MANAGING INFORMATION TECHNOLOGY

7th EDITION

CHAPTER 10
METHODOLOGIES FOR PURCHASED
SOFTWARE PACKAGES

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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?

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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:

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

and user interface design for the new package

- 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
companys needs

Gives vendors information about:

- Systems 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

companys 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 vendors 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 organizations 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 organizations 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 companys 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

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 Ente

Open Source Applicatio
rprise
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
companys 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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 COPYRIGHT

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher. Printed in the United States of
America.

Copyright 2012 Pearson Education, Inc.

Publishing as Prentice Hall

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