Chapter 15 Economics and justification of electronic Commerce
Chapter 15 Economics and Justification of Electronic Commerce
Learning objectives Describe the need for justifying EC investments how it is done and how metrics are used to determine justification 2. Understand the difficulties in measuring and justifying EC investments 3. Recognize the difficulties in establishing intangible metrics and describe how to overcome them 4. List and briefly describe traditional and advanced methods of justifying IT investments Electronic commerce Prentice Hall 2006
Electronic Commerce Prentice Hall © 2006 2 Learning Objectives 1. Describe the need for justifying EC investments, how it is done, and how metrics are used to determine justification. 2. Understand the difficulties in measuring and justifying EC investments. 3. Recognize the difficulties in establishing intangible metrics and describe how to overcome them. 4. List and briefly describe traditional and advanced methods of justifying IT investments
Learning objectives 5. Understand how e-CRM. e-learning and other EC projects are justified 6. Describe some economic principles of ec 7. Understand how product, industry, seller, and buyer characteristics impact the economics of EC 8. Recognize key factors to the success of ec projects and the major reasons for failures Electronic Commerc Prentice Hall 2006
Electronic Commerce Prentice Hall © 2006 3 Learning Objectives 5. Understand how e-CRM, e-learning, and other EC projects are justified. 6. Describe some economic principles of EC. 7. Understand how product, industry, seller, and buyer characteristics impact the economics of EC. 8. Recognize key factors to the success of EC projects and the major reasons for failures
Why Justify EC Investments? How Can They Be Justified? Increased demand for financial justification Addressing accountability is difficult 65% of company executives lack the knowledge or tools to do roi calculations 75% of company executives have no formal processes or budgets in place for measuring RoI 68% of company executives do not measure how projects coincide with promised benefits 6 months after completion Electronic Commerc Prentice Hall 2006
Electronic Commerce Prentice Hall © 2006 4 Why Justify EC Investments? How Can They Be Justified? • Increased Demand for Financial Justification – Addressing accountability is difficult: • 65% of company executives lack the knowledge or tools to do ROI calculations • 75% of company executives have no formal processes or budgets in place for measuring ROI • 68% of company executives do not measure how projects coincide with promised benefits 6 months after completion
Why Justify EC Investments? How Can They Be Justified? Other Reasons Why ec justification Is Needed Companies now realize that Ec is not necessarily the solution to all problems. Therefore, EC projects compete for funding and resources with other internal and external projects. Analysis is needed to determine when funding of an EC project is approprlate In some large companies, and in many public organizations a formal evaluation of requests for funding is mandated Electronic Commerc Prentice Hall 2006 5
Electronic Commerce Prentice Hall © 2006 5 Why Justify EC Investments? How Can They Be Justified? • Other Reasons Why EC Justification Is Needed – Companies now realize that EC is not necessarily the solution to all problems. Therefore, EC projects compete for funding and resources with other internal and external projects. Analysis is needed to determine when funding of an EC project is appropriate – In some large companies, and in many public organizations, a formal evaluation of requests for funding is mandated
Why Justify EC Investments? How Can They be justified? Other Reasons Why ec justification Is Needed Companies need to assess the success of ec projects after they have been completed and then on a periodic basis(see Chapter 14 The success of EC projects may be assessed in order to pay bonuses to those involved with the project Electronic Commerc Prentice Hall 2006
Electronic Commerce Prentice Hall © 2006 6 Why Justify EC Investments? How Can They Be Justified? • Other Reasons Why EC Justification Is Needed – Companies need to assess the success of EC projects after they have been completed and then on a periodic basis (see Chapter 14) – The success of EC projects may be assessed in order to pay bonuses to those involved with the project
Why Justify EC Investments? How Can They Be Justified? EC Investment Categories and Benefits The /T infrastructure provides the foundation for ec applications in the enterprise EC applications are specific systems and programs for achieving certain objectives Electronic Commerc Prentice Hall 2006
Electronic Commerce Prentice Hall © 2006 7 Why Justify EC Investments? How Can They Be Justified? • EC Investment Categories and Benefits – The IT infrastructure provides the foundation for EC applications in the enterprise – EC applications are specific systems and programs for achieving certain objectives
Why Justify EC Investments? How Can They Be Justified? Specific Benefits cost reduction(85%) productivity improvement (7%) improved customer satisfaction(6%) improved staffing levels(5%) higher revenues(4%) higher earnings(4%) better customer retention(4%) more return of equity( 3%) faster time-to-market (3%) Electronic Commerce Prentice Hall 2006
Electronic Commerce Prentice Hall © 2006 8 Why Justify EC Investments? How Can They Be Justified? • Specific Benefits – cost reduction (85%) – productivity improvement (7%) – improved customer satisfaction (6%) – improved staffing levels (5%) – higher revenues (4%) – higher earnings (4%) – better customer retention (4%) – more return of equity (3%) – faster time-to-market (3%)
Why Justify EC Investments? How Can They Be Justified? How Is an ec investment justified? cost-benefit analysis A comparison of the costs of a project against the benefits Electronic Commerc Prentice Hall 2006
Electronic Commerce Prentice Hall © 2006 9 Why Justify EC Investments? How Can They Be Justified? • How Is an EC Investment Justified? cost-benefit analysis A comparison of the costs of a project against the benefits
Why Justify EC Investments? How Can They Be Justified? Justification may not be necessary when The value of the investment is relatively small for the organization The relevant data are not available, inaccurate. or too volatile The EC project is mandated--it must be done regardless of the costs and benefits involved Electronic Commerc Prentice Hall 2006
Electronic Commerce Prentice Hall © 2006 10 Why Justify EC Investments? How Can They Be Justified? • Justification may not be necessary when: – The value of the investment is relatively small for the organization – The relevant data are not available, inaccurate, or too volatile – The EC project is mandated—it must be done regardless of the costs and benefits involved