Chapter Ten: Funding Information Systems

MULTIPLE CHOICE QUESTIONS

1. Total Cost of Ownership is a financial estimate designed to explicitly recognize the:

A. Implementation costs of IT assets
B. Maintenance costs of IT assets
C. Depreciation costs of IT assets
D. Full life cycle costs of IT assets
E. End of life costs of IT assets

Correct answer: D

2. Which of the following can be one of the results of poor budgeting?

A. Lack of direction
B. Only the more important of competing projects getting any money
C. IT managers knowing which projects are given priority over others
D. Improved morale due to increased spending
E. Improved services due to increased spending

Correct answer: A

3. Who should prioritize IS projects?

A. Business Managers
B. Customers
C. IS Professionals
D. All of the above
E. Both A and C

Correct answer: E

4. Who gets to decide, along with who is accountable, is generally referred to as what?:
A. Leading
B. Planning
C. Governing
D. Organizing
E. Controlling

Correct answer: C

5. Which of the following is not one of the categories of risk associated with board of
director decisions?
A. IT Project Risk
B. Business Continuity Risk
C. Infrastructure Risk
D. Information Risk
 E. Staffing Risk

Correct answer: E

6. There are three main methods used by modern organizations to fund IS. These include:
A. Chargeback, Allocation, and Investment
B. Allocation, Overhead, and Investment
C. Chargeback, Overhead, and Investment
D. Chargeback, Allocation, and Overhead
E. Allocation, Chargeback, and Investment

Correct answer: D

7. Which of the funding methods treats the IS function as a cost center?

A. Chargeback
B. Allocation
C. Overhead
D. Investment
E. All of the above

Correct answer: A

8. Which of the following balances pay-per-use against charging the department that uses
the IS functions directly?
A. Chargeback
B. Allocation
C. Overhead
D. Investment
E. All of the above

Correct answer: B

9. Which of the following generally results in IS having more freedom to experiment and
evaluate new technologies?
A. Chargeback
B. Allocation
C. Overhead
D. Investment
E. None of the above

Correct answer: C

10. Most organizations have two primary types of decisions to make regarding IT during the
budgeting process. These are:
A. Operational Expenses and Capital Expenditures
B. Vision and architectural guidelines
 C. Rationalizing infrastructure and consolidating resources
D. Maintenance and Operational expenses
E. Difficulty vs. Risk and Expense vs. Profit

Correct answer: A

11. Which of the following is NOT one of the three primary types of risk associated with an
individual project?
A. Experience with the technology
B. The complexity of the project
C. The amount of organizational change associated with the project
D. The cost of the project
E. The relative novelty of the technology to the customer

Correct answer: E

12. The three risk profiles described in the text include all but which of the following?
A. Cost-Focused
B. Balanced
C. Agility-Focused
D. Transaction Focused
E. None of the above

Correct answer: D

13. Which of the drivers of outsourcing has to do with eliminating IS due to the ignorance of
the firm’s strategic management?
A. Financial Appeal
B. Reducing Cost
C. Focusing on Strategy
D. Accessing Superior Talent
E. Improved Control

Correct answer: C

14. Which of the risks of outsourcing are associated with contract lengths?
A. The Outsourcing Paradox
B. Changing requirements
C. Partnership risks
D. Hidden Coordination Costs
E. The Deceptive role of IS

Correct answer: B

15. If a company was based in Montgomery, Alabama, which of the following would be
considered an offshoring activity?
 A. Dealing with a customer in China
B. Sending the help desk function to Mexico
C. Purchasing parts from a supplier in Los Angeles, who gets them from India
D. Moving the IS Department completely to Hawaii
E. Shifting sales and marketing functions to the a web page so that it is accessible
everywhere.

Correct answer: B

TRUE/FALSE QUESTIONS

1. The allocation approach to funding information systems uses pay-per-use direct billing of
information systems resources and services to the organizational function of department
that uses them.

Answer: False

2. Outsourcing is the process of engaging a foreign provider to supply the products or

services the firm no longer intends to produce internally

Answer: False

3. Full outsourcing of all IT and information systems functions to one provider ensures the
success of those function because all aspects are handled externally.

Answer: False

4. Most executives are actively involved in setting IT strategy

Answer: False

5. IT Steering committees are comprised of people from throughout an organization, in

addition to IT personnel, to decide issues relating to IT.

Answer: True

SHORT ANSWER QUESTIONS

1. What type of committees formalize management involvement in information system

decision making in larger organizations?

Answer: Steering

2. Which approach treats information systems as a shared expense to drawn from the
organization’s overall budget rather than to be paid for by each unit?
 Answer: Overhead

3. Name three aspects of the budgeting process that can affect an individual project’s risk:

Answer:
a. Project Size: expressed as the estimated monetary investment, is a proxy for project
complexity and the potential consequences of failure.
b. Experience with Technology: the degree of experience a firm has with the
technologies at the heart of the project is a primary determinate of risk.
c. Organizational Change: The degree of organizational change that the project requires
is another important determinate of risk.

4. Companies choose to outsource information systems and IT to specialists for many

reasons. List and describe three drivers of outsourcing.

Answer:
a. Reduce Cost: Companies can capitalize on the provider’s ability to create economies
of scale in the production of IT services.
b. Access to Superior Talent: IT service providers are in the business of continually
seeking to improve their information systems operations, to evaluate new
technologies, and to attract the best talent
c. Improve Control: By engaging with an outside provider, the firm can surface costs,
making them explicit, and hold the provider to its service level agreements.
d. Improve Strategic Focus: Outsourcing enables the firm to focus on what it considers
its strengths and eliminate what is often a little understood function.
e. Financial Appeal: Outsourcing can liquidate some of the tangible and intangible
assets tied up in the IT infrastructure.

5. Identify three risks of outsourcing.

Answer:
a. The Outsourcing Paradox: Outsourcing does not guarantee performance, managerial
involvement from the firm is still necessary.
b. The Dark Side of Partnerships: Each firm has a responsibility to it’s shareholders to
maximize its performance.
c. Change Requirements: Over a long period of time, technological and business
changes will have an effect on the organization.
d. Hidden Coordination Costs: There are many necessary and costly coordination efforts
between the firm and outsourced provider.
e. Deceptive Role of Information Systems: Many firms underestimate the critical role
that information systems play as enablers of business success.

ESSAY QUESTIONS

1. Describe the relationship between the steering committee and the total cost of ownership
of an IS project.
 Answers will vary

2. Describe the principal drivers and risks associated with IS outsourcing.

Answers will vary

3. Describe the main IS systems funding methods and provide at least 2 examples of each.
Make sure to list both the advantages and the disadvantages of each.

Answers will vary