IM426 3A G5.ppt

Professor：Dr. Celeste Ng
Presenters： Group 5

Presenter：961652 黃珮甄

 Weighted scoring methods plainly identify decision
factors, and each alternative is compared to the factors.
The decision models address many factors. A numerical
value is assigned to each alternative for each factor.
Various factors are weighted differently. The weighted
numerical values are added, and the alternative with the
highest score is the best overall alternative.

 Step 1. Define the decision factors.
 Step 2. Assign importance levels, or weights, to each
decision factor.
 Step 3. Mapping scales for decision factor into scores.
 Step 4. Score each decision factor for each alternative,
multiply the score by its weight, and sum the weighted
scores.
 The higher the weighted score, the better.

A firm decides to buy an inventory management
system. There are four different suppliers can be
considered.

The following factors could be considered︰
 Cost
(price、maintenance fee、training cost…)
 Supplier
(vendor reputation、vendor stability…)
 Functionality
(user interface、modifiability…)
 User Services
(training service、warranty…)

 Weight each decision factor based on its importance in
the decision-making process. Subject matter experts
need to participate in this step.

 A scale of some types allows the decision maker to rate
the factors of each option. Scales can be created in a
variety of forms.
Evaluation scale for cost Evaluation scale for supplier

Evaluation scale for functionality Evaluation scale for user services

The results show that supplier A has the highest total
weighted score , and therefore would be the best choice.

 Address different factors, such as the IT system’s
functionality and the cost of the IT system.
 Different types of scales can be used for the various
factors.
 Can be used by individuals or groups.
 It is easy to calculate.

 It is subjective.
 Time consuming — decision factors and evaluation
scales must be developed, and each alternative must be
compared against each evaluation scale
 Weighted scoring methods not plainly account for
uncertainty

 http://www.uscg.mil/hq/cg5/cg5211/docs/RBDM_Files/PDF/RBDM_Guidelin
es/Volume%202/Volume%202-Chapter%205.pdf
(RISK-BASED DECISION-MAKING GUIDELINES)
 http://www.springerlink.com/content/t8pp09vhjdncg913/
(The Limitations of Current Decision-Making Techniques in the Procurement
of COTS Software Components)
 http://www.slideshare.net/CardinaleMazda/weighted-score-and-topsis
(Weighted Score)
 http://thesis.lib.ncu.edu.tw/ETD-db/ETD-search-
c/view_etd?URN=92421041#anchor

Professor: Dr. Celeste Ng
Presenter: 961654 毛韻雯

 Balance Scorecard(BSC) is a management
system that maps an organization's strategic
objectives into performance metrics in four
perspectives:
1. The Financial Perspective
2. The Customer Perspective
3. The Internal Process Perspective
4. The Learning & Growth Perspective

Source:
http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx

1.The Financial Perspective
Ex.
◦ Operation Growth and Mixed
◦ Cost Declined, Productivity Increased
◦ Assets Used and Investment Strategy

2.The Customer Perspective
Ex.
◦ Market Share Ratio
◦ Acquirement of Customers
◦ Continuation of Customers
◦ Satisfaction of Customers
◦ Profitability of Customers

3.The Internal Process Perspective
Ex.
◦ Innovation Process
◦ Operation Process
◦ Customer Service Process

4.The Learning & Growth Perspective
Ex.
◦ The ability of Employee
◦ The ability of Information systems
◦ Incentive, Authority and Fitness

 Within each of perspective, usually define the
following:
1.Objectives - what the strategy is to achieve
in each perspective.
2.Measures - how progress for that
particular objective will be measured.
3.Targets - the target value sought for each
measure.
4.Initiatives - what will be done to facilitate
the reaching of the target.

Source: http://www.senalosa.com/services/consulting

 Step 1: Confirm the mission
 Step 2: Define Objectives
 Step 3: Construct the Strategy Map
 Step 4: Initiatives
 Step 5: Apply Weighted Scoring Method to BSC
 Step 6: Make a decision

Step 1: Confirm the mission
- Confirm which perspective company
focuses on.
Step 2: Define Objectives
- Objectives should be defined to support
each perspectives.

Step 3: Construct the Strategy Map
- Illustrates how the organization plan to
achieve its mission and vision.
Step 4: Initiatives
- Initiations should be listed to understand
how to reach the goals.

Step 5: Apply Weighted Scoring Method to BSC
- According to the four perdpectives, assign
weights, scores of value and get the sum
of weighted scores.
Step 6: Make a decision
- Compare, select and implement.

 A manager in XX Company is making a
purchasing decision, which project should be
accepted?
XX Company’s Mission:
 To find, attract, and win new clients, nurture
and retain those the company already has.
 Meet all the customer’s needs.

• Because the sum of weighted scores
61>47.25, the project 1 is better.

1. Quantitative each perspectives into
measurable parameters.
2. To overcome the short-term behavior of the
financial assessment.
3. It is Flexible, some methods(EX. Weighted
Scoring Method ) can be applied to the BSC
concept.

1. Implementation of the balanced scorecard
takes much time and effort.
2. Hard to get automation.
3. Should be updated frequantly.
4. Actually, performance measures are difficult
to be confirmed.

 Balanced Scorecard Institute
(http://www.balancedscorecard.org/Home/tabid/
36/Default.aspx)
 http://www.netmba.com/accounting/mgmt/bal
anced-scorecard/
 Wiki(http://en.wikipedia.org/wiki)
 http://www.mindtools.com/pages/article/newL
DR_85.htm
 http://wiki.mbalib.com/wiki/%E5%B9%B3%E8%A
1%A1%E8%AE%A1%E5%88%86%E5%8D%A1

Professor: Dr.Celeste Ng
Presenter: 961753 徐敏嘉

 The AHP, originally developed by
Saaty(1980),is a powerful tool for multi-
criteria decision-making under uncertainty.
 With AHP complex decision problems can
be broken down into a set of manageable
pair wise comparisons, aiding decision
makers to arrive at the best alternative
(Pearson,2001)

 Components of hierarchy
1.Goal (the problem that you want to solve)
2.Criteria (the conditions that you are considering)
3.Alternatives (the solutions that you can choose)

 Consistency Index (CI)
 λmax =the maximum eigenvalue of the judgment matrix
 n=the number of samples
 Consistency Ratio (CR) = CI/RI
 Random Index (RI) =a CI of randomly generated matrices
(see table below)
 CR should be less than 0.1
(If the CR value is greater than 0.10, then it is a good idea to
study the problem further and re-evaluate the pairwise
comparisons)

 Step1 Build the hierarchy
 Step2 Establish priorities
 Step3 Calculate the ratings
 Step4 Compare the alternatives

Goal
Purchasing a system
4 Criteria
1.Cost
2.Functionality
3.Supplier’s reputation
4.User’s services
3 Alternatives
1.System A
2.System B
3.System C
Purchasing
a system
Cost Functionality
System A System B System C
Supplier’s
reputation
User’s
services

 Scale of relative importance (according to Satty(1980))
X1 X2 X3
X1 a11 a21 a31
X2 a12 a22 a32
X3 a13 a23 a33
2,4,6,8 intermediate values between the two adjacent judgments. (When compromise is needed.)
Example-
If x2 is very strongly more important than x1 ,then
a12 should fill in “7” and a21 should fill in “1/7.”
The relative importance of two elements is rated using a scale with the
values 1, 3, 5, 7, and 9

•Cost is absolutely more important(9) than Functionality.
•Cost is weakly less important(1/3) than Supplier’s reputation.
•Cost is weakly more important(3) than User’s services.
•Functionality is very strongly less important(7) than Supplier’s reputation.
•Functionality is weakly less important(1/3) than User’s services.
•Supplier’s reputation is strongly more important(5) than User’s services.
Preferences on criteria Cost Functionality
Supplier’s
reputation
User’s
services
Cost 1 9 1/3 3
Functionality 1/9 1 1/7 1/3
Supplier’s reputation 3 7 1 5
User’s
services
1/3 3 1/5 1

Cost A B C
A 1 1/5 1/9
B 5 1 1/7
C 9 7 1
User’s
services
A B C
A 1 1/3 1/5
B 3 1 1/3
C 5 3 1
Supplier’s
reputation
A B C
A 1 3 9
B 1/3 1 5
C 1/9 1/5 1
Functionality A B C
A 1 7 5
B 1/7 1 1/3
C 1/5 3 1
•Weights on each criteria
(3)

Preferences
on criteria
Cost Functionality
Supplier’s
reputation
User’s
services
Cost 1 9 0.33 3
Functionality 0.11 1 0.14 0.33
Supplier’s
reputation
3 7 1 5
User’s
services
0.33 3 0.2 1
Sum for each
columns
4.44 20 1.67 9.33
Preferences
on criteria
Cost Functionality
Supplier’s
reputation
User’s
services
Cost 1 9 1/3 3
Functionality 1/9 1 1/7 1/3
Supplier’s
reputation
3 7 1 5
User’s
services
1/3 3 1/5 1
Convert to decimal
point
&
Calculate the sum
for each column
(1)

Preferences
on criteria
Cost Functionality
Supplier’s
reputation
User’s
services
AVG
Cost
1 ÷4.44
=0.23
9 ÷20
=0.45
0.33 ÷1.67
=0.2
3 ÷9.33
=0.32
(0.23+0.45+0.2) ÷3
=0.3
Functionality
0.11 ÷ 4.44
=0.02
1 ÷20
=0.05
0.14 ÷1.67
=0.08
0.33 ÷9.33
=0.04
(0.02+0.05+0.08)
÷3
=0.05
Supplier’s
reputation
3 ÷4.44
=0.68
7 ÷20
=0.35
1 ÷1.67
=0.6
5 ÷9.33
=0.54
(0.68+0.35+0.6) ÷3
=0.54
User’s
services
0.33 ÷4.44
=0.07
3 ÷20
=0.15
0.2 ÷1.67
=0.12
1 ÷9.33
=0.11
(0.07+0.15+0.12)
÷3
=0.11
Sum 1
Each number divided by the sum from the column it belongs to & Calculating the average of each row
(Table 1)
(2)

Cost A B C
A 1 0.2 0.11
B 5 1 0.14
C 9 7 1
Sum for
Each column
15 8.2 1.25
Cost A B C AVG
A
1÷15
=0.07
0.2÷8.2
=0.02
0.11÷1.25
=0.09
(0.07+0.02+0.09)÷3
=0.06
B
5÷15
=0.33
1÷8.2
=0.12
0.14÷1.25
=0.11
(0.33+0.12+0.11) ÷3
=0.19
C
9÷15
=0.6
7÷8.2
=0.85
1÷1.25
=0.8
(0.6+0.85+0.8) ÷3
=0.75
Sum 1
Cost A B C
A 1 1/5 1/9
B 5 1 1/7
C 9 7 1
Convert to decimal point
&Calculate the sum for
each column
Each number divided by the
sum from the column it
belongs to & Calculating
the average of each row
=3.02 n=3
CI=0.02/2=0.01
CR=0.01/0.58=0.02<0.1
(Table 2)

Functionality A B C
A 1 7 5
B 0.14 1 0.33
C 0.2 3 1
Sum for
Each column
1.34 11 6.33
Functionality A B C AVG
A
1 ÷1.34
=0.75
7÷11
=0.64
5÷6.33
=0.79
(0.75+0.64+0.79)÷3
=0.73
B
0.14
÷1.34
=0.1
1 ÷11
=0.09
0.33
÷6.33
=0.05
(0.1+0.09+0.05) ÷3
=0.08
C
0.2 ÷1.34
=0.15
3 ÷11
=0.27
1 ÷6.33
=0.16
(0.15+0.27+0.16) ÷3
=0.19
Sum 1
Functionality A B C
A 1 7 5
B 1/7 1 1/3
C 1/5 3 1
each column
=3.05 n=3
CI=0.05/2=0.025
CR=0.025/0.58=0.04<0.1
(Table 3)

Supplier’s
reputation
A B C
A 1 3 9
B 0.33 1 5
C 0.11 0.2 1
Sum for
Each
column
1.44 4.2 15
Supplier’s
reputatio
n
A B C AVG
A
1 ÷1.44
=0.69
3 ÷4.2
=0.71
9 ÷15
=0.6
(0.69+0.71+0.6) ÷3
=0.67
B
0.33 ÷1.44
=0.23
1 ÷4.2
=0.24
5 ÷15
=0.33
(0.23+0.24+0.33) ÷3
=0.27
C
0.11 ÷1.44
=0.08
0.2 ÷4.2
=0.05
1 ÷15
=0.07
(0.08+0.05+0.07) ÷3
=0.07
Sum 1
Supplier’s
reputation
A B C
A 1 3 9
B 1/3 1 5
C 1/9 1/5 1
each column
(Table 4)

User’s
services
A B C
A 1 0.33 0.2
B 3 1 0.33
C 5 3 1
Sum for
Each column
9 4.33 1.53
User’s
services
A B C AVG
A
1 ÷9
=0.11
0.33 ÷4.33
=0.08
0.2 ÷1.53
=0.13
(0.11+0.08+0.13)÷3
=0.11
B
3 ÷9
=0.33
1 ÷4.33
=0.23
0.33
÷1.53
=0.22
(0.33+0.23+0.22) ÷3
=0.26
C
5 ÷9
=0.56
3 ÷4.33
=0.69
1 ÷1.53
=0.65
(0.56+0.69+0.65) ÷3
=0.63
Sum 1
User’s
services
A B C
A 1 1/3 1/5
B 3 1 1/3
C 5 3 1
each column
Each number divided by
the sum from the
column it belongs to &
Calculating the average
of each row
=3.03 n=3
CI=0.03/2=0.015
CR=0.015/0.58=0.026<0.1
(Table 5)

A B C
Cost 0.06 0.19 0.75
Functionality 0.73 0.08 0.19
Supplier’s
reputation
0.67 0.27 0.07
User’s
services
0.11 0.26 0.63
Preferences
on criteria
AVG
Cost 0.3
Functionality 0.05
Supplier’s
reputation
0.54
User’s
services
0.11
Sum 1
•The weighted score for system A
0.06*0.3+0.73*0.05+0.67*0.54+0.11*0.11=0.4284
•The weighted score for system B
0.19*0.3+0.08*0.05+0.27*0.54+0.26*0.11=0.2354
•The weighted score for system C
0.75*0.3+0.19*0.05+0.07*0.54+0.63*0.11=0.3416
From Table 1
From Table 5
From Table 4
From Table 3
From Table 2
Each column means the score that each
system got from each criteria
The weighted score of each criteria

 Advantages
1.It can be used in dealing with complexity
multiple-criteria decision making problems.
2.Different types of object (criteria) can be
compared (be quantified) in this method.
 Disadvantages
1.Calculation is tedious.
2.It’s a subjectively quantified method.

 Using the analytic hierarchy process for decision making in
engineering applications: some challenges, Evangelos
Triantaphyllou ,Stuart H. Mann
 The limitation of current decision-making techniques in the
procurement of COTS software components, Cornelius, John
C Dean
 Analytic Hierarchy Process Theory層級分析法(AHP)理論與實作,
褚志鵬,2009
Websites
 Analytic hierarchy process (AHP) example
 Mind Tools: Analytic hierarchy process
 Wiki Pedia: Analytic hierarchy process

Professor :Dr. Celeste Ng
Presenter:961754 張育菁

What is decision tree?
 A decision tree is a decision support tool that
uses a tree-like graph.
 Decision trees are commonly used in
operations research , specifically in decision
analysis , to help identify a strategy most
likely to reach a goal .

Decision tree contain:
▪ decision points (decision nodes).
▪ State-of- nature points (state of nature
nodes).

decision point
↓
↑
State-of- nature point
▪Branches from the decision points represent
alternatives.
▪Branches from the State-of- nature points
represent the states of nature(outcome).
states of nature 1
states of nature 2
states of nature 3
states of nature 4
states of nature 5
states of nature 6
Decision tree picture

1.Define the problem.
2.Structure or draw the decision tree.
3.Assign probabilities to the states of nature.
4.Estimate payoffs for each possible
combination of alternatives and states of
nature.
5.Solve the problem by computing expected
monetary values(EMV) for each state of nature
point.
EMV: is the weighted sum of possible payoffs for each alternative.

Whether a company to implement a new
IS/IT or continue use old IS/IT?

Good
Moderate
Poor
Good
Moderate
Poor
Good
Moderate
Poor
Good
Poor

0.4
0.4
0.2
0.1
0.2
0.7
0.3
0.4
0.3
0.5
0.5
Good
Good
Good
Good
Moderate
Moderate
Moderate
Poor
Poor
Poor
Poor

Payoff
$1000000
$ 500000
$ 200000
$ 1000000
$ 500000
$ 200000
$ 400000
$ 200000
$ 60000
$ 200000
$ 20000
Good
Good
Good
Good
Moderate
Moderate
Moderate
Poor
Poor
Poor
Poor
0.4
0.4
0.2
0.1
0.2
0.7
0.3
0.4
0.3
0.5
0.5

Payoff
$1000000
$ 500000
$ 200000
$ 1000000
$ 500000
$ 200000
$ 400000
$ 200000
$ 60000
$ 200000
$ 20000
EMV=(0.4)1000000+(0.4)500000
+(0.2)200000=640000
340000
218000
110000
Good
Good
Good
Good
Moderate
Moderate
Moderate
Poor
Poor
Poor
Poor
0.4
0.4
0.4
0.2
0.2
0.1
0.7
0.3
0.3
0.5
0.5

218000-30000=188000
640000-150000=490000
340000
340000-80000=260000
218000
640000
110000
110000-0=110000
490000
188000
The best option is
to thorough
develop a new IS/
IT.
EMV-
COST=PROFIT

1.Decision tree are simple to understand and
interpret.
2.Decision tree can be combined with other
decision techniques.
3. Decision tree makes managers think about
the different options and consider the
possible consequences of each one.

1. Some the tree models generated may be very
large and complex.
2. Decision makers may manipulate the data.
3. Time lags often occur in decision making.

 Barry Render Ralph M. Stair,and Michael E. Hanna, Quantitative
Analysis for Management,Tenth Edition,2009
 http://www.mindtools.com/dectree.html
 http://en.wikipedia.org/wiki/Decision_tree
 http://wiki.answers.com/Q/List_the_advantages_and_disadvantages
_for_both_decision_table_and_decision_tree

Presenter：961746 陳憶蓉

 The BCG matrix model is a portfolio
planning model developed by Bruce
Henderson of the Boston Consulting Group
in the early 1970's.
 The BCG model is based on classification
of products (and implicitly also company
business units) into four categories.

 Analyze company’s current business portfolio
and decide which business units or products
should receive more or less investment
 Develop growth strategies for adding new
products and businesses to the portfolio
 Decide which business units or products
should no longer be retained.


 Source: maxi-pedia.com

 Relative market share position is given on the
x-axis of the BCG Matrix.
 The midpoint on the x-axis usually is set
at .50, corresponding to a division that has
half the market share of the leading firm in
the industry.

 The y-axis represents the industry growth
rate in sales, measured in percentage terms.
 The growth rate percentages on the y-axis
could range from -20 to +20 percent, with
0.0 being the midpoint.

 Stars are defined by having
high market share in a
growing market.
 Stars are the leaders in the
business but still need a lot
of support for promotion a
placement.
 If market share is kept, Stars
are likely to grow into cash
cows.

 These products are in
growing markets but
have low market share.
 Question marks are
essentially new products
where buyers have yet to
discover them.
 The marketing strategy is
to get markets to adopt
these products.

 Question marks have high demands and low
returns due to low market share.
 These products need to increase their
market share quickly or they become dogs.
 The best way to handle Question marks is
to either invest heavily in them to gain
market share or to sell them.

 Cash cows are in a
position of high market
share in a mature market.
 If competitive advantage
has been achieved, cash
cows have high profit
margins and generate a
lot of cash flow.

 Because of the low growth, promotion and
placement investments are low.
 Investments into supporting infrastructure
can improve efficiency and increase cash
flow more.
 Cash cows are the products that businesses
strive for.

 Dogs are in low growth
markets and have low
market share.
 Dogs should be avoided
and minimized.

 A company's IT managers collect the
information of their 5 IT systems, and decide
which IT system should receive more or less
investment
System Revenues
(the
circle)
Percent
Revenuer
Profits Percent
Profits
(pie
slices)
Percent
Market
Share (x)
Percent
Growth
Rate (y)
A 60000 37% 10000 39% 80 +15
B 40000 24% 5000 20% 40 +10
C 40000 24% 2000 8% 10 1
D 20000 12% 8000 31% 60 -20
E 5000 3% 500 2% 5 -10

 System A is considered a Star, we will keep
and build it.
 System B and C are Question Marks, we will
either invest heavily in them to gain market
share or to sell them.
 System D is a Cash Cow, we will keep it in our
portfolio of products for the time being.
 System E is a Dog, we will get rid of it.

 Advantages
 The data is objective.
 It is simple to understand.
 Disadvantages
 The model employs only two dimensions –
market share and product or service growth
rate
 The model neglects the effects of synergy
between business units.

 http://cdnet.stpi.org.tw/techroom/analysis/pat_A0
26.htm
 http://www.maxi-pedia.com/BCG+matrix+model
 http://www.iun.edu/~bnwcls/j401/bcg.doc
 http://en.wikipedia.org/wiki/BCG_growth-
share_matrix

Presenter: 961650 楊益嘉

1. The difference between an investment’s
market value and its cost.
2. A measure of how much value is created
or added by undertaking an investment.
Introduction

NPV analysis involves four basic steps:
1. Forecast the benefits and costs in each year.
2. Determine a discount rate.
3. Use a formula to calculate the net present
value.
4. Compare the net present values of the
alternatives.
Steps of NPV analysis

1.Forecast benefits and costs in today’s
dollars.
2. Do not include sunk costs.
3. Omit non-monetary costs and benefits.
4. Include opportunity costs.
Rules of forecasting costs and benefits(1)

1. Forecast benefits and costs in today’s dollars:
- made in today’s dollars, i.e., real dollars,
- discounted at a real discount rate
2. Do not include sunk costs:
- a cost that already has occurred and will remain
the same regardless of what decision is made.
3. Omit non-monetary costs and benefits.
- difficult and time-consuming to quantify

4. Include opportunity costs:
- opportunity costs is the next-best choice
available to someone who has picked between
several mutually exclusive choices.

So, considering opportunity costs is very
important.

NPV = CF0 + CF1/(1+r) + CF2/(1+r)2 +
CF3/(1+r)3 ...
r - the discount rate
CF - the net cash flow , ι = 1~∞

A IS/IT manager decided to buy a equipment for earning
more profits. There are proposal A and proposal B.
Give:
1.a discount rate of
3 percent and that
both options have
a life of eight years
2. opportunity costs
=1000K

Answer for example(2):
Maintenance costs
Equipment costs
Opportunity costs

For Proposal A:
NPV = -$4009K
For Proposal B:
NPV = -$3910K
So , this analysis shows that Proposal B has
better net present value, i.e., lowest costs, we
choose Proposal B.
Answer for example(3):

1. Tells whether the investment will increase the
firm's value .
2. Considers all the cash flows .
3. Considers the time value of money .

1. It is very difficult to identify the correct
discount rate.
2. Do not consider the intangible benefits.
Disadvantages

http://www.gfoa.org/services/dfl/
budget/documents/NetPresentVal
ueAnalysis.pdf

Presenter: 961649 曾曼萱

 The internal rate of return (IRR) is a rate of
return used in capital budgeting to measure
and compare the profitability of investments.
 The IRR on an investment is the required
return that results in a zero NPV when it is
used as the discount rate.

0
)
1
(
0
1



 

C
IRR
CF
NPV
n
t
t
t
NPV : net present value
CF : cash flow of each period
C0 : investment

 If IRR > Required return
◦ This case can be invested.
 If IRR < Required return
◦ This case cannot be invested.

 There are two IS/IT that the company has to
choose one to buy, A and B.
 The manager requires a 15 percent return.
 IRR A(11%) < Require Return(15%) < IRR B(20%)
 The manager should choose IS/IT B.
Period IS/IT A IS/IT B
0 -$500 -$500
1 300 320
2 280 340
IRR 11% 20%

 There are two IS/IT that the company has to
choose one to buy, A and B.
 The manager requires a 10 percent return.
 The cash flows is following:

%
24
0
100
)
1
(
30
)
1
(
40
)
1
(
40
)
1
(
50
4
3
2
1












IRR
IRR
IRR
IRR
IRR
NPVA
%
21
0
100
)
1
(
60
)
1
(
50
)
1
(
40
)
1
(
20
4
3
2
1












IRR
IRR
IRR
IRR
IRR
NPVB

 The IRR for A is 24 percent, and the IRR for B
is 21 percent. Because these purchasing are
mutually exclusive, we can take only one of
them. Simple intuition suggests that IS/IT A is
better because of its higher return.
Unfortunately, it isn’t always correct.

%
1
.
11


 r
NPV
NPV B
A
Crossover point：
70
100
%)
0
1
(
60
%)
0
1
(
50
%)
0
1
(
40
%)
0
1
(
20
60
100
%)
0
1
(
30
%)
0
1
(
40
%)
0
1
(
40
%)
0
1
(
50
4
3
2
1
4
3
2
1




















B
A
NPV
NPV
NPV($)
Discount Rate(%)

 As Figure shows, notice that the NPV profiles
cross at about 11.1 percent.
 Required return < 11.1 %，NPV B is better.
 Required return > 11.1 %，NPV A is better.
 We have to look at the relative NPV to avoid
the possibility of choosing incorrectly.

 Required return = 10% < 11.1%
 NPV A= 29.06， NPV B=29.79
 IRR A = 24%，IRR B = 21%
 We suggest that the manager should take
IS/IT B.

 IRR considers all cash flows of the
investments.
 IRR considers the time value of money.
 IRR closely related to NPV, often
leading to identical decisions.
 The result is easy to understand and
communicate.

 IRR may result in multiple answers.
 IRR not deals with nonconventional
cash flows.
 IRR may lead to incorrect decisions
in comparisons of mutually
exclusive investments.

 http://en.wikipedia.org/wiki/Internal_rate_of
_return
 http://office.microsoft.com/zh-tw/excel-
help/HA001113632.aspx?pid=CH010920051
028
 http://www.svtuition.org/2010/05/advantag
es-and-disadvantages-of.html
 http://finance.thinkanddone.com/irr.html
 Fundamentals of Corporate Finance

Presenter： 961646 劉佩芸

 TCO analysis was popularized for the Gartner
Group in 1987.
 Gartner Group, a leading information
technology research firm, defines Total Cost
of Ownership (TCO) as a comprehensive set
of methodologies, models and tools to help
organizations better measure and manage
their IT investments.

 TCO is a calculation designed to help consumers
and enterprise managers make more informed
financial decisions. Rather than just looking at the
purchase price of an object.
 TCO consists of the costs, direct and indirect,
incurred throughout the lifecycle of an asset from
purchase to disposal.

Source：http://www.aspect360.net/pdf/TCOWP.pdf
Acquisition
Costs
Operating
Costs

 Acquisition costs
- the purchase cost at first
 Operating costs
- they are related to the operation of a
business.
TCO= Acquisition costs +Operating costs

 Purchasing research costs
 Hardware and software purchase costs
 Software licenses costs
 Installation and integration of hardware and
software costs
 Internet costs
 Migration expenses

 Software & hardware upgrades costs
 Electricity costs(for related equipment, cooling,
back-up power)
 IT and personal training costs
 Back-up and recovery process costs
 Insurance costs
 Administration and support costs(as network
and software management)
 Downtime, outage and failure expenses
 Decommissioning / Disposal expenses
 Replacement costs
 Scalability expenses

 ABC company has a program to purchase new
servers and they have to choose the lower total
costs of ownership one.

3- year Cost of Ownership
Comparison
20 Dell
PowerEdge
R810 Servers
20Sun SPARC
Enterprise
T5240 servers
Acquisition costs
Hardware and OS costs, including 3-year support $536,865 $636,865
Total Oracle software and licenses costs– 3-year license $121,800 $121,800
Planning and migration tasks costs $54,601 $18,939
Total acquisition costs $713,266 $777,604
Operating costs
Database software maintain costs $160,776 $160,776
Electricity(Power and cooling ) $53,676 $59,850
Training costs $20,372 $15,372
Server administration costs $157,500 $157,500
Disposal expenses $100,000 $4,800
Total operating costs $492,324 $398,298
Total costs of ownership(3-year) $1,205,590 $1,175,902
Average cost of ownership (per year) $401,863 $391,967
Average annual cost of ownership per server $20,093 $19,598
The lower Total cost of ownership, the better.

Advantages
 TCO analysis enables decision makers to
understand and control costs even those that
are hidden or result from unanticipated
scenarios.
Disadvantages
 An exact formula to calculate the total cost of
ownership does not exist.
 TCO focuses purely on costs, with no
consideration given to benefits.

 Wikipedia--- http://en.wikipedia.org/wiki/Total_cost_of_ownership
 TCO comparison:2-processor Dell and Sun servers--
http://www.principledtechnologies.com/clients/reports/Dell/R810_T
CO.pdf
 Managing (TCO)
http://www.bworldonline.com/Downloads/2009/bestprac10
2109_bautista.ppt#257,2,Business Dictionary Definition:
 Total Cost of Ownership Analysis (TCO)-
http://www.solutionmatrix.com/total-cost-of-
ownership.html
 TCO to get VFM—
http://www.wilsonmar.com/1tco.htm
 http://linuxvm.org/present/SHARE111/S9261rw.pdf

Presenter: 961651 邱惟湘

 Cost-Benefit Analysis or CBA is a relatively
simple and widely used technique for
making a decision.
 The idea of CBA originated with Jules
Dupuit, a French engineer whose article
was wrote in 1848.The British economist,
Alfred Marshall, formulated some of the
formal concepts that are at the foundation
of CBA.

 CBA is used to evaluate the total anticipated
cost of a project compared to the total
expected benefits in order to determine
whether the proposed implementation is
worthwhile for a company or project team.

 Step1：Defining objectives and project
scope.
 Step2：Identifying and screening the
alternatives.
 Step3：Identifying the benefits and costs.
 Step4：Calculating net present value.
 Step5：Ranking the alternatives.
 Step6：Make a final recommendation.

1. Defining objectives and project scope
Every policy/project must have an objective
(or objectives).
For example, the case we had studied in the
class, JEA company, maybe their objective is
finding right combinations of oil and gas to
produce electricity at low cost.

2. Identifying and screening the alternatives
All possible options (ex. project 1,project 2…)
for achieving the objective must be listed.
3. Identifying the benefits and costs
We only consider additional changes in costs
and benefits and not the total costs and
benefits.

4. Calculating net present value
 We must calculate the net present value (NPV)
with a discount rate because the value of a
dollar today is not the same in the future.
Formula:
 T - the time of the cash flow
r - the discount rate
Ct - the net cash flow at time t
R0- the investment in the beginning.

5. Ranking the alternatives
After calculating the NPV of all options,
ranking them in order of the size of NPV.
6. Make a final recommendation
According to the result of a cost-benefit
analysis, we will recommend the best one
option.

 A sales director is deciding to buy some IS/IT
which can improve customer management.
 There are two suppliers, supplier A and
supplier B.
 the discount rate is 5% per year.

Supplier A Supplier B
Network-ready PCs $24,500
Server $3,500
Printers $3,600
Cabling & Installation $4,600
Sales Support Software $15,000
Computer introduction $3,200
Keyboard skills $3,200
Sales Support System $8,400
Lost sales first month $20,000
Network-ready PCs $22,500
Server $3,600
Printers $3,000
Cabling & Installation $5,000
Sales Support Software $18,000
Computer introduction $3,400
Keyboard skills $3,000
Sales Support System $8,400
Lost sales first month $15,000
Total $86,000 $81,900

Tripling of mail shot capacity
$40,000
Ability to sustain telesales campaigns
$20,000
Improved efficiency and reliability of
follow-up $50,000
Improved customer service and
retention $30,000
Improved accuracy of customer
information $10,000
More ability to manage sales effort
$30,000
Tripling of mail shot capacity
$34,000
Ability to sustain telesales campaigns
$15,000
Improved efficiency and reliability of
follow-up $45,500
Improved customer service and
retention $33,000
Improved accuracy of customer
information $8,000
More ability to manage sales effort
$27,500
Total $180,000 $163,000
(Per year)

Total cost: $86,000
Total Benefit: $180,000/year
NPV= -$86,000+$180,000/(1+0.05)
=-$86,000+$171,429
=$85,429
Total cost: $81,900
Total Benefit: $163,000/year
NPV= -$81,900+$163,000/(1+0.05)
=-$81,900+$155,239
=$73,339
Recommendation
According to the size of NPV, we recommend the sales director to buy
the related IS/IT from supplier A.

1. Many aspects of a project have to be
considered when undertaking a cost-benefit
analysis. As awareness of these various
aspects increases, new issues may be raised.
2. A cost-benefit analysis that is done well can
identify the point at which a project will
break even, or when the payback period will
begin.

1. Depending on the boundaries that are set,
a project’s viability can change dramatically.
Thus the real value of a project can be
distorted by the assumptions and
subjective measures used throughout a
cost-benefit analysis.
2. Measures of the Net Present Value of a
project are often inaccurate. This happens
because many of the inputs for long-term
project appraisal are overly speculative.

 http://www.unescap.org/DRPAD/VC/orientati
on/M5_lnk_7.htm#6
 http://www.mindtools.com/pages/article/ne
wTED_08.htm
 http://www.bnet.com/2410-13074_23-
68803.html

Presenter：961638 黃詩方

1. LP is an important type of optimization.
2. LP is a mathematical technique that
determines the best way to use available
resources.
3. LP can help managers make decisions about
the most efficient use of limited resources -
like money, time, materials

To model a decision problem by optimization,
we need three basic components:
1. Decision variables
2. Result variables
3. Uncontrollable variables

 Decision Variables describe these variables
are controlled and determined by decision
makers.
 For example, the amount of products
produced is a decision variable.

 Result Variables are outputs. The results
variables are determined by decision makers.
 For example, the total profit is a result
variables.

 Uncontrollable Variables affect the result
variables but are not under the control of
decision makers. These variables are
determined by elements of the environment.
 These variables are also called the constraints
of the LP problem.
 For example, the cost of each product’s
produced is a uncontrollable variables.

 Step1 : Find three components
 Step2 : Build a LP model
 Step3 : Use mathematical method to solve
this problem
 Step4 : Obtain the optimal solution.

A company want to purchase a new operation
system(OS) next season to lower the operating
time. There are two OS to choose, WINDOWS 7
and VISTA. Under different OS conditions but use
the same software (SQL SERVER) to choose the
lower operating time.
Which OS is better to purchase?

OS
/
Software
Requirement
Operating
Time
Training
Cost
Maintain
Cost
Amount of
Computers
Windows 7 20 minutes $100 $300 100units
SQL
SERVER
40 minutes $200 $200 100 units
Limitations :
Training Cost : The total training budget is $ 120,000
Maintain Cost : The total maintain budget is $ 240,000
Amount of Computers : 100 computers to install Windows 7
100 computers to install software

 Decision variables:
X1 = amount of computers install Windows 7
Y1 = amount of computers install software
 Result variable
Minimize total time = 20 X1 + 40 Y1
 Constraints
100 X1 + 200 Y1 ≤ 120,000 (Training Cost)
300 X1 + 200 Y1 ≤ 240,000 (Maintain Cost)
X1 ≥ 100, Y1 ≥ 100 (Amount of Computers)

100 X1 + 200 Y1 ≤ 120,000 (Training Cost)
300 X1 + 200 Y1 ≤ 240,000 (Maintain Cost)
100 X1 + 200 Y1 = 120,000 (Training Cost)
300 X1 + 200 Y1 = 240,000 (Maintain Cost)
amount of computers(WINDOWS 7) X1 = 600
amount of computers(Software) Y1 = 300
Minimized total time of A IS/IT
= 20 X1 + 40 Y1 = 24,000

OS
/
Software
Requirement
Operating
Time
Training
Cost
Maintain
Cost
Amount of
Computers
VISTA 40 minutes $100 $500 100units
SQL
SERVER
40 minutes $200 $200 100units
Limitations :
Training Cost : The total training budget is $ 120,000
Maintain Cost : The total maintain budget is $ 240,000
Amount of Computers : 100 computers to install VISTA
100 computers to install software

 Decision variables:
X2 = amount of computers to install VISTA
Y2 = amount of computers to install software
 Result variable
Minimize total time = 40 X2 + 40 Y2 .
 Constraints
100 X2 + 200 Y2 ≤ 120,000 (Training Cost)
500 X2 + 200 Y2 ≤ 240,000 (Maintain Cost)
X2 ≥100, Y2 ≥100(Amount of Computers)

100 X2 + 200 Y2 ≤ 120,000 (Training Cost)
500 X2 + 200 Y2 ≤ 240,000 (Maintain Cost)
100 X2 + 200 Y2 = 120,000 (Training Cost)
500 X2 + 200 Y2 = 240,000 (Maintain Cost)
amount of computers(VISTA) X2 = 300
amount of computers(software) Y2 = 450
Minimized total time of B IS/IT
= 40 X2 + 40 Y2 = 30,000

 The operating time of WINDOWS 7 is 24,000
minutes
 The operating time of VISTA is 30,000 minutes
The time of WINDOWS 7 is clearly lower than The
time of VISTA. Thus, the company choose to
purchase WINDOWS 7.

Advantages
 Easy to use.
 It’s quick to get absolute solution.
Disadvantages
 LP assume all products sold, but it’s not an
actual situation.

1. http://www.mindtools.com/pages/article/n
ewTED_82.htm
2. http://citeseerx.ist.psu.edu/viewdoc/downl
oad?doi=10.1.1.86.6292&rep=rep1&type=p
df

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