Combining Business and Network Simulation ... - Semantic Scholar

Proceedings of the 32nd Hawaii International Conference on System Sciences - 1999 Proceedings of the 32nd Hawaii International Conference on System Sciences - 1999

Combining Business and Network Simulation Models for IT Investment Evaluation George M Giaglis, Ray J Paul and Robert M O’Keefe Department of Information Systems & Computing, Brunel University, United Kingdom E-mail: {George.Giaglis, Ray.Paul, Bob.Okeefe}@brunel.ac.uk Abstract Although the inherent interrelationships between business processes and the underlying Information Technology (IT) infrastructure imply that the design of these two organisational facets should be performed in parallel, this doesn’t appear to be the case in practice. For example, simulation is being extensively used in both the business and the IT domains, albeit in a disjoint fashion. In this paper, we investigate the potential of integrating different simulation models to facilitate concurrent engineering of business processes and Information Technology. We present an example case of such integration and propose a holistic approach to IT investment evaluation by simulation. Drawing on the case findings, we identify a number of pertinent issues and articulate future research directions towards the integration of simulation usage in the business domain.

1. The Problem of IT Investment Evaluation Many organisations undertake business improvement efforts (Business Process Reengineering, Continuous Process Improvement, Total Quality Management, and others) in order to reduce costs, streamline operations, and gain strategic and competitive advantages in the marketplace. Information Technology has been acknowledged as a major enabler of business change [14, 36] as it allows organisations to adopt operating practices that would not have been possible without the opportunities offered by new technologies [10, 22]. However, organisations may face various problems when assessing new business processes to adopt and the IT applications that will support these processes. IT can affect business operations in diverse ways and the ultimate impact on business performance depends on various intertwined factors that can render IT Investment Evaluation a difficult task [3, 13, 34, 37]. Many of these factors relate to what might be termed as ‘the problem of measurement’. Many of IT benefits refer to strategic and competitive advantages that are inherently difficult to quantify, are realised in the long run and may be

associated with a high degree of uncertainty and unpredictability, and are indirect to businesses and therefore indistinguishable from many other confounding factors (for example people, processes, and strategy). In this paper we will be concerned with the measurement problem in the context of ex ante IT evaluation, i.e. the evaluation of a proposed system before its implementation, as opposed to the ex post appraisal of an existing system’s performance. In this context, IT evaluation will be treated in a manner somewhat different from the ‘typical’ evaluation practices in the context of structured IS development approaches (for example, the system development life cycle) where evaluation is typically concerned with measuring the degree of technical success of an IT project after its finish, rather than assessing the organisational fit of a proposed system before its implementation. Various approaches and techniques have been proposed to assist organisations in evaluating IT investments (examples of such methods can be found in [4, 9, 20, 23, 26, 34, 35, 37, 40]). Despite the availability of these techniques, Ballantine et al [2] has found that most companies use simple accounting techniques, notably cost-benefit analysis (CBA) or Return on Investment (ROI), in order to decide whether to proceed with a certain IT investment or not. However, the application of any financial technique for assessing a particular IT investment is hindered by a difficulty in identifying and measuring the expected benefits of the proposed investment [7, 13]. Indeed, the inability to express in monetary terms the intangible, indirect, or strategic impact of IT on business performance may be one of the reasons behind the high failure rate of many BP change programs or large IT projects [1, 21, 22].

2. Simulation for IT Investment Evaluation According to Davenport and Short [11], although business process design and Information Technology are natural partners, their relationships have never been fully exploited in practice. One the one hand, it is naturally expected that the choice of a particular way of conducting

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business in an organisation will influence the design and structure of the Information Systems to support this procedure. On the other hand, advances in Information Technology itself can generate completely new opportunities for organisations and hence influence the design of specific business process layouts. Such recursive relationships imply that organisations should align the design of Information Systems (IS) with the design of the corresponding business processes if maximum benefits from their synergy are to be achieved [21, 27]. Business Engineering is one of the terms that have been offered to refer to this alignment [28]. Although the benefits of aligning the design of business processes with the design of the Information Systems intended to support them is apparent in theory, this has rarely been the case in practice. Business analysts and IS professionals have traditionally had distinct roles within organisations, each equipped with their own tools, techniques, skills, and even terminology [12]. There seems to be very limited support for predicting the consequences that changes in one organisational facet (business processes or Information Systems) will have on the other [29]. Existing methodologies, techniques, and tools to support IS design and development concentrate primarily on the detailed level of designing the system itself, adopting the IS project as their fundamental unit of reference. As a consequence, IS development is mostly concerned with technical system details, ignoring (or rather taking as granted) the organisational context in which the proposed system will operate. Galliers [15] asserts that current practices in most organisations reinforces this isolation: ‘[managers] are often happy in the mistaken belief that information technology can be left to technologists, and many of the latter [would be] happier to have information systems planning and development more concerned with technological issues than business imperatives, with as little as possible involvement from business executives’. However, to suggest that process designs be developed independently of Information Systems that will support them is to ignore valuable tools for shaping processes [10]. Business engineering takes a broader view of both Information Systems and business processes and of the relationships between them. IS should be viewed as a more than automating or mechanising force, but rather as an enabler of fundamental changes in the way business is done. Such a broad perspective has a profound effect on our approaches for IS development and evaluation. To support the identification of business change opportunities and the evaluation of IT investments, organisations need techniques that allow them to experiment with various alternative decisions and assess the impact of each alternative on business performance [17, 38]. Many companies are using discrete event simulation modelling and analysis to overcome the

problem of measurement and to ensure the alignment between IT applications and business operation. Kettinger et al [24], in a comprehensive review of BPR methodologies, techniques, and tools, have identified simulation as a powerful technique in the context of documenting and redesigning business processes. The use of simulation to support ‘soft’ business change is still limited compared to ‘hard’ manufacturing applications, but a number of application examples have been recently emerging [8, 16, 25, 31, 32]. An organisation can use simulation to model its existing business processes, gain a better understanding of its current operation and dysfunctionalities, and identify opportunities for change [29]. The proposed redesigned processes can then be also modelled to gain a better understanding of the bottom-line implications of changes on the business. On the more detailed level of the IT infrastructure, organisations can use simulation to model and experiment with different low-level functions, such as alternative computer network topologies, routing and switching protocols, and so forth. The application of simulation can provide the much sought for quantitative information on the expected impact of changes on business performance. As a result of market demand, a plethora of specialised simulation software environments have been developed to support organisations in modelling their business processes and IT infrastructure. On the one hand, there is a category of products, collectively referred to as Business Process Simulators (BPS), that allow for business process modelling and analysis. Examples of such software include Simprocess (by CACI Products Company), Process Charter (by Scitor Corporation), and Bonapart (by UBIS GmbH). On the other hand, there is a distinctly different category of tools (Computer Network Simulators, CNS) that allow for modelling of and experimentation with the underlying computer network infrastructure. Examples of such software include the Comnet family of products (by CACI Products Company), BONeS (by Systems and Networks), and Opnet (by Mil 3). Simulation is an excellent example to demonstrate the gap between process and IT design argued above. Despite the imminent interrelationship between business processes and Information Technology, there do not exist any simulation environments that allow organisations to model both elements and identify the impacts that changes on one will have on the other [6, 33]. Although BPS and CNS products have proved themselves successful in their own application areas, there is a growing demand for a new generation of simulators that will unite BPS and CNS under a single umbrella and facilitate parallel design of business processes and IT systems. To be a beneficial facilitator of Business Engineering [28], simulation should be able to address both the business process design and IT design problems.

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BPS and CNS are currently being used independently in their own domains of applicability, focus in what they treat as distinct and non-related problems, and use entirely different terms to describe the various elements in their ‘worldviews’. As a result, the integration between BPS and CNS models is generally infeasible. We maintain that such an integration is not directly possible due to the remarkable difference between the BPS and CNS abstraction levels. On the one hand, BPS environments concentrate on and model such things as product and information flows within a business process, resources for carrying out activities, and so forth. On the other hand, CNS environments focus on such things as network workloads, expected traffic conditions, routing and recovery mechanisms, packet switching protocols, and so forth. It is very difficult, if possible at all, to translate between these two domains and levels of abstraction directly. Painter et al [33] have addressed this problem and proposed that a ‘middle’ layer is introduced between Business Processes (BP) and Computer Networks (CN). The middle layer consists of models that depict the IT applications that run on the Computer Networks and support the Business Processes (see Figure 1). Such a layer introduces a medium abstraction level as a mechanism for bridging the gap between Business Processes and Computer Networks, and may thus prove useful in developing integrated business simulation environments.

more complex and may have different implications for the design of successful integrated simulation environments. This paper reports on preliminary results of an ongoing research project jointly undertaken by Brunel University and a number of industrial collaborators in the UK. The research is funded by the UK Government’s Engineering and Physical Sciences Research Council (EPSRC) under the umbrella of the Systems Engineering for Business Process Change (SEBPC) programme. The project’s main objectives are to understand the opportunities and obstacles in using simulation to model business processes, to integrate modelling of IT architectures in process modelling, and to generate design guidelines for a new generation of simulation environments that will combine Business Process and IT modelling. The section that follows presents an example case that illustrates how changes in the business processes can affect the underlying IT and Computer Network (CN) infrastructure and how they can trigger further changes not initially envisaged. Based on the findings of the case, we propose a holistic approach to BP, IT, and CN analysis and discuss how simulation models fit within this approach. We conclude by generalising on the findings of our work, and discussing further research directions that will complement and enhance the work presented in this paper.

Business Process Simulation BPS

Let us examine the example of a corporation operating in the electronic components supplies market. The company markets a range of electronics components that are used by customers as parts in their own products. The company has six sites: its headquarters (HQ) and five regional offices (Regional Office A to Regional Office E) in different geographical locations. Each regional office maintains a sales force that is responsible for contacting customers, securing orders, and maintaining customer relationships. Customers place their orders either to the salesmen that visit them or directly to a regional office (by phone or fax). Electronic copies of the orders are sent (as EDI messages) to the HQ where customer credit is checked. If the customer is trustworthy, the ordered goods are picked from the central warehouse (located at the HQ) and packed. A delivery schedule is generated daily to specify how products will be distributed to individual customers. Before proceeding with examining how the interrelationships and dependencies between business processes (BP), Information Technology applications (IT), and Computer Networks (CN) are formed, it is worth detailing the BP, IT, and CN present in this situation.

Information Technology Simulation ITS

Computer Network Simulation CNS Figure 1. A hierarchical approach to BPS and CNS integration [33] However, this hierarchical view implies that the relationships are also hierarchical. Such an arrangement of impacts is probably an intuitive way of arranging models and implies that existing BPS and CNS environments can be made interoperable if both are somehow enriched to explicitly address the impact of IT on processes and networks. However, we maintain that the interrelationships between BP, IT, and CN are much

3. An Example Case

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3.1. Business Processes (BP) There is essentially one business process that we are examining in this example: the Order Fulfilment Process. The process is triggered when a customer places an order and ends when the ordered products have been delivered to the customer. There may be other extensions to this process, for example the manufacturing/assembly of the products or the customer payment, but we have chosen to leave them out of scope in order to keep the example as simple and straightforward as possible. The order fulfilment process can be decomposed into the following activities: 1. Order Taking: A customer places the order to the company (directly or via a salesman). 2. Order Data Entry: The order details are keyed into the information system of the regional office and an electronic (EDI) message is sent to HQ to update the central order database. 3. Customer Credit Check: The Finance department (at the HQ) checks the trustworthiness of the ordering customer and accepts or rejects the order. 4. Goods Pick and Pack: Warehouse operations (at the HQ) locate the ordered items and prepare a package to be delivered to the customer. 5. Delivery: Shipping (at the HQ) incorporates each pending package into a daily delivery schedule and schedules delivery of goods to the customer. Figure 2 illustrates the existing order fulfilment process diagrammatically. Of course, the actual process is much more complicated with decision points (for example, what happens when the customer does not have the necessary credit), iterations (for example, when the ordered goods are not in the warehouse and have to be placed in a backorder), and feedback loops (for example, updating the order status in the ordering application as the order moves through the process). However, this simple process structure is sufficient for illustrating our points. ACTIVITIES

Figure 2 also illustrates that the various activities that constitute the order fulfilment process are being carried out in different departments, and therefore by different people and in different locations, within the company. Order taking and data entry occur at the regional office level and are performed by the sales department. Conversely, credit checking, goods packing, and deliveries are performed centrally at the HQ by three different departments (namely Finance, Warehouse Operations, and Shipping).

3.2. Information Technology Applications (IT) Various IT applications are in place to support the aforementioned activities. We can distinguish: 1. The Ordering applications. There are a number of different applications that regional offices use to enter and manage their orders. Each office may use its own application, but all applications communicate with the central ordering application at the HQ via EDI links. 2. The Credit Check application. This runs centrally at the HQ. 3. The Inventory Management application. This also runs centrally at the HQ. 4. The Scheduling application. Again, this is a standalone application that resides at the HQ.

3.3. Computer Networks Infrastructure (CN) Figure 3 illustrates the network infrastructure that exists to facilitate communication and information exchange between the HQ and the regional offices. It also depicts the applications running at each site. HEADQUARTERS: Ordering Application EDI Software Credit Check Application Inventory Mgmt. Application Scheduling Application

LOCATIONS Leased Line

Order Taking

Sales (Regional)

Order Data Entry

Sales (Regional)

Customer Credit Check

Finance (HQ)

PSTN Connection

Regional Office A

Regional Office B

Regional Office C

Regional Office D

Regional Office E

Ordering Applications and EDI Software

Goods Pick and Pack

Delivery

Warehouse (HQ)

Shipping (HQ)

Figure 2. The existing process (BP level)

Figure 3. The existing process (IT and CN levels) At present, there are three permanent point-to-point links (leased lines) from the HQ to the three larger offices (A, C, and E), while the two smaller offices communicate with the HQ via PSTN (modem) links. This infrastructure

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is used solely to upload ordering information from the regional offices to the HQ (one-way communication).

3.4. Business Process Change Scenario A proposal is initiated by the company’s top management that centralised warehouse operations are not effective and should therefore be replaced by a decentralised scenario where each regional office maintains their own small warehouse to serve local customers. Such a decision may stem from various organisational goals and requirements. It may be a response to a perceived need for flexibility and better customer service, an acknowledgement of the high costs and slower operations imposed by the centralised function, and so forth. However, such a decision for decentralisation does not come without costs: there is a need to co-ordinate and synchronise the operations of the local warehouses. This will ensure that when an ordered product is not in the local warehouse, there exist mechanisms for identifying where this product is located so that it can be transferred in the most timely and cost-effective way to where it is mostly needed. The decentralisation of the warehouses has immediate impacts on the inventory management IT applications. To support the redesigned process, inventory management should be performed locally at the regional office level, while central operations may need to keep inventory data too, in order to monitor and co-ordinate operations. An IT solution that can be envisaged involves changing the inventory management application from a standalone application to a client-server architecture. The (business) decision of decentralisation may also impact the computer network level directly. Regional warehouses may want to communicate directly with each other to exchange information and initiate transfers without the extra delay imposed by HQ. This can be accomplished by introducing intermediate network links that will connect regional warehouses into a Wide Area Network (WAN). If a WAN and a robust network architecture is in place, it makes little sense to continue using separate ordering applications at the regional offices and HQ. It is now worthwhile examining the possibility of introducing a client-server ordering application (similar to the inventory management one) so that orders are seamlessly exchanged between regional and central offices. Now, since both ordering and inventory management take place at the regional office level, it makes little sense to continue performing the customer credit check at the HQ level. Such an activity introduces unnecessary, nonvalue adding delays in the redesigned process. It may be worthwhile examining the possibility of giving the regional offices the ability to perform customer credit

check locally by having access to the central customer database at the HQ. Therefore, the complete redesigned process could look something like this: Customers place their orders to the regional offices. Regional office staff log into the central customer database at the HQ (via the WAN link) and check the customer credit. If the customer has enough credit, orders are uploaded from the client to the server ordering application (via the WAN link). Regional office staff check the availability of products in the local warehouse, pick and pack goods, and schedule local shipments. If some of the ordered products do not exist, users can check the product availability in neighbouring local warehouses and schedule replenishment of their inventory to fulfil the order. At the same time, the server inventory management application at the HQ is updated with inventory movements, so that replenishment of local inventories is scheduled. Figure 4 and Figure 5 illustrate the complete redesigned process (BP, IT, and CN levels). ACTIVITIES

LOCATIONS

Order Taking

Sales (Regional)

Order Data Entry

Sales (Regional)

Customer Credit Check

Sales (Regional)

Goods Pick and Pack

Warehouse (Regional)

Delivery

Warehouse (Regional)

Figure 4. The redesigned process (BP level) HEADQUARTERS: Ordering Server Credit Check Database Inventory Mgmt. Server

Network Links

Regional Office A

Regional Office B

Regional Office C

Regional Office D

Regional Office E

Ordering Client + Credit Check Client + Inventory Mgmt. Client + Scheduling

Figure 5. The redesigned process (IT and CN levels) Summarising, we can note that initiating a business process change impacted the business on all three levels: BP, IT and CN. Figure 6 illustrates the interrelationships observed. The initial proposal for change was at the business process level: decentralising warehouse operations. This proposal had immediate and direct

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impacts on both the IT level (new inventory management applications) and the CN level (opportunity to introduce a corporate WAN). The low-level, infrastructure change proposal triggered a series of new change opportunities and ideas at the IT and BP levels, thereby confirming the enabling role of IT for process change. Finally, the new BP change idea imposed itself new IT requirements.

the Process Charter software package). It is worthwhile noticing that the (static) high-level views of the process remain almost intact despite the numerous changes we have introduced in the TO-BE scenario. In fact, if we hadn’t used ‘swim lanes’ to depict the locations where the activities take place, the two models would look identical! 1

1

Customer

Customer

Start

Start

BP Change:

2

3

2

3

Decentralise Warehouses

Give Orders to Salesman

Phone or Fax Orders

Give Orders to Salesman

Phone or Fax Orders

IT Change:

CN Change:

New Inv. Mgmt. Application

Introduce WAN

Regional Ofice

4

4

Order Data Entry

Order Data Entry

5 Check Customer Credit

5 6

Check Customer Credit

Reject Order

7

7

8

8 Check Inventory Levels

IT Change: New Ordering Application

BP Change:

6 Reject Order

Check Inventory Levels

Backordering

9

9

Pick & Pack Goods

Pick & Pack Goods

10

10

Schedule Delivery

Schedule Delivery

Backordering

Possible Inter-Warehouse and HQ Communication (out of scope)

Decentralise Ordering/Credit 11

11

Headquarters

IT Change: New Credit Application

Deliver Products

Regional Office

12

12

Customer

Finish

Deliver Products

Customer

Finish

Figure 7. The AS-IS and TO-BE BPS models Figure 6. The interactions This case confirmed our initial arguments about the complex interrelationships between BP, IT and CN and indicated that a simple hierarchical decomposition mechanism may not be sufficient to support the detailed investigation and integration of BPS and CNS models. We will now turn into a more detailed discussion of these interrelationships in the simulation domain.

4. Simulating the Proposed Changes Let us now examine what these interrelationships imply for the simulation models used to support business change. The company may choose to use a high-level BPS model depicting the activities that compose the Order Fulfilment Process in order to investigate the impacts of the proposed changes on Key Performance Indicators (KPIs) such as cost, speed, and quality of service. For example, the company may want to assess how much the proposed changes are expected to reduce the average order lead time or whether decentralising the credit checking activity is actually worthwhile adopting (compared to the costs associated with the new IT applications). For experimentation purposes, we distinguish between two categories of BPS models: the model depicting the existing operations (AS-IS model) and the model(s) depicting the redesigned activities (TO-BE models). Figure 7 depicts the AS-IS and TO-BE views of the BPS models for our company (the models were developed with

However, this should not come as a surprise. The purpose of the BPS model is to provide a high-level view of the activities that constitute the examined process and is targeted to managers and high-level decision-makers who need not be concerned with low level implementation details of the activities. The activities themselves have not been really changed: the same (business) steps are essentially being performed in the new process, albeit in different locations, by different people, and with the assistance of different IT and network infrastructure. Since these elements are not generally depicted in a BPS model, it is no wonder that the AS-IS and TO-BE processes look almost the same at this level of abstraction. So, where can BPS be helpful for the company that wants to evaluate whether the proposed changes will have such business impact to make them worthwhile adopting? The answer lies in the detailed data behind the activities that do not appear in the BPS view but are necessary to drive the dynamic simulation runs. For example, activity durations will probably be substantially reduced when the new IT and CN infrastructure is introduced, as a result of faster information exchange between activities. These reductions may (or may not) have serious implications for the KPIs as they may alleviate the problems of the AS-IS process (bottlenecks, non value-adding cost points, and so forth). It is exactly these implications that the BPS model is intended to clarify and measure. The AS-IS BPS model will have to be populated with data regarding existing order demand, resource levels, and

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so forth. Such data can be collected from the workplace by observing and measuring existing activities. The TOBE model however, needs to be populated with similar data referring to the new process layout. But how can we know for example the average time needed for a database query or a file transfer over the WAN since neither the IT applications nor the network are in place? Such information is critical to developing a valid and credible TO-BE model in order to arrive at informed decisions about the effect of the low-level improvements (IT or CN) on high-level KPIs. This is where Computer Network Simulation (CNS) can become useful. Detailed models depicting the various alternative network architectures and topologies can be developed, so that their output analysis can provide modellers with the necessary data to populate the TO-BE BPS model. For example, CNS models can be used to experiment with various alternative structures in order to answer questions like: • What is the optimal physical medium and bandwidth of network links to cover existing and future demand for inter-site communications? For example, should the company choose to install optical fibres, PSTN lines, or radio links to connect network nodes? What is the optimal capacity for each network line given the expected network burden? • Which of the regional offices should be directly connected and which should communicate via virtual network circuits? In terms of performance, it would be desirable to introduce direct point-to-point physical links between each and every node in the network. The same would apply in terms of network reliability (for example, traffic re-routing or direct link failure). However, this would inevitably result in exceptionally high costs. We can therefore use CNS to identify the optimal cost/performance equilibrium depending on anticipated network traffic levels. The data that will populate the CNS model will come from the business domain (for example, customer order frequencies) and the constraints imposed by the proposed IT applications (for example, average response times for server queries). The data from the CNS output, can be used to feed the BPS model with the information that is necessary for running the business simulation experiments. We maintain that only by having established a legitimate view for the underlying network infrastructure, can the BPS model be populated with credible data that can be used for informed evaluation of the impact of changes on business.

role of IT on the level of business processes has been extensively studied. In the example case, it was IT that effectively enabled the company to decentralise their operations. Had it not been for client-server software applications, it is doubtful if the company would be able to introduce such a scheme of operations, relying heavily on robust and timely information and data exchange. The impact of IT on computer network structures is less apparent, nonetheless no less critical. The choice and arrangement of IT applications within the workplace will impact heavily on the burden imposed on the computer networks and will therefore constrain the choice of network architectures. For example, the size and location of a remote database will influence the number of queries generated by remote nodes (for example, how often the client application accesses the central customer database at HQ), and thus will indirectly influence the choice of network links. In simulation terms, CNS models should be populated with input data on expected traffic levels that comply with the network traffic that the chosen IT applications are expected to generate. In other words, the IT-level analysis will detail and operationalise the impacts of high-level changes that might otherwise be overlooked and thus provide the ‘missing link’ between the BP and CN levels, although the IT level itself may not be explicitly present in the simulation models. Summarising, we conclude that the interrelationships between BP, IT, and CN are much more complex than a hierarchical dependency mechanism would imply. There is a need for detailed investigations of the nature of these dependencies within the context of business process change and IT investment evaluation. Such a research effort could drive the development of integrated BPS and CNS environments that will be suitable for the needs of enterprise modelling. We envisage that interface mechanisms can be built between BPS and CNS models so that the required data can be automatically exchanged.

4.2. Investment Evaluation The ultimate goal of using simulation in our example was to generate data that could feed an established investment evaluation technique, such as CBA or ROI. The data generated by simulation runs have to be combined with other data to support a thorough investigation and an informed decision on the proposed investment. To illustrate this point, Table 1 summarises the major cost and benefit factors in our example case.

4.1. The role of Information Technology So far, we have investigated the relationship between BPS and CNS, but we haven’t commented on the role of the ‘middle’ layer, Information Technology. The enabling

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Table 1. Expected costs and benefits of the proposed changes Initial Decentralise Warehouse Operations BP Change Costs C.1. Higher Inventory Levels C.2. More staff at the Regional Office level Benefits B.1. Reduced Lead Times B.2. Reduced Delivery Costs B.3. Less staff at the HQ level BP Impacts Decentralise Order Management Decentralise Credit Checking Costs --Benefits B.4. Reduced Order Management Costs IT Impacts Discard Ordering Applications and EDI software Introduce Client-Server Ordering Application Introduce Client-Server Credit Checking Application Introduce Client-Server Inventory Mgmt Application Costs C.3. New Application Development C.4. Migration Costs (legacy to new IT) C.5. User Training – Empowerment C.6. Operation/Maintenance of New Applications Benefits B.5. Old infrastructure maintenance costs eliminated CN Impacts Discard existing leased lines and PSTN connections Introduce a Corporate-wide WAN Introduce Direct Network Links between Regional Offices Costs C.7. WAN Development and Set-up Benefits B.6. Reduced time to co-ordinate inventories (due to direct links) B.7. Operating costs of old infrastructure eliminated

The costs and benefits of Table 1 can be decomposed into the following categories: • Quantitative costs and benefits (C.3. C.4. C.5. C.6. C.7. B.5. B.7. ): These refer to implementation costs or direct savings that can relatively easily be expressed in monetary terms and feed CBA/ROI analyses. • Qualitative costs and benefits (C.1. C.2. B.1. B.2. B.3. B.4. B.6. ): These refer to intangible benefits [7] or qualitative costs that cannot be easily expressed in quantitative terms and thus be incorporated in traditional investment evaluation exercises. Nonetheless, these costs and benefits are equally as important for investment evaluation. We maintain that BPS can effectively address this quantification requirement and provide decision-makers with the data they need to properly evaluate change investments. For example, simulation may be used to highlight how many employees (or other resources) are required for effective execution of the new process, or how much the average order lead time and order cost will be under the new scenario. Such data can be directly translated into CBA/ROI-compatible quantitative costs and benefits. Of course, there may be other, even more difficult to quantify, costs and benefits, which simulation cannot effectively address. These refer to either strategic benefits

(for example, obtaining new customers as a result of a superior level of service) or risk factors (for example, security risks as a result of increased exposure of sensitive company data on computer networks). The only mechanism by which such data can be incorporated in traditional investment evaluations, is by assigning monetary values to them according to their relative ‘weight’ for the company. For example, if security is a major concern for a particular process, then the security costs can be operationalised by estimating the expected cost of building extra security levels in the network or by the indirect cost of sensitive data being accessed without authorisation. It should also be noted that in cases where the proposed business change is expected to yield primarily strategic benefits or it is associated with an exceptionally high risk level, the evaluation of the investments should probably be based on some qualitative technique rather than (or in addition to) a quantitative one. Some may also argue that CNS models do not form a substantial part of an investment evaluation exercise since all (or almost all) of the data to feed a CBA/ROI analysis will ultimately come from the BPS models. However, such a claim overlooks the fact that building an credible BPS model is dependent (as we discussed previously) on being populated with data that will come from one or more CNS models. We therefore maintain that CNS modelling is an integral part of a comprehensive investment evaluation (at least in those cases where computer networks form integral parts of the proposed investments). Without the supporting evidence generated by the CNS models, little credibility can be placed on the BPS output results.

5. A Holistic Approach to IT Investment Evaluation Based on the above discussion, we can now articulate a holistic approach to IT investment evaluation by simulation. The approach consists of a number of steps that aim to transform an ill-defined problem into a set of generic, replicable actions that drive the evaluation effort. Such an approach is needed to codify experience and ideas, and to facilitate structuring, planning, and monitoring of future efforts [28]. Figure 8 depicts the approach. Table 2 presents the I.S.S.U.E methodology for business process simulation [19] to elaborate on the steps needed to be performed within the BPS step of this approach.

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Business Vision (Key Performance Indicators) Initial Change Proposal(s) Impacts on the BP, IT, and CN levels

Business Domain Data

Qualitative Costs and Benefits

Quantitative Costs and Benefits

Computer Network Simulation (CNS) IT Application Constraints

Business Process Simulation (BPS) Investment Appraisal (CBA, ROI, etc.)

Recommendations for BP/IT/CN Changes

Figure 8. IT investment evaluation by simulation Table 2. The I.S.S.U.E methodology for business process simulation [19] Initiate

Step 2.a: Define Scope and Objectives of the Organisational Design Study Step 2.b: Define Key Performance Indicators and Improvement Targets Step 2.c: Assess Current Information Technology Support Simulate Step 2.a: Elicit Process Knowledge Step 2.b: Develop Conceptual AS-IS Model Step 2.c: Validate Conceptual AS-IS Model Step 2.d: Develop AS-IS Simulation Model Substantiate Step 3.a: Verify AS-IS Simulation Model Step 3.b: Validate AS-IS Simulation Model Utilise Step 4.a: Run AS-IS Model and Analyse Results Step 4.b: Identify AS-IS Process Problems and Candidate Solutions Step 4.c: Develop Simulation Scenarios and Design Experiments Step 4.d: Identify IS Impacts and Simulation Implications Step 4.e: Develop TO-BE Simulation Models Step 4.f: Run TO-BE models, Analyse and Compare Results Estimate Step 5.a: Decide on Proposed Changes Step 5.b: Develop Migration Plan Step 5.c: Implement Changes Step 5.d: Monitor Performance

The evaluation starts from a set of proposed changes that can be initiated at any level: they can be either highlevel process changes initiated by top management and aiming at addressing specific organisational goals, or they can be more detailed infrastructure changes initiated by the IT department. Regardless of their origin, these changes should be consistent with the overall organisational strategy (vision) and be targeted to improving one or more Key Performance Indicators (KPIs), such as cost, speed, service, or quality. The next step is to identify the impact that the initial change proposals will have on other organisational facets (BP, IT, and CN). As discussed earlier, initial change proposals can trigger further change ideas within the organisation,

each delivering distinct costs and benefits that must be combined within the evaluation process. These impacts can be opportunities for further change (for example, BP changes made possible by the enabling role of IT), constraints imposed by change proposals (for example, specific IT applications or CN designs required to support a redesign business process), or operationalisations of changes (more detailed change steps that translate initial, perhaps vague, suggestions into specific courses of action). Along with the identification of change impacts, analysts must articulate the expected costs and benefits associated with each change idea. These will generally fall into two categories: a) Quantitative costs and benefits that can directly be used in an investment evaluation exercise. b) Qualitative costs and benefits that will be transformed into specific, measurable impacts by the use of CNS and BPS. The qualitative costs and benefits will be the target outputs of the simulation models to be developed. Simulation should start from the detailed level of CN and IT, with the development of models that depict the network and IT applications infrastructure of proposed changes. Business domain data and IT application constraints will be the input data to CNS and will be used to drive the experiments performed on the models. CNS will be used to arrive at specific, detailed proposals for changes at the infrastructure level. The simulation output data from the TO-BE CNS models will be used to drive the development and operationalisation of high-level BPS models. These models will in turn be used as experimentation vehicles to assess alternative process design structures. Simulation output data at this level are expected to provide the information needed to transform the initially qualitative costs and benefits into specific business performance measures (according to the stated KPIs). It must be noted at this point that the simulation will not provide monetary data outputs in all cases. It will however detail the expected impact of changes on business performance at a degree that they can be translated into ‘hard’ figures. For example, simulation can indicate how many resources (employees) are needed to perform certain activities. The number of employees can be easily translated into direct costs or savings for the business. Similarly, simulation can indicate activity duration savings that can be translated into cost reductions by methods such as Activity Based Costing (ABC) [39]. The final step in the approach will be to combine the initial quantitative costs and benefits with the simulation results into a direct CBA/ROI analysis, or any other investment evaluation technique chosen. A final remark has to be made: rarely will an investment proposal be monolithic and straightforward in

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the business domain. It is almost certain that any change proposal will consist of many parts that can be adopted either as a whole or in various combinations. For example, in our case the company can choose between adopting all the proposed changes or only a limited subset of them that will maximise expected business benefits (e.g. only warehouse decentralisation, while ordering and credit checking remain intact). Simulation can be used to experiment with various change combinations to identify the expected impacts of each on business output measures. However, since the final decision will depend on the costs of the investments as well as their expected impact, it follows that simulation alone cannot be used to identify the best available solution. Rather, the investment evaluation exercise should be repeated for each simulated scenario used for experimentation purposes and delivering ‘positive’ business results.

6. Conclusions and Further Work In this paper, we have addressed some of the problems faced by decision-makers when evaluating business process, Information Technology, and network infrastructure changes. We investigated the nature of the interrelationships of these organisational facets and we have argued for the use of simulation as a facilitator vehicle for investment evaluation. Finally, we presented the outline of an approach to the problem in order to structure and guide future application efforts. The approach we advocate is mainly targeted to business change scenarios where IT applications and computer networks play an integral part. It is also suitable for investments that are expected to yield intangible and/or indirect benefits as opposed to hard or strategic ones. Those investments providing hard benefits can be evaluated by traditional investment appraisal techniques. On the other hand, highly innovative investments that cannot be rationally justified in operational terms will always depend heavily on managerial intuition and ‘leaps of faith’ by companies. Such investments are usually associated with potentially high returns but also with equally high risks of failure. They also depend heavily on uncontrollable and unpredictable business variables (for example, environmental and market trends) that cannot be easily incorporated in simulation or other investment appraisal models. Furthermore, it is worthwhile stressing the point that the proposed approach is mainly concerned with assessing the technical side of process and IT changes in organisations. Inasmuch as organisations are sociotechnical systems [30], final change decisions should be taken only after careful consideration of human and political aspects of change management [17]. However, such aspects of change fall outside the scope of this paper. Suffice it to say that the use of simulation has been

associated with cultural shifts in organisations [29] and can assist towards communicating the need for and the essence of changes to end-users in an effort to increase the likelihood of acceptance of the proposed changes in the workplace. Another issue has to do with the complexity of the proposed approach. It may be argued that combining different simulation models may prove to be a complex and laborious endeavour that will need extensive business and technical skills to accomplish. After all, not many analysts or consultants exist that can effectively combine business and network simulation skills, let alone also master investment appraisal techniques. Moreover, the fast pace of change in business processes calls for methods and tools that can support rapid modelling and analysis to ensure that change schedules are not unnecessarily delayed. To support this need for ease of use and rapid model development, we envisage the development of automated interface mechanisms that will allow for the seamless exchange of information and data between different simulation models. On a more advanced scenario, further research could investigate the incorporation of the investment appraisal process itself in the simulation models, for example by enriching simulation software with CBA/ROI capabilities. Similar mechanisms have already been implemented to incorporate Activity Based Costing (ABC) mechanisms in BPS software packages. To address the issue of multiple change proposals that need to be evaluated in different combinations, BPS and CNS models need to be built in a modular fashion. Modularity, perhaps in the form of object libraries or repositories, will ensure that modellers can seamlessly pick and assemble simulation experiments that correspond to change scenarios to be evaluated. A number of further research avenues can be envisaged to validate and enhance the findings of our study. Reallife case studies of investment evaluation by simulation need to be pursued in order that will test our hypotheses and generate further implications of our approach in practical settings. Such a research could lead to further generalisations and, ultimately, towards a theory to explain the dynamics of BP, IT, and CN change. Such a theory could drive the development of automated tools to support the evaluation process and alleviate the problems of complexity and skills required for execution. A major research project is currently under way that will investigate the above issues. The project aims at: a) Developing acceptable, generic meta-models of business process systems, as well as techniques for quantifying the effects of IT on business performance and translating them into specific simulation software requirements and design structures. b) Integrating BP, IT, and CN modelling by Simulation. We envisage the development of a combined BPS

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and CNS Design Theory, as well as an accompanying set of methodologies, techniques, and software tools to address investment evaluation by simulation. c) Demonstrating the validity of the approach in reallife business settings in order to obtain more information on industrial relevance and potential improvements. A real-life case study is currently under way where the proposed approach is tested in the context of redesigning the Order Fulfilment Process of a multinational pharmaceuticals firm and one of the regional distributors of their products [18]. The case is concerned with evaluating the potential of introducing EDI applications and computer network links to facilitate communication and information exchange between the two firms. Preliminary results support the approach of combining business and network simulation models to support IT evaluation in the context of business process change.

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