Risks of IT

There are several risks in implementing IT projects.

Channel Cannibalization

To understand the risk of channel cannibalization we have to go back to our retailer who is selling brown leather couches. What if existing customers decided to buy through the Internet instead of through the stores? The customer may not purchase any more merchandize on-site from the retailer, but will move his purchases to the Internet. Why is this a risk? Any e-commerce initiative may decrease cash flow in the short run because you are supporting two channels to make the same amount of revenue. For example, people may shop on the Internet but buy the products onsite in the stores. You may not be able to cut back on store costs to compensate for lowered sales volume on the channel.

Adoption Rate

Value can only be generated from an IT initiative if it is used. If our hypothetical company National cannot get its employees to buy office supplies on the e-procurement system, then it will not cut its purchasing costs by implementing this technology. Adoption rate is a measure of utilization of a system. It is expressed as the percentage of the total user base that adopts or leverages the use of the technology. The adoption rate needs to be analyzed for risk purposes. The assumption of a 100 percent adoption rate is unrealistic. Many business cases have been built on the inaccurate assumption that full adoption of the system will occur upon installation. For example, benefit projections for e-procurement could assume that all spending occurs through the system the day that it is put into service.

Let's look at a large financial institution that had installed a loan approval system. The system gave employees the ability to analyze loan requests without using any paper. The system would then update and notify other divisions about loan decisions, eliminating the need for phone calls, faxes, and e-mails. With benefits like these, you would think that everyone would like to use the system. Unfortunately, the underwriters, or decision makers on these loans, refused to use the system. The underwriters complained that the system was more difficult to use than old-fashioned pen and paper. They said they had to wade through eight different screens to render an approval on a loan. It actually took longer to approve a loan with the technology than it did manually. The system was simply used as a tracking device. Communication was done the old way. Since the under writers did not use the system, cash flow declined due to increased technology costs with no benefits stream.

Experience with Technology

Risk increases if a firm lacks experience with a specific technology. If business is not familiar with specific hardware, software, or operating systems, it is likely that the SA will experience timing delays and cost overruns and fail to deliver the expected benefits. Companies also lose management control of the implementation as they are at the mercy of outside contractors. Control is even more difficult when the users of the technology are less likely to be corporate employees. This extends the concept of technological experience beyond your organizations to buyers and suppliers. A potential risk of the system implemented by Ford could have been the technological readiness of the vendors to use the Web-based system. In many cases, vendors with leverage over their customers will not adopt these systems because they may see them as a threat.

Obsolescence

Many would say that the risk of technological obsolescence is overhyped. Systems and hardware function for years well beyond their intended life span. The risk of obsolescence is related to a system's ability to integrate with other systems. As systems age, their ability to support interfaces with newer technology greatly diminishes. It becomes more timely and expensive to connect systems together and retrieve information from them.

Risks of IT

Risks of IT

Channel Cannibalization

Adoption Rate

Experience with Technology

Obsolescence

admin