Underinvestment in Information Technology?

Information Week’s Top 500 issue includes highlights of several provocative academic research articles concerning the value of information technology in businesses. The research is directed by Kevin Kobelsky of Baylor’s Hankamer School of Business, and is available for downloading at InformationWeek’s website.

One surprising result is that businesses may be treating information technology investments as too risky. The conclusion is that firms should

consider adding a premium to benefit estimates rather than discounting them.

This is especially true for large or diversified firms where better information provided to executives reduces long term risks. The general idea is that the risk return trade-off varies by type of investment, industry, and individual business and you need to consider the risk profile when prioritizing business investments.

On a more concrete level, when you evaluate the results of a business analysis for an information technology investment, you should use a lower discount rate for business benefits related to coordination (e.g. integration) and timeliness (e.g. real time data collection and reporting) than you would normally use for productivity investments.

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