Information Technology project evaluation

There are different types of Information Technology (IT) projects; some projects are strategic, while others are tactical, or operational in nature. When we conduct IT project evaluation, I think we need to make it very explicit that we do so from a shareholder-value driven perspective; such a perspective adopts a financial management and economic logic in evaluation. Based on this perspective, we start with an overall project evaluation approach calls cost-benefit (CBA) analysis. I think this CBA approach is compatible with the Net Present Value (NPV) and Internal Rate of Return (IRR) analysis in Financial Management.

We can use this approach to evaluate IT projects that mainly improve operational efficiency as well as projects that improve business effectiveness.  In practice, there are certain complications  involved. For example, some project benefits and costs are intangible. That basically mean that the estimates of certain cost and benefit items are subjective, uncertain, or unclear (due to poor understanding of the underlying cause-and-effect relationship on certain IT project impacts). When the costs and benefits of a project cannot be easily quantified in money terms, they can be evaluated using the scoring method (re: http://www.pd-trak.com/scoring.htm). Sometimes, we can only learn the costs and benefits of an IT project by actually using the IT application to be produced by the IT project. In this case, we conduct the IT project using the spiral model (re: http://en.wikipedia.org/wiki/Spiral_model). Peter Keen made a similar suggestion on decision support system project evaluation in the form of a value analysis approach (re: http://www.jstor.org/pss/249154). Finally, we need to bear in mind that the IT project benefits can only be realized with deliberate efforts, which are known as benefit realization management. Even with that, realized IT project benefits could be less than expected because the impact of IT can also be affected by external factors, e.g. competitive dynamics in the marketplace or other more macro-environmental factors (the various PEST factors (re: http://en.wikipedia.org/wiki/PEST_analysis).).

Other than the shareholder-orientated IT project evaluation approach, we can also consider IT project evaluation from a stakeholder perspective. Such a perspective appears to be more compatible with corporate social responsibility thinking; however, for IT project evaluation, stakeholder perspective is much less frequently adopted.

References

1. Benefits realisation management: http://en.wikipedia.org/wiki/Benefits_Realisation_Management
2. Cost-benefit analysis: http://en.wikipedia.org/wiki/Cost-benefit_analysis
3. Shareholder vs stakeholder value perspective: http://www.valuebasedmanagement.net/faq_shareholder_stakeholder_perspective.html