Evaluation of Information System Investments

2 Nov

Evaluation of information systems has become an increasingly key issue, it provides the crucial feedback function, helping to prevent the repetition of the same costly errors; and so the organization learns (Ian O. Angell and Steve Smithson). Evaluation of information systems is an area full of potential pitfalls.  Hochstrasser argues that the high rate of IT/IS failure is partly attributable to a lack of solid but easy to use management tools for evaluating, prioritizing, monitoring, and controlling IT investments. Voss et al, claims that technology focused investments fail due to organizational problems, and identified economic justification as a significant contributing factor.

Information system can be analyzed in a three step procedure.

  • First is evaluating intangible benefits.
  • Second is analyzing the investment and risk.
  • Third is analyzing the tangible benefits.

All the three analysis should be done to get the effectiveness of the information and how can it help the organization. The result of implementing the information system is evaluated by analyzing the success of information system implementation, investment in information system and information system functionality. Evaluation of information system must also include the success achieved in the products and the processes of the company.

Hochstrasser and Griffiths identified the overwhelming belief of many industries that they are faced with outdated and inappropriate procedures for investment appraisal, and that all responsible executives can do is to cast them aside in a bold ‘leap of strategic faith’.

They also think that to evaluate in information systems is giving monetary value to the intangible benefits from the information system. First in evaluating the information system is to calculate the total investment made in the information system that is the investment cost.

The cost would include all the costs like developing and maintaining the systems cost, the current production cost. Then one should evaluate the value which was derived by accomplishing the objective by the use of information systems. One thing to analyze is the purpose of the information systems.

According to (Irani, 2000), there are different types of information system. An information system can be a very small application which caters to the need of single activity or it can be a big system which is supporting the organization firm wide. One more type of information systems should be evaluated differently these are infrastructure investments. Infrastructure are investments on which the applications to be used in future are to be built.

An organization may have been forced by the legislations to implement the information systems. Upper management may feel the need to implement the systems and also there can be qualitative and quantitative benefits from implementing the information systems. (Butler Cox Foundation, 1990)

Earl and Runge suggest that an investment in information system can take different forms. In information it can be implemented to improve the information already in place, to remove the old system and replace it with the new system or install complete new system.

Investing in system which is very common in the industries is different from investing in the new system. Evaluation of utilization of resources also needs to be done in evaluation.

So finally the evaluation of the information system should include the following steps. These steps are Cost Identification, contribution to the strategies of business, analysis of the benefits achieved, second order effects (surprises or unpredictable effects),  flexibility it provides, implement ability, risk it brings, helping in testing a new business idea. After analyzing these eight factors, company should be able completely evaluate the information systems.

So, what do you think?

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2 Responses to “Evaluation of Information System Investments”

  1. ronnoc90 November 4, 2012 at 2:19 pm #

    Interesting post Mirra2, do you think these eight steps are applicable across varying organizations? Surely one size does not fit all?

    • mirra2 November 9, 2012 at 10:13 pm #

      Yes, I believe that these factors are applicable across an organisations. According to Richard Lynch success often means profitability, but may take on a broader meaning in some public service or non profit making organisations.

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