Managing a Business/MS 07
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(a) Discuss the objectives and process of computer aided decision support system.
(b) Describe the decision making process of acquiring application software.
2. (a) Discuss the objectives and process of computer aided decision support system.
A decision support system (DSS) is a computer-based information system that supports business or organizational decision-making activities. DSSs serve the management, operations, and planning levels of an organization and help to make decisions, which may be rapidly changing and not easily specified in advance. Decision support systems can be either fully computerized, human or a combination of both.
DSSs include knowledge-based systems. A properly designed DSS is an interactive software-based system intended to help decision makers compile useful information from a combination of raw data, documents, and personal knowledge, or business models to identify and solve problems and make decisions.
Typical information that a decision support application might gather and present includes:
• inventories of information assets (including legacy and relational data sources, cubes, data warehouses, and data marts),
• comparative sales figures between one period and the next,
• projected revenue figures based on product sales assumptions.
Decision support systems help people to be more consistent with their decision making. People are naturally subjective and may change their decisions based on all kinds of irrelevant criteria such as their personal mood the people affected by the decision etc.
These systems help to implement a formal method (such as a balanced score card) to take input data and produce a consistent and impartial decision that stands up to scrutiny.
Finally where it is impractical for a human to process all of the input data a decision support system can analyse the data and produce summary data and provide recommendations. However, ultimately the person can choose to override the computer's analysis - otherwise the system would be entirely automated.
COMPUTER AIDED DSS
communication-driven DSS, data-driven DSS, document-driven DSS, knowledge-driven DSS, and model-driven DSS.
A communication-driven DSS supports more than one person working on a shared task; examples include integrated tools like Microsoft's NetMeeting .
• A data-driven DSS or data-oriented DSS emphasizes access to and manipulation of a time series of internal company data and, sometimes, external data.
• A document-driven DSS manages, retrieves, and manipulates unstructured information in a variety of electronic formats.
• A knowledge-driven DSS provides specialized problem-solving expertise stored as facts, rules, procedures, or in similar structures.
• A model-driven DSS emphasizes access to and manipulation of a statistical, financial, optimization, or simulation model. Model-driven DSS use data and parameters provided by users to assist decision makers in analyzing a situation; they are not necessarily data-intensive. Dicodess is an example of an open source model-driven DSS generator.
• Using scope as the criterion,
differentiates enterprise-wide DSS and desktop DSS. An enterprise-wide DSS is linked to large data warehouses and serves many managers in the company. A desktop, single-user DSS is a small system that runs on an individual manager's PC.
Design of a Drought Mitigation Decision Support System.
Three fundamental components of a DSS architecture are:
the database (or knowledge base),
1. the model (i.e., the decision context and user criteria), and
2. the user interface.
The users themselves are also important components of the architecture.
DSS systems are not entirely different from other systems and require a structured approach. Such a framework includes people, technology, and the development approach.
DSS technology levels (of hardware and software) may include:
1. The actual application that will be used by the user. This is the part of the application that allows the decision maker to make decisions in a particular problem area. The user can act upon that particular problem.
2. Generator contains Hardware/software environment that allows people to easily develop specific DSS applications. This level makes use of case tools or systems such as Crystal, Analytica and iThink.
3. Tools include lower level hardware/software. DSS generators including special languages, function libraries and linking modules
An iterative developmental approach allows for the DSS to be changed and redesigned at various intervals. Once the system is designed, it will need to be tested and revised where necessary for the desired outcome.
There are several ways to classify DSS applications. Not every DSS fits neatly into one of the categories, but may be a mix of two or more architectures.
Holsapple and Whinston classify DSS into the following six frameworks: Text-oriented DSS, Database-oriented DSS, Spreadsheet-oriented DSS, Solver-oriented DSS, Rule-oriented DSS, and Compound DSS.
A compound DSS is the most popular classification for a DSS. It is a hybrid system that includes two or more of the five basic structures described by Holsapple and Whinston.
The support given by DSS can be separated into three distinct, interrelated categories: Personal Support, Group Support, and Organizational Support.
DSS components may be classified as:
1. Inputs: Factors, numbers, and characteristics to analyze
2. User Knowledge and Expertise: Inputs requiring manual analysis by the user
3. Outputs: Transformed data from which DSS "decisions" are generated
4. Decisions: Results generated by the DSS based on user criteria
DSSs which perform selected cognitive decision-making functions and are based on artificial intelligence or intelligent agents technologies are called Intelligent Decision Support Systems (IDSS).
The nascent field of Decision engineering treats the decision itself as an engineered object, and applies engineering principles such as Design and Quality assurance to an explicit representation of the elements that make up a decision.
As mentioned above, there are theoretical possibilities of building such systems in any knowledge domain.
One example is the clinical decision support system for medical diagnosis. Other examples include a bank loan officer verifying the credit of a loan applicant or an engineering firm that has bids on several projects and wants to know if they can be competitive with their costs.
DSS is extensively used in business and management. Executive dashboard and other business performance software allow faster decision making, identification of negative trends, and better allocation of business resources. Due to DSS all the information from any organization is represented in the form of charts, graphs i.e. in a summarized way, which helps the management to take strategic decision.
A growing area of DSS application, concepts, principles, and techniques is in agricultural production, marketing for sustainable development. For example, the DSSAT4 package, developed through financial support of USAID during the 80's and 90's, has allowed rapid assessment of several agricultural production systems around the world to facilitate decision-making at the farm and policy levels. There are, however, many constraints to the successful adoption on DSS in agriculture.
DSS are also prevalent in forest management where the long planning time frame demands specific requirements. All aspects of Forest management, from log transportation, harvest scheduling to sustainability and ecosystem protection have been addressed by modern DSSs.
A specific example concerns the Canadian National Railway system, which tests its equipment on a regular basis using a decision support system. A problem faced by any railroad is worn-out or defective rails, which can result in hundreds of derailments per year. Under a DSS, CN managed to decrease the incidence of derailments at the same time other companies were experiencing an increase.
1. Improves personal efficiency
2. Speed up the process of decision making
3. Increases organizational control
4. Encourages exploration and discovery on the part of the decision maker
5. Speeds up problem solving in an organization
6. Facilitates interpersonal communication
7. Promotes learning or training
8. Generates new evidence in support of a decision
9. Creates a competitive advantage over competition
10. Reveals new approaches to thinking about the problem space
11.Helps automate managerial processes
12.Create Innovative ideas to speed up the performance
(b) Describe the decision making process of acquiring application software.
BUYER BEHAVIOURS BY STAGES
For each buying stage, there is a corresponding
Organizational buyer behavior.
1.Recognition of problem or need
2.Determination of product characteristics
3.Description of product characteristics
4.Search for suppliers
5.Acquisition and analysis of
6.Evaluation of proposals supplier
7.Selection of an order routine
8.Performance feedback and evaluation
Contrasting behavior of the organization BUYER
FOR each stage
1.Purchases are planned and needs are anticipated
2.Systematic, cost benefit analysis
4.Regional or national
5.Proposals and bids formally solicited
6.Extensive ~comparislon and ranking of suppliers
7.Time and place of delivery and frequency of order specified as part of the contract
8.Active file maintained on supplier and product performance
A BASIC MODEL OF
ORGANIZATIONAL BUYING DECISION
Product buying centre
Criteria to evaluate products
Criteria to evaluate suppliers >>>>>>Evaluation
Expectations >>>>>>alternative products >>purchase
>>>>>>alternative suppliers>> decision
About alternative products
About alternative suppliers
Trade newspapers / Word of mouth
This model can add value to the customer buying by
-creating product awareness
-making product availability
-providing after sales service
-providing effective customer service
-special pricing terms
-special inventory terms
-special delivery terms
-controlled order cycle time
-special credit terms
BUYERs PARTICIPANTS IN THE BUYING PROCESS
1 Structure: The 'who' factor who participates in the decision making process, and their particular roles.
2.Process: The 'how' factor the pattern of information gathering, analysis, evaluation and decision making which takes place as the purchasing organisation moves towards a decision.
3.Content: The 'why' factor the evaluative criteria used at different stages of the process and by different members of the buying centre.
An essential point to understand in organizational buying is that the buyer
or purchasing officer is often not the only person who influences the decision,
or who actually has the authority to make the ultimate decision. Rather,
the buying centre as a whole is involved although it is not necessarily a fixed entity.
The buying centre will be made up of different people for different products;
and these may change as the decision making, process continues.
Thus the production staff may not be involved in office equipment decisions,
and only at certain stages concerning general equipment. Also,
a managing director may be involved in the decision that new equipment
should be purchased, and may eventually formally approve the purchase,
but may not be involved in the decision as to which manufacturer to purchase from.
Roles played out by members of the buying centre
And some examples.
1.Users. Users are the members of the organization who will actually use the
product being purchased. For example, the office staff might well establish the
evaluative criteria for the purchase of a new word processing system (such as user
friendliness, number of fonts available, keyboard feel and printer speed).
2 Deciders: Deciders are organizational members who have the power, either formally or informally, to decide which product and supplier to select. Buyers are usually the deciders, but there can also be other deciders. The purchasing department staff might be both the buyer and decider, but their decision could be reversed if top management disagrees for budgetary or other strategic reasons. There can also be multiple deciders, such as groups and committees who make
recommendations to top management.
3.Influencers: Influencers are those who provide information and add decision criteria throughout the process. They are members of the organization who do not use the product but can influence the evaluative criteria, either directly or indirectly. They can also provide information or opinions about the alternatives. For example, a firm's maintenance personnel could influence the type of carpet selected to redecorate an office because they know which carpets are easier to clean and maintain.
4. Buyers: Buyers are those who have authority to execute the contractual arrangement.
They are usually in the purchasing department and are those members of
the organization who have the formal authority to make the purchase decision.
They are normally involved in the face to face negotiations with suppliers.
5. Gatekeepers: Gatekeepers are organizational members who control the flow of
information to other members of the buying centre. By controlling the flow of
information, they can prevent some suppliers or products from being considered.
Purchasing department employees are usually gatekeepers, as are personnel such
as secretaries and engineers. They may attempt to be the sole interface between
their firm and the sellers, thus allowing them to maintain control of information.
One of the most important things to recognise about the five types of organizational members who influence purchase decisions is that each member is likely to have a very dif¬ferent set of evaluative criteria to the others. Herein lies the logic of the buying centre from the point of view of the buyer organisation. Consider, for example, the purchase of a new computer system. The people who will use the computer might be concerned with speed and reliability. The manager of the physical plant (an influencer) might be concerned about the space the machine will require and its tolerance of humidity and temperature variations.
The purchasing department staff (the buyer) may be concerned with the amount of dis¬count given and whether the machine will have a guaranteed trade in allowance if the company decides to trade up to a larger, more powerful model in the future. The managing director (the decider) might be concerned with maintenance costs, the warranty and the payment terms. Finally, the data processing manager (user) might want to maintain supply from their existing supplier, or alternatively, move to a more cutting edge firm.
##############################################################IT Acquisition Process
The acquisition process should involve the identification and analysis of alternative solutions that are each compared with the established business requirements. The decision making to acquire a typical IT application primarily consists of the following stages: (see Appendix)
STAGE 1: IDENTIFYING, PLANNING, AND JUSTIFYING THE INFORMATION AND SYSTEM REQUIREMENTS
One of the most essential assessments in decision making process is identifying the business objective after first knowing the problems being solved. The management should primarily identify the business processes involved in the organization. Information systems are usually developed as enablers of the business processes. The first phase of the acquisition process should align the business process with the company objectives and the business plan. Note that specific process may need to be prioritized to fully obtain the benefits of IT implementation. Moreover, each process should be carefully analyzed to ensure that it will have the certain functionality to meet the requirements of the business process and the users, as well as the benefits which can be justified with its cost.5
Another big challenge in the procuring information systems is to define the system requirements. System requirements describe the objectives of the system. They define the problem to be solved, business, and system goals, system process to be accomplished, user expectations, and the deliverables for the system. Furthermore, the requirements should incorporate information about system inputs, information being processed in the system, and the information expected out the system. Each of this information should be clearly defined so that later gaps in requirements and expectations are avoided. Information system requirements can be gathered through interviews, questionnaires, existing system derivation, benchmarking with related system, prototyping, and Rapid Application Development (RAD).
The output of this step is a decision to go with specific application, timetable, budget, and system expectations. As Small Business Television (SBTV) Network Chief Operating Officer, Michael Kelley, explains, "Before we went and purchased anything, we developed a business plan with a three-year outlook on what we thought we needed for the business. During the planning process, we knew that we were going to have to make a change within a three-year period. So that was an 'x' on the side of 'reasons not to buy, lease, or build in-house' because we new we might have to change our technology — probably in less than two years. As it turned out, it was about 14 months, and we had to make a lot of changes and reconfigurations."
STAGE 2: RESTRUCTURING INFORMATION SYSTEM ARCHITECTURE
With the regards of system analysis approach, an organization which is still in the progress of acquiring IT should remodel its information system (IS) architecture. IS architecture is the conceptualization of how the organization’s information objectives are met by the capabilities of the specific applications.This structural design however describes the flow of the information, data hierarchy, application functionality, technical feasibility, and organization architecture in the organization. The output from this phase should be a strategic planning level on how to develop specific application that meets the constrained defined by the IS architecture. Therefore, the application portfolio may be changed corresponding to this structure.
STAGE 3: IDENTIFYING A DEVELOPMENT ALTERNATIVE
There are several options in procuring software solutions. Some available alternatives are: (1) Developing the system in-house, (2) Off-the self solutions (Purchasing commercially available solution),
(3)Buying a custom made system for a vendor, (4) Leasing software from an application service provider (ASP) or lease through utility computing (contracted development), (5) Outsourcing a system from other companies (6) Participating in auction, e-marketplace, or a public exchange (consortium) ,(7)Use a combination of these listed options.
The consideration criteria and some critical factors upon various options will be discussed thoroughly later in the next section. While an organization is in the phase of deciding which alternative being selected, the management should carefully examine not only the advantages and disadvantages of each procuring option, but more importantly, the option must be best-fit with the organization business plan that has been documented in the previous steps. Any system development project, whether the system is built in-house or purchased elsewhere, should support the company’s business and IT strategy. The solution being sought associated with business requirements should align the business goals with IT strategy.
STAGE 4: CONDUCTING A FEASIBILITY ANALYSIS
As a part of the assessment in acquiring the solutions, a feasibility analysis is important to identify the constraints for each alternative from both technical and business perspective. Feasibility analysis incorporates the following categories:
• Economic feasibility analysis provides cost-benefit justification with being regard to the expenses of a system, which include procurement, project-specific, start-up, and operational costs. Some cost examples are one-time and recurring cost, consultants, support staff, infrastructure, maintenance, training, and application software cost. This examination ensures that the solution won’t exceed the budget limit as well as it increase the efficiency and better resource utilization.
• Technical feasibility assessment analyzes the technical reasonableness of the proposed solution. Technical feasibility evaluates whether the company has the infrastructure and resources including hardware, software, and network capability to support the application. Meanwhile, it also assesses the consistency of the proposed system in terms of the technical requirements with the company technical resource. Therefore, this assessment guarantees the reliability and capacity for the future growth.
• Operational feasibility evaluation reviews the extent of organizational changes required to accommodate the proposed system. The proposed system should solve the business problems and provide better opportunity for the business since the business process might be changed. Some alignments that may occur include business process, human resource management, and products or service offered.
• Legal and contractual feasibility. The proposed solution must pass any related legal or contractual obligations associated with. Corporate legal counsel should ensure that there are no illegal practices corresponding to the new system related with any preexisting regulations. Organization also may work with some experts from Computer Law Association to make sure this analysis strictly enforced. Thus, the underlying theme will protect the company and the establishment of the remedy process should the vendor or contractor fail to perform as promised.
• Political feasibility. The nature of the organization most likely will be affected by the presence of the new system. Therefore, this feasibility analysis evaluates how the internal organization will accept the new system. It also incorporates the user expectancy regarding the new system and the corporate culture response toward the proposed solution.
Upon completion of the series of feasibility analyses, the risk analysis review most likely will be conducted. Risk analysis evaluate the security of proposed system, potential threats, vulnerabilities, impacts, as well as the feasibility of other controls can be used to minimize the identified threats.
Finally, the company may perform some ergonomic requirements review to provide a work environment that is safe and efficient for the employee. Ergonomic check will make sure the design of the human interface components (i.e: monitor, keyboard, etc) is user friendly enough to accommodate all the requirements that make the users feel comfortable to work with.
STAGE 5: PERFORMING THE SELECTION PROCEDURE
Selection procedure is the process of identifying the best match between the available options and the identified requirements. In this process, the company requests for a proposal from prospective providers, evaluates the proposal, and selects the best available alternative. There are various ways to solicit responses from providers. Some of the common methods comprise request for information (RFI), request for bid (RFB), and request for proposal (RFP). An RFI is used to seek information from vendors for a specific intention. RFI should act as a tool for determining the alternatives or associated alternatives for meeting the organization’s needs. An RFB is designed to procure specific items or services and used where either multiple vendors are equally competent of meeting all of the technical and functional specifications or only one provider can meet them. Furthermore, an RFP specifies the minimal acceptable requirements, including functional, technical, and contractual aspects. This document offers flexibility to respondents to further define the requested requirements. RFPs can be a lead to a purchase or continued negotiation.
All of these processes should be structurally proceeded to ensure the process would be completed neatly in a timely fashion. If done properly, this process turns out to be a purchasing decision for the selected application. Note that the entire process must be documented in a written letter before moving to the next step. This is an important issue to avoid a bid protest that may be filled from any other potential vendors. Management, IT auditor and also legal counsel must review every point in detail before the proposal evaluation process begins.
STAGE 6: PROPOSAL EVALUATION PROCESS
Proposal evaluation is a crucial process in the software acquisition since one of more key stakeholders reviews submitted proposals using a list of objective selection criteria and decide the best match between the product features and functionality with the identified requirements.
Martin, et al (2000) identified six steps in selecting a software vendor with its application package:
1. Examining potential vendors’ background. Potential software application providers can be identified from software catalogs, lists provided by hardware vendors, technical and trade journals, or consultants experienced in the other companies, and Web searches. These preliminary evaluation criteria can be used to pre-eliminate the unqualified potential vendors based on the vendor track record, reputation, and some previous feedback.
2. Determining the evaluation criteria. One of the most difficult tasks in evaluating the vendor and a software package is to determine a set of detailed criteria for choosing the best vendor and package. These criteria can be identified from the RFP feedback sent by the vendors. Some areas that should be considered: characteristics, of the vendor, functional requirements of the system, technical requirements, total project costs, scalability of the solution, project time frame, quality of documentation provided, and vendor support package.
3. Evaluating providers and their applications. The objective of this evaluation is to determine the gaps between the company’s needs and the capabilities of the vendors and their application packages. Ranking the vendors on each weighted criteria and then multiply the ranks by the associated weight can be one method to evaluate the vendors and their solution packages.
4. Selecting the provider and its solution. Choosing the vendor and its software depends on the nature of the application. Negotiation can begin with vendors to determine how their packages might be modified to remove any discrepancies with the company’s IT needs. Furthermore, feedbacks from the users who will work with the system and the IT staff who will support the system have to be considered. In general, defined list of criteria for selecting a software application package are following:
TABLE 1. Criteria for Selecting a Software Application Package to use
• Usability and functionality
• Cost-benefit analysis
• Upgrade policy and cost
• Vendor reputation
• System flexibility and scalability
• Quality of documentation
• Hardware and networking resources
• Upgradeability • Required training
• System security
• Maintenance and operational requirements
• User easiness to learn
• Performance measurement
• Interoperability and data handling
• Ease of integration
• Reliability measurement
• Compatibility with other applications
5. Negotiate a contract. Once the vendor and its package selected, then the company can move to the contract negotiation, in which the company can specify the price of the software and the type of the support to be provided by the vendor. The contract must describe the detailed specifications, all the included services provided by the vendor, and other detail terms of the system. Contract is a legal document so the company should involve the experienced software purchasing specialists and legal assistance. Since the contract can be very tricky so these legal counsel should be involved from the beginning of selection process.
6. Establishing a service level agreement (SLA). SLA is formal agreement regarding the distribution of work between the organization and its vendor. Such agreement is created according to a set of agreed-upon objective, quality tests, and some what-if situations. Overall, SLA defines: (1) company and vendor responsibilities, (2) framework for designing support services, (3) company privilege to have most of the control over their system.
STAGE 7: IMPLEMENTING THE SELECTED SOLUTION
Upon completion of the contract negotiation, an acceptance plan should be agreed by both the company and the vendor so the new application can be ready to be installed or developed. No matter what options the company chooses, even when they decide to build their software in house, the company will most likely have to deal with some vendor (s) and/or certain software that has to be purchased from some supplier(s). During this process, the application is also tested and user reactions are evaluated. After the application or prototype of the application has passed user requirements, they can be deployed. Under this circumstance, the company management may deal with organizational issues such as conversion strategies, training, and resistant to change 
STAGE 8: REVIEWING AND MONITORING THE ACQUISITION PROCESS
Software acquisition process is a continuing process that must be reviewed in ongoing basis. A purchased software solution should effectively and efficiently satisfy user requirements. Software maintenance and operation can be an issue due to rapid changes in IT technology. However, this process can involve external evaluation to make sure the procedures and processes in place and whether the acquisition was in compliance with institutional processes and operating procedures.
Standard project management techniques and tools are useful for this task. Operation, maintenance, and evaluation can be done in-house or outsourced. For medium-large applications, a company may create a project team to manage the process. Company also may collaborate with other business partners to monitor the development process; however, it may have some critical issue with IT failure, such as: application incompatibility between two entities, communication breakdown, etc. IT can be a place where these acquisition procedures are lacking; therefore, the development process must be managed properly. Ultimately, investing an IT project may require streamlining of one or more business processes and excellent coordination between all the related entities.
Key Factors in Selecting Available Alternatives
Some main alternatives exist in acquiring IT applications. Some major options are buy, lease, develop in-house, or outsourcing a system from any other companies. When does it make more sense to buy the applications? When does it make more sense to lease? Do we have to outsource our applications to other companies? The set of processes for the acquisition decision must be identical for every instance or business opportunity that arises. In the past anything that has been deemed strategic has been built in-house but the trend to outsource and buy more systems has grown. Below are some critical factors that should be evaluated prior to choose preferable IS procurement strategy, whether to buy, lease, build in-house, or outsource IT applications.
1. Buying the Applications (Off-the-Shelf Solution)
Purchasing commercially available solutions requires that the business adapt to the functionality of the system. Buying an existing package can be a cost effective and time saving strategy compared with in-house development. The business adaptation process obliges that the organization could also customize the software product and subsequently maintains those customizations within the processes that have been modified and changed. Most organizations are rarely fully satisfied by one software package. Therefore, it is sometimes necessary to acquire multiple packages to support even one business process. Note that when selecting a vendor package, organizations should consider the following key factors:
• Vendor stability
• System upgrades
• Customer support provided by vendor • Hardware and software requirements
• Required customization of the base software
A ‘buy’ option should be carefully considered to ensure all the critical features of the current and future needs are included in the package. Buying makes sense if an organization plan to keep something for a long time, but technology typically becomes outdates every two to three years. Irv Rothman, president and CEO of the $8 billion-strong HP Financial Service said, "The reason a small-business customer never buys information-technology equipment is because there is an obsolescence curve. When you know something is going to become obsolete, why does a small-business customer want to be an owner of that equipment, instead of simply a user of that equipment?" When the business is all about cutting-edge technology, buying can make good sense. Eventually, buying decision typically means picking up something inexpensive to do the job right now. Learning from SBTV's experience, the decision to buy was a need to look "asset strong" to outside investors. "Our technology platform and our content are our two most important assets," says Kelley, SBTV CEO. "We didn't want to look to an outside investor as not having built our assets."7 The advantages and shortcomings of ‘buy’ option are summarized in Table2.
TABLE 2. Advantages and Disadvantages of ‘Buy’ Option
• Shorter implementation time
• Use of proven technology
• Availability of outside technical expertise
• Easier to define costs
• Frequent software updates
• The price is usually cheaper
• Minimal IT personnel • Incompatibility with company needs
• Incompatibility between different applications
• Limitation on the software customization
• Have no control over software improvements
• Long term reliance on vendor support
• Specific hardware or software requirements
2. Leasing the Applications
Lease option can result in substantial cost and time savings compared to buy option or in-house development. Leasing can be a good choice for small-medium enterprise that can not afford large investment in IT applications. Moreover, many common features that are needed by most organizations are usually incorporated in the leased package even though it may not always exactly include all the required features. Also, regarding a shortage of IT personnel, many companies choose to lease instead of develop software in-house. Leasing can help you decrease the total cost of ownership of technology assets. It allows you to track, standardize and regularly upgrade your practice's technology. Large companies may also prefer to choose this option since to evaluate the potential IT solutions before investing a heavy installment, especially in the long run. Therefore, leasing requires another kind of management skill, too, which is: Lifecycle management. Whereas buying typically means picking up something inexpensive to do the job right now, leasing means that a business is looking at the bigger picture, planning for future upgrades and evolving needs.10 When controlling cash flow is critical and you don't have time to worry about your equipment, leasing can be a great option. Other vendors concur that built-in protections against obsolescence can encourage leasing. "Even companies that do not have any cash flow issues often take advantage of technology refresh terms built into a lease," says Richard McCormack, vice president of product marketing for Fujitsu Computer Systems. Ultimately, leasing can be considered a risk-management tool. Kendall, HP's managing director for Financial Services, remarks "When you enter into a lease, the ability to progress from one generation of technology to the next, to expand your technology solution, to rid yourself of obsolete equipment is far easier and far smoother, because of the way a lease is structured for small and medium businesses." 7The advantages and disadvantages of ‘lease’ option are summarized in Table 3.
TABLE 3. Advantages and Disadvantages of ‘Lease’ Option
• Shorter time implementation
• Cost saving (cheaper than buy option)
• Ease to maintain cash flow
• Required only minimum IT staff
• Less risky to anticipate technology updates
• Having most of the required features • May not exactly fit with company needs
• Limitation on the software customization
• Have no control over software improvements
• Specific hardware or software requirements
• Include an interest component that a cash purchase would not include