CIO AND

MANAGING INFORMATION TECHNOLOGY

Lecture 4 – Part 2

PURCHASED SOFTWARE
PACKAGES
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Project 1
• Your CEO requires your team to buy a
software for supporting management activities
• E-Documents
• Schedules and Tasks board
• Email systems
• Please make a plan for purchasing the application software
from a top vendors in Vietnam
• Note to mention: Cost, Time and HR (Leader, Managers and
key staff)
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 THE MAKE-OR-BUY DECISION
.

- In large companies today, application software is typically

both custom developed and purchased.
- In small businesses, software is typically purchased.

Why? Faster speed of

implementation

Better fit for

company’s
ne e d s Cost savings

Make Buy

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 THE MAKE-OR-BUY DECISION

Advantages and Disadvantages of Purchasing

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 PURCHASING METHODOLOGY
Initiating the Purchasing process
• Development of a high-level cost estimate - with business
manager and IS analyst input

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 PURCHASING METHODOLOGY
The Purchasing Steps
• Steps for purchasing application packages fit into the three SDLC
phases (referred to as the modified SDLC approach)

Fig 10.1

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 PURCHASING METHODOLOGY
The Purchasing Steps, continued

• In comparison to an SDLC methodology, the Definition phase

has additional steps, and the Construction phase is greatly
reduced.

• In special circumstances, if the package is new, the purchaser

may play a major role as an Alpha or Beta site for the vendor:

α - Alpha site: plays a role in determining the final

functionality and user interface design for the new package
β- Beta site: plays a role in user acceptance testing
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 PURCHASING METHODOLOGY
Definition Phase
• Two traditional SDLC steps:

• Five additional steps:

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 DEFINITION PHASE
Feasibility Analysis

• Determine whether the proposed system is economically,

technically, and operationally feasible

• In addition, the feasibility of purchasing rather than building

the system is considered
- Preliminary investigation of available packaged systems
- Detailed cost-benefit analysis for budgeting and monitoring
purposes

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 DEFINITION PHASE

Requirements Definition

• As when creating custom software, Requirements Definition is

a critical step in the purchase methodology

• But rather than create detailed requirements for in-house

custom development, this step focuses on defining functional
requirements needed to develop a Request for Proposal (RFP)

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 DEFINITION PHASE

Create Short List of Suitable Packages

• Eliminate all but a few promising candidate packages

• Evaluate:
- Available features of a package
- Compatibility with current hardware and software
- Vendor track record

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 DEFINITION PHASE

Establish Criteria for Selection

• Business and IS team members work together to determine
relevant criteria to select the best package
• Some criteria may be mandatory, while others may be
desirable

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 DEFINITION PHASE
Develop and Distribute RFP

• Request for Proposal (RFP): A formal document sent to

potential vendors inviting them to submit a proposal
describing their software package and how it meets the
company’s needs

• Gives vendors information about:

- System’s objectives and requirements
- Environment in which the system will be used
- General criteria used to evaluate proposals
- Conditions for submitting proposals

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 DEFINITION PHASE
Example of Content in RFP

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 DEFINITION PHASE
Choose Package
• Collect data from:
- Vendors’ responses from RFPs
- Vendor demonstrations (for a few leading packages)
- References from users in other companies

• Project team evaluates how well available packages meet

company’s needs

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 DEFINITION PHASE
Negotiate Contract
• Use of an attorney for contracting with a vendor reduces
likelihood of future legal problems

• Contract type has implications for the risk level of the

purchasing company
- for fixed-price contracts, the purchasing company knows
the total price in advance
- for cost-reimbursement contracts, the purchasing company
pays the vendor’s direct and indirect costs and thus
assumes a much greater risk

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 PURCHASING METHODOLOGY
Discrepancies between needs and package capabilities will
need to be dealt with by:
- Modifying the package
- Changing internal procedures
- Living with the differences

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 CONSTRUCTION PHASE

• System Design and Building steps are only necessary if

modifications are to be made to the package.
• However, essentially all packages will require “configuring”
the package to meet the organization’s needs by making
choices using pre-programmed templates by the vendor.

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 CONSTRUCTION PHASE
• System Design and Building:
- Typically the vendor does not provide the source code for
the package, so the company typically contracts with the
vendor (or a certified third party firm) for modifying the
package.
- Changes may also be required for other existing company
systems that interface with the package.

• System Testing:
- User acceptance testing of configured package (and/or
modified package)
- IS specialist or vendor testing on organization’s equipment

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 IMPLEMENTATION PHASE

• Same three steps as for Implementation phase for custom

development:

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 IMPLEMENTATION PHASE
Installation
• Installation planning, training, data cleanup, and conversion
• Success dependent on:
- Quality of vendor support
- Package size and complexity

• Special attention needs to be given to training, especially if

there are significant changes in the way employees do their
work

• Change management is a set of activities designed to help

overcome resistance by business users to the new system
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 IMPLEMENTATION PHASE

Operations
• Operations is the same, whether the package was built or
bought

• Initial success highly dependent on good communication with

the vendor
• Long-term success also dependent on how well the system has
been integrated into the company’s ongoing operations

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 IMPLEMENTATION PHASE

Maintenance
• Most common = vendor handles package maintenance, as
specified in the contract
• Advantage:
- Can lead to significant cost avoidance over the life of the
system
• Disadvantages:
- Purchasing company totally dependent on vendor for future
system changes
- May not get specific changes that the company wants

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 PURCHASING METHODOLOGY
Project Team
• Project manager: usually is an IS manager, but may be a
business manager (or both)
• IS analysts and IS specialists who will operate the system
• Representatives of key business managers and users

• Software vendor personnel

• Sometimes a third-party implementation partner (other than
vendor)

• For contracting:
purchasing specialists and attorneys

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 ENTERPRISE SYSTEM PACKAGES
• Enterprise Resource Planning (ERP) systems are software
packages designed to integrate all departmental and functional
systems into a single integrated system

• Packages are more complex to implement because they can

impact an entire enterprise

• Companies purchase to achieve business benefits and IT platform

benefits, such as:
- Enables access to integrated data for better decision making
- Takes advantage of client/server platform

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 ENTERPRISE SYSTEM PACKAGES
.

Five Factors for Successful ERP implementation:

• Top management is engaged in the project, not just
involved
• Project leaders are veterans, and team members
are decision makers
• Third parties fill gaps in expertise and transfer
their knowledge
• Change management goes hand-in-hand with
project planning
• A satisficing mind-set prevails

Source: Brown and Vessey, MIS Quarterly Executive, 2003

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 OPEN SOURCE SOFTWARE

Open Source Software

• Free to acquire, so lower upfront costs

• Ability to access and modify the source code

• Third parties also provide fee-based products:

- Advanced features for the product
- Maintenance and training
- Documentation and manuals

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 OPEN SOURCE SOFTWARE

• Open Source Software Licensing

• There are many different licenses for open source software

• All allow for the modification and redistribution of source
code, but some have conditions or restrictions
• It is important for managers to be aware of the specific
terms of a license so that they are not violated

Open Source Licenses

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 OPEN SOURCE SOFTWARE

• Advantages

- Large pool of volunteer testers and developers

- Ability to modify source code
- Not dependent on a single vendor
- Acquisition cost is the same for one copy or thousands
- May use the software for any purpose
- May be easier to interface open source packages with each other

Open Source in the Ent

erprise Open Source Applicatio
ns
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 OPEN SOURCE SOFTWARE

• Disadvantages

- No complete documentation without paying for it

- May not be viable for software that is not common to many
organizations
- Different adopters may duplicate efforts in development
- Must be careful in choosing a licensing agreement that fits the
company’s needs

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 APPLICATION SERVICE PROVIDERS (ASPs)

Application Service Providers (ASPs)

• Purchaser elects to use a “hosted” application rather than to

purchase the software application and operate it in-house

• Company pays ASP vendor for delivering the software

functionality over the Internet to company employees (and
sometimes business partners)

• ASP vendor = an ongoing service provider

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 APPLICATION SERVICE PROVIDERS (ASPs)

• ASP Advantages
- Cost savings and faster speed of implementation
- Usually involves monthly fees rather than large
infrastructure investment

• ASP Disadvantages
- Dependence on an external vendor for both software and
ongoing operations
- Contract based on initial estimates of required service levels

Customization by ASPs
by 2004
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 APPLICATION SERVICE PROVIDERS (ASPs)

• Service Level Agreement (SLA) specifies performance

expectations for the ASP, including:
- System uptime
- Recovery time
- Wait time on calls to the help desk
- Notifications about software upgrades
- Other factors important to the customer

• This agreement should be a key part of the ASP contract

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End of part 2

Before closing
• Skype
• Viber
• Tweeter

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