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Ever since the introduction of an ‘IT productivity paradox’ by Robert Solow, the business value of information technology (IT) has been the topic of many debates by practitioners as well as by academics. Skepticism roars again in the boardrooms of many companies, as the e-business hype explodes in the face of many ‘believers’ of the new-economy gospel. Without strong technological developments to thrive upon and an uncertain economic perspective the pressure on IT budgets is high. For investments in IT the requirement of sufficient returns and a clear ‘business case’ is even more severe than before. Several surveys indicate that the issue of measuring benefits of IT investments is a concern in many organizations. Measuring IT benefits and value is frequently reported as one of the most important issues for senior IT management. In the discussions about the business value of IT, a distinction can be made between the variance approach, investigating what the relationship between IT investments and organizational performance is, and the process approach, investigating on how this relationship works.
Following the process approach, this paper describes a useful framework for assessing the organizational impact of IT. Secondly the paper considers the relation between IT impact and organizational performance and reviews the IT investment evaluation methods. The paper concludes with a proposal for a multivariable value assessment sheet, based on insights derived from the balanced scorecard theory.
Keywords:
IT business value, return on investment, real option valuation, balanced scorecard
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