Dealing with technological advancements has been and continues to be a key facet of information systems (IS) manager’s job as the new information technologies continue to be introduced at a rapid rate. Among the many issues that new technology present, one of the first and an exceptionally important problem that an IS supervisor must offer with can be an economic one: should the firm choose a project involving the new technology?
Traditional capital budgeting approaches do not sufficiently answer this question. Consequently, they are seldom used. Instead, investments in new IT projects are based upon a “gut feel” or “intuition,” rather than hard evidence. A major part of the value of new IT projects accrues from future projects that use the technology.
Few benefits are obtained from the initial task. Problems in attempting to fully capture these benefits using traditional capital budgeting methods are talked about here and an alternative method of valuing new IT investments is presented. This approach is based upon the assertion that future investment in projects that use the new IT are optional. Treating future investments as optional can greatly raise the pre-investment-estimated value of a new IT project Furthermore, the effects of technological characteristics and business and environmental conditions on the value of new IT investments are discussed.
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