Macpherson

Jerry Upshaw is the CIO for Great Midwestern Bank. As the CIO, he oversees the IT

portfolio and must allocate capital against a list of candidate IT projects. Most of the projects

involve improvements or enhancements to the IT infrastructure. Such improvements are geared

towards increasing customer functionality, enabling marketing efforts, or meeting specific

regulatory requests.

As the chairman of the IT Portfolio Committee, Jerry receives cashflow projections for

projects that are of interest to the enterprise. Each project has an executive sponsor or champion.

In conjunction with the CFO, the IT Portfolio Committee must determine which projects can be

funded each year. The task is to select a group of projects that is best in the sense of providing the

highest present value of projected cashflows. The bank utilizes a 7-year planning horizon and

considers its cost of capital as 10% (even though it is actually lower).

The on-line bill pay team has identified a project, Project 1 that allows customers to link

their checking account for bill paying to companies and individuals. There is expected investment

in the first year and a major update will be required in year 5.

The IT team has submitted the “Account Reconciliation and Identification” project, listed

as Project 2. Great Midwestern Bank has grown from a series of acquisitions of local banks. This

has resulted in a bank with many redundant systems. Moreover, many of the banks are operated

in the same geography, meaning that overlap in customers was inevitable. Still, the auto finance

platform came from yet another bank. The result is an IT infrastructure that does not reconcile a