Financial Evaluation of Information Systems Investments

Abstract

Information systems represent a significant investment for most organizations, regardless of the industry. Managers need to understand that the decision to spend millions, or billions, of dollars on an information system should be analyzed just like any other major purchase. It seems that general management often just “gives in” to the “expert power” of the technologists, both internal and external to the organization. Calculating the Return on Investment (ROI) of an information system acquisition may not be quite as simple or straightforward as doing so for other capital expenditures. However, it is still possible, and necessary, to do the financial analysis. Discussed in this chapter are the issues involved in evaluating information system investment decisions as well as the applicability of various financial measures to evaluation of IS projects.