Business Value of Information Systems

Return on Investment (ROI) is a key challenge posed by information systems. Estimating the potential benefits (especially of management support systems) can be difficult. However choosing to avoid investment in technology can lead an organisation to miss important opportunities.

Business Value of Information Systems

Generally benefits can be divided into two:

1. Financial; and
2. Intangible.

Financial benefits of an information systems are easier to identify and measure than intangible ones. There are several models utilised to aid managers weigh costs and benefits of information systems, however none account for:

• Costs that do not occur in the same time period as benefits;
• Change during the course of the project; and
• Intangible benefits.

Costs and Benefits

Costs	Financial Benefits
Hardware	Increased productivity
Telecommunications	Lower operational costs
Software	Reduced workforce
Services	Lower computer expenses
Personnel	Lower outside vendor costs
Training	Lower clerical and professional costs
Integration and installation	Reduced rate of growth in expenses
Support	Reduced facility costs
Maintenance
Infrastructure (e.g. storage backup units)
	Intangible Benefits
	Improved asset utilisation
	Improved resource control
	Increases organisational flexibility
	Increased organisational planning
	More timely information
	More information
	Increased organisational learning
	Legal requirements attained
	Enhanced employee goodwill
	Increased job satisfaction
	Improved decision making
	Improved operations
	Higher client satisfaction
	Better corporate image

(K. Laudon and J. Laudon 2002).

Hidden Costs

Implementation of large scale systems effects organisations in many different respects. Apart from the obvious political issues IT managers face, data workers and knowledge workers may become disgruntled with generalised systems replacing smaller customised systems. Loss in productivity may result, because of inadequate training and inadequately customised enterprise systems at the data worker level.

Costs

Current Costs

In order to determine the value of a new information system it is essential to establish the current cost of a system. The current costs will include distribution of information, staffing and infrastructure that supports the process. Sometimes it is a good idea to calculate costs per transaction, to get an idea of the potential benefits of an information system initiative.

Estimate New System Costs

Next, estimate the process costs associated with the new system. This will allow you to distribute ongoing costs across a number of years. New system costs will include support, operations and infrastructure (e.g. backup and storage).

Calculate Upfront Costs

The upfront costs of a system are obvious: software, hardware, development, installation and training. These costs will most likely occur in the first year of system implementation.

ROI Spreadsheet*

Lee Sinclair
2nd June 2003