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Financing Organizational Technology

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In recent years many companies chose to at least partially outsource their IT operations. They are of the opinion that the IT is not the core competence of the company and outsiders who will undertake to provide the IT operation as outside contractors will do a better and possibly cheaper job.

The financial manager must be able to assess the wisdom of the investment in technology, and in particular in IT, from the viewpoint of the shareholders. The basic question that one must try to answer is: would an investment in technology and IT raise the value of the shares and increase the wealth of the owners of the company - the shareholders? Would an outsourcing be more beneficial? Should the company lease (or outsource) these technologies or should it invest in developing new technologies? What impact would these decisions have on shareholders' value?

In this module we will be considering this investment decision with reference to IT outsourcing and its relation to capital budgeting and risk. Please review at least in overall terms the following documents relating to IT outsourcing:

Thor Olavsrud (2011). IT Outsourcing. Datamation. Retrieved from http://itmanagement.earthweb.com/career/article.php/3875026/IT-Outsourcing.htm#IT_Outsourcing_Pros_and_Cons.

James Bucki (2011). Introduction to Outsourcing. About.com. Retrieved from http://operationstech.about.com/od/costsavingstrategies/a/OutSrcDefine.htm.

James Bucki (2011). Top 7 Outsourcing Advantages. About.com. Retrieved from http://operationstech.about.com/od/officestaffingandmanagem/a/OutSrcAdvantg.htm.

James Bucki (2011). Top 6 Outsourcing Disadvantages. About.com. Retrieved from http://operationstech.about.com/od/outsourcing/tp/OutSrcDisadv.htm.

F. John Reh (2011). Offshoring - Outsourcing to Extreme. About.com. Retrieved from http://management.about.com/cs/people/a/offshoring104.htm.

Dhanya Ann Thoppil (2011). IT Firms Split on Outsourcing Demand for 2011. IndiaRealTime. Retrieved from http://blogs.wsj.com/indiarealtime/2011/02/17/on-outsourcing-demand-for-2011-indian-it-is-split/

Also read these document discussing managerial decision-making concerning return on investment, capital budgeting and risk.

Cresswell AM. Return on Investment In Information Technology: A Guide for Managers Retrieved Sept. 23, 2007 from http://www.ctg.albany.edu/publications/guides/roi

Graham J and Campbell H (2002) How Do CFOs Make Capital Budgeting And Capital Structure Decisions? Journal of Applied Corporate Finance. Retrieved Sept. 23, 2007 from http://faculty.fuqua.duke.edu/~jgraham/website/SurveyJACF.pdf

In addition, read this overview of the lease vs. buy decision and this article on such decisions in IT.

The background information has further material on using financial data to assess risks and comparatively evaluate the future possibilities for companies. In addition, you may wish to seek out further information through your own research. When you have reviewed the advice and the plans. please prepare a short response discussing:

Agree or disagree: Standard financial investment information and criteria are all that is needed to effectively evaluate IT outsourcing decisions. (When evaluating the options be sure to compare debt vs. equity)

Please carefully explain your reasoning, with reference to the appropriate financial and other information

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Discussing: Agree or disagree: Standard financial investment information and criteria are all that is needed to effectively evaluate IT outsourcing decisions. (When evaluating the options be sure to compare debt vs. equity).

The IT outsourcing initiative is in regards to reducing the operational costs associated with technology forefront to successful operate the business. Thus, the subcontracting initiative can offer a way to streamline the overall debt that allows for both the business continuity and business growth within the targeted industry. Some key areas in reviewing relates towards the types of functions that can assess in actual costs per departments and necessary procedures, such as, the infrastructure to software updates or implementation. Others can include the business entity database systems for development as well as maintenance and support. Depending on the business entity structure of operations and size of employees workers determines the actual range of "how much IT outsourcing" warrants such a venture; ...

Solution Summary

The review in IT outsourcing for business planning in improving their internal operations and departments for efficiency measuring debt vs. equity options.