ReturnonInvestmentAnalysisforE-businessProjects.docVIP

Main Takeaways An Information Paradox existed during the 80s in which there was an apparent inconsistency of IT spending and productivity – proved to be false as the conclusion was based on aggregate data averages of the entire US economy. Review of Basic Finance Time Value of Money - $1 today is worth more than $1 in the future ROI includes Internal Rate of Return (IRR) which is compared to the Weighted Average Cost of Capital (WACC), Net Present Value (NPV), and Payback Period Also must consider the non-quantifiable benefits that may result such as the option value Uncertainty, Risk, and ROI – in analyzing ROI, a good assessment of the underlying assumptions and potential risks must be factored in. This includes sensitivity analysis of the major assumptions and consideration of non-quantifiable risks Before deciding on an IT investment, it is important to understand the strategic context of the firm within a given industry. The goal is to synchronize e-business and IT investments with the corporate strategy (value disciplines) More In-depth Summary Some factors to consider when making an investment decision include: The assumptions underlying the costs of the project. The assumptions underlying the potential benefits. The ability to measure and quantify the costs and benefits The risk that the project will not be completed on time and on budget and will not deliver the expected benefits The strategic context of the firm; that is, does the project fit with the corporate strategy? The IT context of the project: that is, does the project align with the IT objectives of the firm, and how does it fit within the portfolio of all IT investments made by the firm? Productivity is defined similarly to ROI in the introduction – it is the amount of output produced per unit of input – and although easy to define, it can be very difficult to measure for a firm. The output of the firm should include not just the number of products produced, or the number of sof