Information Economics: Linking Business Performance to Information Technology

by Marilyn M. Parker, Robert J. Benson

This volume extends economic theory -- i.e., cost-benefit concepts -- to the problems in strategic planning and enterprise-wide information management.

Contents

Preface

PART 1: LINKING BUSINESS PERFORMANCE AND INFORMATION TECHNOLOGY
1. Introduction to Information Economics
2. Challenges and problems
3. Information value in the business domain
4. Information value and the technology domain
5. Information economics and organizational planning
6. Costs, benefits and value
7. Planning methods: Linking business and information technology

PART 2: ELEMENTS OF INFORMATION ECONOMICS
8. Cost-benefit analysis
9. Information economic tools
10. Value linking and value acceleration
11. Value restructuring
12. Innovation
13. Business domain values and risks
14. Technology domain values and risks

PART 3: APPLYING INFORMATION ECONOMICS
15. The basis for corporate value
16. The corporate decision process
17. Applying Information Economics in a corporate setting
18. Summing up Information Economics

APPENDICES
Glossary of accounting terms
Generation of monthly cash flows
Benefits, costs and risks
Cost curves for data-managed systems
Conversion of scores to project weighted values

References
Index

287 pages, Hardcover

First published January 1, 1988

Reviews

[Alejandro Teruel · Rating 3 out of 5]

This is an interesting if somewhat dated book that focuses on the managerial problem of taking investment decisions amongst competing IT projects. As such, it is therefore clearly an application of engineering economics to Information Technology or Information Systems projects. For decades, variants of more or less detailed cost-benefit analysis in which discounted return on investment plays a key part have been proposed and tried out in engineering and IT contexts. As the authors accurately point out:

[Too much emphasis on ROI ...] has the effect of converting decision-making into a numbers game and shields management from having to understand the projects themselves. Just the term "hurdle rate" -the concept that projects have to have a minimum ROI to qualify for consideration- conveys the nature of the game played. If the project cann achieve the rate, it´s a good project; if not, it´s a bad project. Worse, the character of the benefits chosen for projects that successfully compete in a ROI context, strongly tend to favor cost reduction because of its discrete and measurable character. In many cases this is appropriate, but it isn´t appropriate to exclude from consideration the other important sources of value for projects.

Thus the authors suggest that a ROI-based cost-benefit analysis can be one of several weighted factors. Other important factors that they propose can be normalized to simple, integer valued scales from 0 (minimum) to 5 (maximum) and combined with a weighted ROI factor include business domain factors such the degree of fit or matching of the projects to the firm´s strategic objectives, their competitive advantage, the degree to which they provide key management information support, competitive response, their project or organizational risk, and technology domain factors such as their contribution to the firm´s strategic IT architecture, their definitional uncertainty, their technical uncertainty and the IT infrastructure risk they entail. For example a value of 5 is reasonably given to a project´s strategic match factor if "the project directly achieves a stated corporate goal", whereas the value, rather mootedly drops to 3 if "...the project is a prerequisite system (precursor) to another system that achieves a corporate strategic goal".
Parker and Benson clearly recognize that IT projects need to clearly provide business values:

[I]nformation systems planning, driven from the technology perspective, has a limited vision as to the possibilities. This vision limitation is essentially process oriented -the processes necessary to carry out the business of the enterprise [...] Interestingly, a similar point is made by researchers looking at potential Artificial Intelligence (AI) applications. Their point is that AI makes possible new ways of doing new things, not simply automating the old way of things in new ways.

For example, an information systems professional may look into the possibilities of a new system for an accounting department by doing data flow diagrams and data models. [...H]e may look at the operational tasks of the department, define the management control opportunities, and speculate on strategic planning possibilities for the activities of the accounting department. The driving question: How can he apply information technology to improve the functioning of the accounting department and its staff? Yet from the business perspective, the question may be more fundamental: How does the accounting department relate to business performance, and what does the business need from the accounting department? The difference between the information technology perspective and the business perspective is subtle but crucial. Starting from the information technology perspective tends to limit the vision to the needs of the business unit in question. Starting from the business perspective tends to open the vision to overall business (meaning business performance) requirements.

This provides the basis for considering what they call intangible benefits, that is to say benefits or values which are hard, if not impossible to quantify in financial terms. The authors also suggest the projects should be grouped according to whether they contribute directly to the goals of lines of business, or whether they strengthen the corporate infrastructure backbone and/or IT architecture, yet they pause and do not delve into the issue of project portfolios.

In spite of the fact that the book was published over 25 years ago (1988), and that some of its examples (particularly the ones focused on a fictitious university) are very outdated, there are still some very interesting and pertinent observations and ideas, which have percolated into IBM and Cutter Consortium IT methodologies, financial management practices suggested in frameworks like ITIL, and cascading goals in Cobit, to mention but a few examples that quickly come to mind. The authors´ ideas have been greatly enriched along several related fronts: strategic IT planning, engineering economics, financial management, project management, risk management and even developments in the science of Economics, as economists have struggled to understand and develop a theory that takes into account the value of information -a field which unfortunately bears the same name as the book, but which should not be confused with the book´s much more limited subject matter.

[Yunita1987 · Rating 3 out of 5]

This book will be guidelines as long as I complete the thesis.
This Booked will explains a method called Information Economics.
a method which has 3 important foundation that is calculated by:
- simple ROI
- Business Valuation domains, and
- Technology Assessment domain.

so that, the use of this method, the expected investment using IS / IT that is in the company
can be calculated accurately, whether the IS / IT is to benefit the company or not.
And the reason why IS / IT should be measured? because until now, there are many companies who think that the use of IS / IT only wasteful or spend lots of money. So, if the calculations using this method is applied, the manager can know the benefits later.

And the final conclusion, I hope by reading this book as a guide, I can finish this essay with a good....:)

[Helga Aprilla · Rating 3 out of 5]

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