MIS investments for operations management; Relevant costs and revenues

Abstract

Understanding the role of information, as well as assessing its value, is a critical issue when organisations consider to invest in a management information system (MIS). This paper examines the question whether it is possible to quantify the costs and benefits of an MIS investment in advance. One specific case is described to illustrate the problems that arise when the relevant costs approach is used for the evaluation of an MIS investment. It is reasoned that an investment in a management information system is intended to improve decision making. Subsequently, the improved decision making must lead to a change in relevant costs and revenues. Thus, the differential profit can be calculated, and management information system investments can be evaluated. Nevertheless, the case study in the field of production and inventory control shows that existing information quality interferes with the proposed evaluation method. Changes in future cash flows resulting from the management information system cannot be determined exactly; a higher quality of information about current operational performance is needed. The paradox is that this better information must be provided by the very information system that must be evaluated. It is concluded that the above paradox confines the ability to estimate the future cash flow streams associated with the MIS investment.