IT Investment Evaluation

Investments in Information Technology (IT) seem to go without saying.IT is said to enhance organizational capabilities, resulting in improvedproduct quality and variety, increased customer satisfaction, open upnew business opportunities and markets and hence contributing tosales increases, to name only a few expectations that arise from ITinvestments. But at the same time executives cannot specify thesebenefits or do not know how to quantify them. Improvements,enabled by IT, are often not reflected in improved financial performanceor productivity growth, although research and practice come upwith many different financial evaluation methods. But how suitable arethese methods to evaluate IT investments? To find an answer to thisquestion Uwe Wohlfahrt analyzes the characteristics of IT investmentsand different evaluations measures (such as ROI, EVA, Tobin's q, Realoptions etc.) in detail and afterwards elaborate if these methods canmeet the requirements that arise from IT investments. After showingthe status quo of IT investment evaluation in practise and anexamination if this is done properly, the author suggests a framework,which assigns evaluation measures to an appropriate IT investmentcategory. Such a framework can support executives in finding asuitable measure to evaluate a certain IT investment.