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CHAPTER HEADING

MEASURING THE BENEFITS OF INFORMATION SYSTEMS

It is relatively easy to measure the costs of information systems costs compared to assessing the benefits. In the past this was not so, for there were straightforward savings in respect to staffing costs and direct contributions in terms of increased productivity. Although these may still be relevant, the more sophisticated use of IS in recent years makes the relationship between the spending on the IS and the changed business situation much harder to identify and quantify. It mau be possible to identify reduced operating costs and faster processing of business processes, such as the handling of a customer order. For such cases you might compare the cost of performing some business process with the support of the new IS against the cost of performing it before the introduction of the IS (Parker and Benson

Common financial measures

(1988)) The costs that you may consider will typiucally include the costs of staff time, the materials used and equipment use. But such calculations do not take account of intangible benefits. By performing the business process with the new IS we may be providing a far better service to our customers, gwnerating loyalty and increased future sales. Or the new IS may provide higher quality information for decision-making, in terms of perhaps accuracty or currency. This will (hoefully) lead to better decisions being made - but how can we measure the value iof this?

The problem of measuring and in some way accounting for intangible benefits has been the subject of much debate. The measurement of costs and benefits is described in more detail in Remenyi (1995). There are a number of commonly used financial calculations that may be used to compare the costs and benefits of an information system. These are described below and in Robson (1997).

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Return on investment (Rol) This is perhaps the most commonly used measure though it is not one of the best being often found in IS feasibility assessments. The Rol is calculated by dividing the benefit by the investment amount and is expressed as a percentage: Where Value of benefits = Returns - Costs Benefit, ..value Investment...value

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