The effective measurement and management of IT costs and benefits

The rapidly increasing level of expenditure on information technology in most organisations is one reason why IT benefits management has become an important business concern.

Top management have begun to insist that much more attention be paid to the economic aspects of information systems. This had led to a great demand for a comprehensive IT metric. However, little attempt has yet been made to produce a complete approach to understanding the economics of how information is used to boost the efficiency or effectiveness of companies.

This second and fully updated edition of The Effective Measurement and Management of IT Costs and Benefits provides a basic framework for an understanding of the economic issues of information as well as some suggestions as to how a company's IT efforts may be appraised.

The authors discuss a number of different evaluation concepts as well as reviewing several approaches to cost and benefit measurement. An IT Assessment Metric (ITAM) is proposed which allows firms to measure their progress towards obtaining maximum value from their information technology efforts.

- A professional level book for the computer Weekly Professional Series- Provides a basic framework for an understanding of the economic issues of information as well as some suggestions as to how a company's IT efforts may be appraised.

Professional Series	p. xi
About the authors	p. xiv
How to use this book	p. xvi
Preface to the first edition	p. xvii
Preface to the current edition	p. xix
Foreword	p. xx
1 The elusive nature of IT benefits	p. 1
1.1 Introduction	p. 1
1.2 Economics of information	p. 2
1.3 Some progress in understanding information systems	p. 3
1.4 The problems with IT benefit measurement and management	p. 4
1.5 Investment, value and economics	p. 9
1.6 IT investment as an asset	p. 13
1.7 Processes, practices and people	p. 14
1.8 Looking for benefits and value	p. 15
1.9 Primary stakeholders	p. 15
1.10 The locus of responsibility	p. 17
1.11 Summary	p. 20
2 Why evaluate information technology investments?	p. 23
2.1 Introduction	p. 23
2.2 Different approaches to evaluation	p. 25
2.3 Establish the costs	p. 28
2.4 The problems of benefit evaluation	p. 29
2.5 Summary	p. 31
3 Aspects of the IT investment decision process	p. 33
3.1 Are IT investment decisions different?	p. 33
3.2 Must-do IT investments	p. 36
3.3 A core business investment decision	p. 37
3.4 Investment in a prestige project	p. 39
3.5 Investments in research and development	p. 42
3.6 An IT investment	p. 44
3.7 A way forward	p. 50
3.8 Summary	p. 54
4 Issues and techniques for IT evaluation	p. 57
4.1 A concept of value	p. 57
4.2 Value as a function of context and perception	p. 58
4.3 Measuring business performance	p. 60
4.4 When is performance measured	p. 62
4.5 The assessment of IT effectiveness	p. 64
4.6 Purpose of the IT investment	p. 66
4.7 Matching the assessment effort to strategy	p. 66
4.8 Different approaches to measurement	p. 67
4.9 Intangible benefits	p. 68
4.10 Specific methodologies	p. 71
4.11 Classification of methodologies	p. 79
4.12 Choice of evaluation methodology	p. 83
4.13 Summary	p. 83
5 Identification of IT costs	p. 85
5.1 Introduction	p. 85
5.2 The costing process	p. 86
5.3 Acknowledging cost portfolios	p. 88
5.4 Direct cost portfolio	p. 89
5.5 Indirect human cost portfolio	p. 90
5.6 Indirect organisational cost portfolio	p. 92
5.7 Summary	p. 94
6 IT cost control	p. 95
6.1 Introduction	p. 95
6.2 An IT or IS department budget	p. 96
6.3 Assumptions underpinning IS management	p. 99
6.4 Situational audit	p. 100
6.5 Future requirements--the strategic information systems plan	p. 101
6.6 Methods for cost improvement	p. 102
6.7 The commercialisation of the It department	p. 104
6.8 Summary	p. 105
7 It business case accounting	p. 107
7.1 Introduction	p. 107
7.2 Concepts required for business case accounting	p. 107
7.3 Pattern of costs	p. 110
7.4 Sources of cost estimates	p. 111
7.5 Business case accounting in practice	p. 112
7.6 Cost displacement	p. 112
7.7 Cost avoidance	p. 116
7.8 Decision analysis	p. 117
7.9 Impact or time release analysis	p. 119
7.10 How to put a financial estimate to an intangible benefit	p. 120
7.11 Transformate analysis	p. 121
7.12 Ex-post investment evaluation	p. 122
7.13 Processes for business case accounting or financial analysis	p. 123
7.14 Deterministic analysis	p. 124
7.15 Summary	p. 126
8 Risk analysis	p. 129
8.1 Introduction	p. 129
8.2 Using spreadsheets for risk analysis	p. 133
8.3 Worked examples	p. 138
8.4 Financial risk review process	p. 147
8.5 Summary	p. 147
9 Evaluation of the IT function	p. 149
9.1 A holistic approach to IT function evaluation	p. 149
9.2 Goal-centred versus systems' resources	p. 151
9.3 Tangible versus intangible benefits	p. 152
9.4 User information satisfaction (UIS)	p. 153
9.5 A gap approach to measurement	p. 154
9.6 A gap model applied to an office automation system	p. 160
9.7 Basic results	p. 166
9.8 Some implications arising from the analysis	p. 168
9.9 Performance analysis	p. 170
9.10 Factor analysis	p. 173
9.11 Summary of findings	p. 180
9.12 Analysing qualitative information	p. 180
9.13 A multiple gap approach to measuring UIS	p. 190
9.14 Using a questionnaire approach to measure It effectiveness	p. 204
9.15 Summary	p. 205
10 Ranking and scoring	p. 207
10.1 Introduction	p. 207
10.2 Five steps to evaluation	p. 207
10.3 A spreadsheet system for overview evaluation	p. 210
10.4 Summary	p. 212
11 Value for money and health checks	p. 213
11.1 Efficiency and effectiveness studies	p. 213
11.2 A value for money study	p. 214
11.3 Setting up a value for money study	p. 215
11.4 Detailed planning of the study	p. 217
11.5 Analysing the results	p. 222
11.6 A list of action points	p. 224
11.7 A health check review (HCR) study	p. 224
11.8 NCC HCR study	p. 225
11.9 Summary	p. 229
12 Designing It surveys for benefit measurement	p. 231
12.1 Introduction	p. 231
12.2 What is a survey?	p. 232
12.3 Approaches to data collection	p. 232
12.4 Sampling	p. 235
12.5 Questionnaire design	p. 244
12.6 Measurement scales	p. 254
12.7 A guide to conducting a survey	p. 257
12.8 Summary	p. 258
13 Evaluation and project management	p. 261
13.1 Introduction	p. 261
13.2 The traditional approach	p. 262
13.3 Moving away from the traditional approach	p. 265
13.4 Active benefit realisation	p. 266
13.5 The evaluation process	p. 267
13.6 The ABR pictures	p. 273
13.7 Using the pictures	p. 283
13.8 Summary	p. 286
14 Final thoughts	p. 287
14.1 Introduction	p. 287
14.2 No obvious methodology	p. 288
14.3 Start with the high level view	p. 289
14.4 Know the purpose of the evaluation	p. 290
14.5 Evaluation is never trivial nor inexpensive	p. 291
14.6 A tool kit	p. 292
14.7 A change in culture	p. 292
14.8 Summary	p. 293
Appendices	p. 295
A Glossary of terms	p. 295
B Acronyms	p. 307
C Financial measures used in cost benefit analysis	p. 311
D Factor analysis	p. 315
E Sample sizing scenarios	p. 323
F Measurement of IS effectiveness--a questionnaire	p. 331
G Active benefit realisation--a questionnaire	p. 337
H Issues addressed in effectiveness surveys	p. 345
I Bibliography and reading list	p. 349
Index	p. 357

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