There are techniques to evaluate IT projects because:
- IT projects require a lot of capital of which firms tend to have a limited amount
- opportunity cost of choosing an investment
- IT projects have big impact on business processes which will affect the organization
Business cases are created (business case question)
- why are we doing this project?
- how does it address key issues?
- cost? time?
- ROI? payback period?
- risks of doing project? not doing project?
- alternative projects?
- how to measure success?
Economic Justification Process (used to justify IT initiatives)
1. assess business requirements for IT project
2. potential solutions to address those business problems
3. evaluate benefits, costs, risk for all options
4. combine info to estimate value prop
5. formalize business case recommendations
To align with business requirements, IT initiatives needs to reduce gaps between current and
desired performance levels shown on their strategy map Need to link technology with critical
1. specific business processes affecting critical success factor
2. problems with current business processes
3. opportunities to address issues
4. technology that would improve issues
Complementary changes to IT:
- Providing training
- redefining job descriptions
- reconfiguring tasks
- offering incentives
Benefit – positive consequence of IT investment
1. revenue enhancement: more sales opp
2. revenue protection: protect existing revenue stream
3. cost savings (ex. inventory management reduces cost of inventory)
4. cost avoidance (ex. install current software to accommodate changes to regulations)
*not to facilitate work from home
Benefits > cost To quantify benefits of tech:
- simulate impact on key performance indicator on F/S
- get an expert opinion
- compare chance of getting benefits with investment vs benefit of not investing (real
- use actual experience of other firms that made similar investments in similar situations
to estimate benefit (external benchmark)
Forecasting effects of change:
1. assess current performance by looking at output and input for process
2. consider change and forecast benefit of new processes
Relevant cost: incremental expense to create, implement, and operate proposed IT
Total acquisition cost = direct cost + indirect cost to get and run technology