Reaping Return on Information Technology Investment: An Empirical Study

Since the amount spent on information technology (IT) keeps on increasing with time, senior management is rightly concerned with the evaluation of their capital investments in IT. However, despite significant progress in evaluating the productivity impacts from corporate investment in IT, the inability of traditional economic measures to fully account for intangible impacts has led to for calls for a more inclusive and comprehensive approach to measuring IT business value. This paper goes beyond the notion of improving evaluation based on measurement improvements and shows that there are limits to obtaining accurate benefit and cost figures. This paper is premised on the belief that IT investments do lead to increased business value. However, for an organization to experience such increased business value, efforts have to be made to control investments and heedfully take steps to leverage IT resources. Evaluation, therefore, has to take on a continuous characteristic. Amongst the issues discussed in this paper are the relationship between the comprehensiveness of IT investment evaluation and their effects on realized returns on IT investment by an organization, executives’ perceptions about the various aspects of IT investment evaluation (costs, benefits, risks and evaluation methodology). In this study perceptual measures, as reported by IT managers, have been used to assess payoffs from IT investment. This provides an added advantage in that, unlike traditional economic measures, perceptual measures can be used to evaluate both tangible and intangible impacts. These measures include the importance and level of difficulty in measuring costs, benefits and risks and desirable features of a good IT evaluation methodology. To establish the relationship between extensiveness of IT investment evaluation and the returns on IT investment, causal model analysis has been done using structural equation modeling. The main finding is that increased attention to risks in IT investment evaluation leads to better investment control, which, in turn, results in a higher realized return on IT investment by the organization.