Enterprise Service Computing Scientific_2

vom Brocke applied(Grob,1993).UsingVOFI,thefinancialconsequencesoflong-termdecisions are structured and calculated by means of spreadsheets that serve as a database for further analyses. Compared to formulae applied by conventional methods (Seitz & Ellison, 2004; Shapiro, 2004) of capital budgeting (e.g., present value or the annuity of an investment project), VOFI mainly has the following advantages for evaluating the financial consequences of out-tasking decisions. •. Transparency:.The description of the financial consequences of decision making by using spreadsheets helps to show the various underlying impacts on the efficiency measures. By means of VOFI, all payments driven by a decision can be taken into account comprehensively, including various conditions for funding and loaning as well as taxes. •. Adaptability:.VOFI serves as a reference model for long-term decision mak-ing. Due to the explicit description of the financial consequences, it can easily be adapted to special decisions that have to be evaluated. On top of individual rates for loaning and funding, dynamically changing conditions like tax rates can also be calculated. Due to clearly defined interfaces for the in- and outflow of data, also extensions of the framework can be built. Both the transparency and the adaptability eventually may contribute to the actual use of efficiency calculations in service-portfolio management in practice. Customising VOFI-specific parameters that are relevant in a certain capital situation (e.g., funding conditions) can be considered. Typical parameters that may serve as a reference are summed up in theVOFI given in Figure 6. In order to consolidate the various influences on the effectiveness of the decision over time, a periodic update of the capital stock has to be calculated. Starting in Period 0, each period has to be calculated in a way in which there is a balance between in- and out-payments.Thefollowingexamplemayillustratetheessentialprocedure.Inthefirst period, usually an out-payment has to be financed. If the internal funds available are insufficient, a loan has to be taken out.As usual, various conditions for loaning can be agreed upon, and also a combination of various loans can be calculated in the VOFI. Correspondingly, multiple forms of funding can be included. When calculating the adequate amount of loaning or funding, tax payments have to be considered.Inordertocalculatetaxpayments,anauxiliarycalculationhastobecarried out.Dependingontaxlaws,relevantparametersare,forexample,individualdepreciations thatarechargeabletotheinvestment,aswellastaxrates.Ineachperiod,theseperiodical in- and out-payments have to be balanced.As a checkup, the net funding value, which is defined as the accounting balance of all out- and in-payments, should be zero. On the basis of these flow figures mentioned above, the capital stock can be updated periodically. For this purpose, the balances of all loans and funds have to be recorded. Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permis-sion of Idea Group Inc. is prohibited. Servce Portfolo Measurement (SPM) The accounting balance of both finally results in the net balance of the total invest-ment. By this algorithm, the value of an investment in a service-oriented architecture can be monitored during the whole life cycle of the information system simply by observing the net balance in each relevant period. For special-interest investiga-tions, additional efficiency measures can be calculated on the basis of VOFI. These measures are calculated on the corporate level of the decision-support system, which is illustrated in the following. Measurement.on.the.Corporate.Level In order to facilitate the design of a company’s service portfolio properly, the various evaluation results have to be aggregated for decision purposes. On the basis of the calculations on the budgeting and process levels described above, a wide range of efficiency measures can be applied from accounting science. For service-portfolio measurement, particularly the TCO and ROI are significant. They are well spread in practice and serve as a means to illustrate the relevant parameters for decision making at the same time. Total.Cost.of.Ownership In case the consolidation of the payments was done on the basis of a total calcula-tion, the total costs of ownership brought about by a certain information-system architecture and service portfolio can be calculated. The TCO originally aims at summing up all relevant costs chargeable to an information system throughout its Figure 7. Service-portfolio measurement on the corporate level using TCO Total Profit of Ownership Value Total Surplus of Payments for Service Portfolio + Irregular Revenue – Depreciation = Total Monetary Profit I (prior Interest and Further Investments) + Revenues by Further Investments – Interest Expense = Total Monetary Profit II (prior Taxes on Profit) + Taxes on Profit = Total Monetary Profit III (after Taxes on Profit) – Calculatory Interest + Adjustment of Tax Payments = Toal Calculatory Profit = Total Cost of Ownership Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited. vom Brocke life cycle (Ferrin & Plank, 2002). At this stage of calculation, the total payments chargeable to a company’s service portfolio during its life cycle can be analysed. Apart from out-payments, in-payments can also be includedin the calculation. That way, the total profit of the layout can be computed. The calculation is carried out by summing up payments of each row on the spreadsheet and balancing them like in Figure 7. The total profit of the investment can be calculated gradually. Starting from the surplus of in- and out-payments, the relevant decrease of assets used has to be com-puted. Therefore, the sum depreciation rates of all periods are calculated together with irregular in-payments, like in-payments for the liquidation of assets. That way, the so-called total monetary profit (I) is measured. Considering in-payments by further investmentsmade during the life cycle as well as interest expenses, the total monetary profit (II) can be calculated. By charging tax payments on profit, the total monetary profit (III) can be reported. While these measures all show the monetary profit realised by the investment, alternative allocations of the capital also have to be taken into account for consistent decision making. For this purpose, calculatory interest has to be charged quantifying the profit that is assumed to be made by the alternativeinvestment(theso-calledopportunity).Thistotalcalculatoryprofitfinally represents the total profit (or costs) of ownership calculated on the basis of VOFI. In a number of cases, no in-payments of the service portfolio are to be charged. This can, for example, be the case when in-payments are hard to identify. In other cases, the in-payments might be invariant so that the out-payments are driving the financial efficiency of alternative layouts. In the computation presented in Figure 7, the in-payments are zero. Hence, the resulting value quantifies the TCO that will mostly be negative as, apart from the liquidation of resources, only out-payments are charged. For reporting the total costs of ownership, the value should consequently be transformed into a positive value. Using the total cost of ownership, out-tasking is profitable if it serves to reduce the TCO. Moreover, the measure supports designing the appropriate corporate service portfolio. Accordingly, the portfolio should be designed with the aim of minimis-ing the TCO. Return.on.Investment The efficiency of out-tasking decisions can also be evaluated by a measurement of profitability. A widespread measure of this kind in practice is the return on invest-ment (Friedlob & Plewa, 1996). By applying this measure, a ratio is calculated that sets the total profit in relation to the stock of capital provided for the investment. Consequently, the ROI indicates the interest payment made by an investment. While the ROI seems to be suitable for comparing investments of different kinds, it is a Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permis-sion of Idea Group Inc. is prohibited. Servce Portfolo Measurement (SPM) Figure 8. Service-portfolio measurement on the corporate level using ROI Target: ROI ROI = n NBIn + EF++ CI⋅(1− pt) −1and NBIn + EF0 + CI > 0 Benchmark: c n NBn +OI+CI⋅(1−pt) IF+ EF Decision Support Investment is financially profitable, if ROI > c Symbols ROI NBIn IF EF0 n pt CI OI c ROI, on a dynamic basis Net Balance of the Total Investment in t=n Internal Funds Used External Funds Used in t=0 Planning Horizon Tax Rate on Profit Total Creditor Interest Total Interest of the Opportunity Average Capital Cost static measure and, therefore, is inappropriate to support long-term decisions. This point can be considered by calculating the ROI on the basis of VOFI. In doing so, the ROI is not only a dynamic measure, but it also considers various conditions of loaning and funding as well as taxes. For evaluating the efficiency of an investment, theROIhastobecomparedtotheaveragecapitalcostwithinplanningperiods.Figure 8 shows the definition of this ROI as well as the criteria for decision support. In particular, the ROI can be used for decision support on the design of the informa-tion-system architecture, providing the series of payments are partially calculated. The relevant data for the calculation can be taken directly from the VOFI database. In case distributions of funds are planned, these payments have to be considered in the fraction’s numerator. That way, the ROI is appropriate for evaluating whether the payments necessary for the migration to a service-oriented architecture are justified by future savings due to the performance of the company’s service portfolio. Up to this stage, the decision-support system has been described from a method-ological perspective. In the next section, the system is applied to a concrete situation of a company. Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited. vom Brocke Application.of.the.Measurement.System............ for.Financial.Performance.of....................... .Service-Oriented.Information.Systems In this passage, the decision-support system for the management of service-oriented information systems will be illustrated by means of an application. The case of the travel agency TravelSmart Ltd. may serve as an example. The situation is invented following a practical case. Introduction TravelSmart is a travel-management service provider that predominantly offers holiday travels for private and business customers. Round trips only form a small part of its product portfolio. The core competence of the business is the individual configuration of holidays according to the specific needs and wishes of its custom-ers. Therefore, the company’s tourism market is limited to the high-end segment. TravelSmartuses both digital chains of distribution and classic travel-agency sales. Excellent customer service is the trademark of the company, which differentiates itself clearly from other businesses and competitors. However, especially in recent years, TravelSmart has been exposed to increased pressure by more and more competitors who have been pushing both reduced costs and an amelioration of the service. Until now, ITtasks have only been accomplished by the IT department of the company itself. The company’s IT development has achieved excellent tasks, yet the costs for individual IT services have been partly too high compared to the market value. The business processes of TravelSmart are substantially based on information sys-tems for e-commerce as well as travel-agency sales. The goal from management’s perspective of the business is now to use, despite the high cohesion, service-oriented architectures. That way, parts of the information-system environment could be given away to external service providers. The focus of the evaluation is whether the supply of a service-oriented architecture would be worthwhile. Furthermore, the service portfolio has to be determined. The funds needed are covered by internal funds, an installment loan, and a loan in the current account. Figure 9 gives an overview of the financial conditions. The management ofTravelSmarthas grasped the long-term character of the decision that needs to be taken. It determined a planning horizon of five periods. Thus, the decision-support system described in this chapter was applied. Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permis-sion of Idea Group Inc. is prohibited. ... - tailieumienphi.vn