Methodologies for Investment Evaluation: A Review and Assessment

Methodologies for Investment Evaluation: A Review and Assessment

Egon Berghout (Delft University of Technology, The Netherlands) and Theo-Jan Renkema (Eindhoven University of Technology, The Netherlands)
Copyright: © 2001 |Pages: 20
DOI: 10.4018/978-1-878289-90-2.ch005
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Abstract

The evaluation of information technology (IT) investments has been a recognised problem area for the last four decades, but has recently been fuelled by rising IT budgets, intangible benefits and considerable risks and gained renewed interest of both management and academics. IT investments already constitute a large and increasing portion of the capital expenditures of many organizations, and are bound to absorb a large part of future funding of new business initiatives. However, for virtually all firms, it is difficult to evaluate the business contribution of an IT investment to current operations or corporate strategy. Consequently, there is a great call for methods and techniques that can be of help in evaluating IT investments, preferably at the proposal and decision-making stages. The contribution of this chapter to the problem area is twofold. First, the different concepts, which are used in evaluation are discussed and more narrowly defined. When speaking about IT investments, concepts are used that originate from different disciplines. In many cases there is not much agreement on the precise meaning of the different concepts used. However, a common language is a prerequisite for the successful communication between the different organizational stakeholders in evaluation. In addition to this, the chapter reviews the current methods for IT investment evaluation and puts them into a frame of reference. All too often new methods and guidelines for investment evaluation are introduced, without building on the extensive body of knowledge that is already incorporated in the available methods. Four basic approaches are discerned: the financial approach, the multi-criteria approach, the ratio approach and the portfolio approach. These approaches are subsequently compared on a number of characteristics on the basis of methods that serve as examples for the different approaches. The chapter concludes with a review of key limitations of evaluations, suggestions on how to improve evaluation practice and recommendations for future research. This chapter draws on earlier work as published in Renkema and Berghout (1997), Berghout (1997), and Renkema (1996; 2000).

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Table of Contents
Preface
Wim Van Grembergen
Acknowledgments
Wim Van Grembergen
Chapter 1
Chad Lin, Graham P. Pervan
Information systems / information technology (hereafter referred to as IS/IT) now represents substantial financial investment for many... Sample PDF
A Review of IS/IT Investment Evaluation and Benefits Management Issues, Problems and Processes
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Chapter 2
John Thorp
Information technology is today transforming all aspects of our lives — how we work, shop, play and learn. It is transforming our economic... Sample PDF
The Benefits Realization Approach to IT Investments
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Chapter 3
Judy McKay, Peter Marshall
It appears that somewhat of a dichotomy exists in many contemporary organisations with respect to the question of investment in information and... Sample PDF
The IT Evaluation and Benefits Management Life-Cycle
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Chapter 4
Vassilis Serafeimidis
Information technology (IT) and information systems (IS) have become an organizational necessity in order to support routine data processing... Sample PDF
A Review of Research Issues in Evaluation of Information Systems
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Chapter 5
Egon Berghout, Theo-Jan Renkema
The evaluation of information technology (IT) investments has been a recognised problem area for the last four decades, but has recently been... Sample PDF
Methodologies for Investment Evaluation: A Review and Assessment
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Chapter 6
Vassilis Serafeimidis
Information systems evaluation is embedded in many social and organisational processes, and thus is a particularly complex decision process.... Sample PDF
The Institutional Dimensions of Information Systems Evaluation
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Chapter 7
Carla Wilkin, Rodney Carr, Bill Hewett
IT Evaluation is essential, given that the value of investment in the IT industry is currently almost $2 trillion US. There is no doubt that an... Sample PDF
Evaluating IS Quality: Exploration of the Role of Expectations on Stakeholders' Evaluation
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Chapter 8
Nandish V. Patel
Until the beginning of the 1990s, information systems (IS) were generally viewed as largely a support for business activity and were justified using... Sample PDF
Evaluating Evolutionary Information Systems: A Post-Modernist Perspective
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Chapter 9
Soo Kyoung Lim
As information and communication technologies have rapidly developed in the 1990s, enormous changes have taken place everywhere. At work... Sample PDF
A Framework to Evaluate the Informatization Level
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Chapter 10
Kenneth Murphy, Steven John Simon
The goal of this chapter is to demonstrate how cost benefit analysis can be applied to large-scale ERP projects, and that these methods can... Sample PDF
Using Cost Benefit Analysis for Enterprise Resource Planning Project Evaluation: A Case for Including Intangibles
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Chapter 11
Michael Rosemann
The management of Enterprise Systems (ES) software consists of two main tasks: the implementation and the use, stabilisation and change of this... Sample PDF
Evaluating the Management of Enterprise Systems with the Balanced Scorecard
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Chapter 12
Mahesh S. Raisinghani
This chapter presents a comprehensive model for optimal electronic commerce strategy and extends the relatively novel Analytic Network Process (ANP)... Sample PDF
A Balanced Analysis Approach to Strategic Electronic Commerce Decisions: A Framework of the Evaluation Method
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Chapter 13
Wim Van Grembergen, Ronald Saull
The balanced scorecard (BSC) initially developed by Kaplan and Norton, is a performance management system that enables businesses to drive... Sample PDF
Information Technology Governance through the Balanced Scorecard
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Chapter 14
Bram Meyerson
The pace of business and technological change continues to accelerate and the gap between business requirements and the capability of Information... Sample PDF
Using a Balanced Scorecard Framework to Leverage the Value Delivered by IS
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Chapter 15
Peter Verleun, Egon Berghout, Maarten Looijen, Roel van Rijnback
In this chapter, established information resource management theory is applied to improve the development and maintenance of large balanced... Sample PDF
Management of Large Balanced Scorecard Implementations: The Case of a Major Insurance Company
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Chapter 16
Nancy Eickelmann
This chapter describes the integration of the Capability Maturity Model (CMM) and ISO-9126 software measurement frameworks with the National... Sample PDF
Integrating the Balanced Scorecard and Software Measurement Frameworks
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Chapter 17
Nancy Eickelmann
Organizations have become increasingly dependent on information technologies to conduct daily operations, achieve competitive advantage and to... Sample PDF
A Comparative Analysis of the Balanced Scorecard as Applied in Government and Industry Organizations
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About the Authors