Evaluation of Strategic IT Platform Investments
نویسنده
چکیده
Evaluation of strategic IT investments using traditional capital budgeting methods has proven problematic. This especially entails IT platform investments where the immediate short term benefits are not sufficient to justify the investment. At the same time the investment may entail substantial, although highly uncertain strategic future benefits for the firm, subject to different types of risk depending on the type of platform, the organisation involved and the industry environment. This paper presents a conceptual framework for classifying risks associated with major IT platform investments in the Architecture, Engineering and Construction (AEC) industry. It then discusses how a real options methodology can be used to extend the classical Discounted Cash Flow (DCF) approach to evaluate and manage the investment by modelling these risks and the associated strategic flexibility. A simple but powerful binomial lattice model is developed and the methodology illustrated in a realistic example involving an ERP investment.
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