Justifying the investment in information systems

Wessels, P. (2003-06)

The original publication is available at http://www.sajim.co.za/


The environment in which organizations operate has changed dramatically over the last few years. Increased competition, globalization, the influence of the Internet and international events affect the performance and survival of organizations on a world-wide scale. The Internet has changed the way organizations do business, from the acquisition and servicing of customers to the management of their relations with suppliers. This is not only revolutionizing the way people access information, communicate, shop and entertain themselves, but also the way organizations compete and operate. With the extensive use and familiarity of the Internet, a trend has developed where organizations are moving their information systems to Web-centered information systems. A Web-centered information system interrelates all the different information systems in an organization using Web-based technologies and interfaces. Organizations also use the Internet to electronically provide innovative products and services. Users in organizations are demanding that the information systems used by the organization should become more efficient and effective. Therefore, organizations are forced to invest heavily in the deployment of information systems to obtain value and benefit, and to stay competitive in this new environment. According to the Gartner Group (2002), world-wide spending on information communication technology alone totaled over $2,7 trillion in 2001, with an estimated wastage of 20% on corporate information technology budgets with purchases failing to achieve their objectives. Although information systems expenditure is regarded as costly and risky, many information systems investments appear to go ahead without the use of formal investment appraisal and risk management techniques (Ward 1996). However, tougher economic times are forcing businesses to treat information technology (IT) investments just like other fixed investments that are driven by sound business considerations and not hype (Van der Merwe 2002:116). The old argument, that it is not necessary to formally justify the investment in information systems because they are strategically important to stay 'in business', is being questioned. In a business environment where senior managers and decision makers are held more and more accountable to the shareholders for their investment decisions, the need for using generally accepted techniques and methods to justify the investment decisions exists. This research investigated some relevant issues regarding the decision to invest in information systems, as well as the methods that organizations currently employ to justify their investment in information systems.

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