Developing a frame of reference for ex-ante IT/IS investment evaluation

Abstract

Investment appraisal techniques are an integral part of many traditional capital budgeting processes. However, the adoption of Information Systems (IS) and the development of resulting infrastructures are being increasingly viewed on the basis of consumption. Consequently, decision-makers are now moving away from the confines of rigid capital budgeting processes, which have traditionally compared IS with non-IS-related investments. With this in mind, the authors seek to dissect investment appraisal from the broader capital budgeting process to allow a deeper understanding of the mechanics involved with IS justification. This analysis presents conflicting perspectives surrounding the scope and sensitivity of traditional appraisal methods. In contributing to this debate, the authors present taxonomies of IS benefit types and associated natures, and discuss the resulting implications of using traditional appraisal techniques during the IS planning and decision-making process. A frame of reference that can be used to navigate through the variety of appraisal methods available to decision-makers is presented and discussed. Taxonomies of appraisal techniques that are classified by their respective characteristics are also presented. Perspectives surrounding the degree of involvement that financial appraisal should play during decision making and the limitations surrounding investment appraisal techniques are identified.

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