Methodologies for information systems investment evaluation at the proposal stage: a comparative review

Abstract

The evaluation of information systems (IS) investments has been a recognized problem area for the last three decades, but has recently gained renewed interest of both management and academics. IS investments constitute a large and increasing portion of the capital expenditures of many organizations. However, it is difficult to evaluate the contribution of an IS investment to the goals pursued. Consequently, there is a great call for methods and techniques that can be of help in evaluating IS investment at the proposal stage. The contribution of the paper to the problem area is twofold. First, the different concepts which are used in evaluation are discussed and more narrowly defined. When speaking about IS investments, concepts are used that originate from different disciplines. In many cases there is not much agreement on the precise meaning of the different concepts used. However, a common language is a prerequisite for the successful communication between the different organizational stakeholders in evaluation. In addition to this, the paper reviews the current methods and puts them into a frame of reference. All too often new methods and guidelines for investment evaluation are introduced, without building on the extensive body of knowledge that is already incorporated in the available methods. Four basic approaches are discerned: the financial approach, the multi-criteria approach, the ratio approach and the portfolio approach. These approaches are subsequently compared on a number of characteristics on the basis of methods that serve as examples for the different approaches. The paper concludes with suggestions on how to improve evaluation practice and recommendations for future research.