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Measurement: ROI & TCO

Measuring information technology (IT) investment payoff is difficult. This is because most of IT benefits are qualitative, indirect, and diffuse. To actually measure IT investment payoffs, tangible and intangible benefits factors as well as risks factors must be identified and evaluated.

Methods for measuring information technology investment payoffH. Joseph Wen, David C. Yen, Binshan Lin

Measurement Methods

IT evaluation methods for tangible benefits¤ Return on investment (ROI)¤ Cost-benefit analysis (CBA)¤ Return on management (ROM)¤ Information economics (IE)

IT evaluation methods for intangible benefits¤ Multi-objective, multi-criteria (MOMC)¤ Value analysis (VA)¤ Critical success factors (CSF)

IT evaluation methods for risks¤ Real option (RO)¤ Portfolio approach (PA)¤ Delphi approach (DA)

Measurement Recommendations

1. The process suggests that the evaluation of both tangible and intangible benefits should be carried out for all types of IT investments.

2. The process also urges that assessing the risk of IT investments is important and required in the IT evaluation process to ensure that the benefits are greater enough to offset the risks.

3. The process recommends that the intangible benefits and risks should be evaluated prior to tangible benefits.

Measurement Recommendations

1. Adopt a multidimensional view of the IT investment payoff measurement issues.

2. Identify and embrace non-quantitative measures of IT investment payoff.

3. Be open to using a number of approaches to measuring IT investment payoff.

4. Measure IT investment payoff at various levels of the organization.

5. Measure IT investment payoff separately for different types of IT.

Does Corporate America Know How to Measure Payoff in Information Technology Investment? M. Khosrow-pour, D.B.A

Measurement Observations

The productivity paradox was analyzed and popularized in a widely cited article[1] by Erik Brynjolfsson, which noted the apparent contradiction between the remarkable advances in computer power and the relatively slow growth of productivity at the level of the whole economy, individual firms and many specific applications. The concept is sometimes referred to as the Solow computer paradox in reference to Robert Solow's 1987 quip, "You can see the computer age everywhere but in the productivity statistics."[2]

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