score on each criterion will be different for each proposal

Procurement • Evaluating Proposals with Multicriteria Decision Making – Fourth, do the arithmetic for each proposal – Highest total score should win Proposal A Score Weight Product Price 10 5 50 Performance 6 8 48 Reliability 5 4 20 Total Score 118

Procurement • Evaluating Proposals with Multicriteria Decision Making – Example: a different proposal – Same criteria & weights, different scores, total score Proposal B Score Weight Product Price 8 5 40 Performance 7 8 56 Reliability 8 4 32 Total Score 128

Procurement • Negotiating before contractor selection – Often, negotiate with a few highly-rated proposers before selection for better terms – Proposers present their Best and Final Offers

Procurement • Ongoing Monitoring – Must monitor the ongoing work to ensure compliance • Renegotiating During Performance – Sometimes must renegotiate during work; Bad because at a disadvantage in negotiations