Business value of information technology : an applied framework to assess the business value of IT and maximize the impact of IT strategy

Abstract

Information Technology (IT) is a major enabler of business, yet the most questioned of investments. Time and again, the question asked by senior executives is: What is the business value of IT to our firm? This question is coming in from all directions and bringing to bear enormous pressure on the CIO role. More challenging is the expectation that the business value of IT projects be converted to cash flows, albeit for the sake of easy comparability among projects. The crux of the issue facing organizations with regard to assessing IT projects derives from the fact that there is now wide variety in the nature of such projects and consequently great differences in the nature and measurability of project benefits. Many organizations would like to reduce all benefits from all IT projects to a comparable financial metric, such as NPV based on investment and cash flows returns. While calculating the dollar value of IT projects may not be realistic, anything that helps managers to get a "sense" of, or better judge, the value of IT projects is money on the table. The approach to the thesis is to find a methodology to valuate IT projects. The solution that is recommended is a framework that is accompanied by a survey. The survey probes the business project manager and IT project manager of each project to asses the extent of benefits and risks that impact the objectives of both business management and IT management. It also probes the business unit manager to assess the importance each of these benefits and risks to the business strategy of the business unit. Based on the responses of the business unit manager, business project manager, and IT project manager, the survey assigns weights to the benefits, risks, and the responses, and then computes an Expected Business Value score and an Expected Technical Value score for each project.