Is IS evaluation different to evaluation of other investments?

23 Oct

Evaluation of IS/IT investments is generally taken to mean the identification and the measurement of capital expenditures spent on and the initial anticipated revenues gained from the deployments of information systems(Symons,1991; Ballentine et al 1999).

By the evaluation process an organisation is revealing a judgement of its preferred alternatives and establishing its priorities. Such preferences must be acknowledged since any organisation will have a finite set of resources and yet may have an infinte number of potential projects from which to choose(Robson,1997).

Monetary costs and benefits are important but not the only considerations in making IS/IT investments. Soft benefits, such as the ability to make future decisions, are often part of the business case for IS/IT investments, making it diffcult to measure the payback of the investment. The payback period is much longer in IS/IT investments than other type of capital investments because many IT investments are for infrastructure.

IS evaluation is different to evaluation of other investments for e.g. most of the time the benefits of investing in IS/IT investments are less tangible than those of buliding a plant. A manager might analyze whether the enterprise  should build a  new plant by first estimating the costs of construction. The plant capacity dictates project production level but the manager can find sufficient information to make a decision about whether to bulid. But for IS/IT investments such benefits might include faster response time, more accurate data, tighter systems integration, among others. How can a manager quantify these intangibles? He or she should also consider many indirect benefits, costs, such as changes in how people behave, where staff report, and how tasks are assigned. In fact, it may be impossible to pinpoint who will benefit from an IS/IT investment when making the decision.

Despite the diffculty, the task of of evaluating IS/IT investments is necessary. And from my resesarch, knowing which approaches to use and when to use them are  important first steps and managers should choose these approaches based on the attributes of the project.

 

 

 

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One Response to “Is IS evaluation different to evaluation of other investments?”

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  1. Taking a step back « So Opinionated … - November 2, 2012

    […] measuring intangible benefits has been discussed (https://sopinion8ed.wordpress.com/2012/10/14/41/; https://sopinion8ed.wordpress.com/2012/10/23/is-is-evaluation-different-to-evaluation-of-other-invest…) but others factors exist that contribute to making IS evaluation complicated and different in […]

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