MODELING AND MEASURING THE BUSINESS VALUE OF INFORMATION TECHNOLOGY

Abstract

Determining the 'business value' of information technology (IT) requires managers to choose performance measures which are well-suited to capturing the economic impacts of the application they are evaluating. In this paper, the authors discuss a promising approach for bridging the gap between a theory for rational decisions and management practice in evaluating investments in IT: Data Envelopment Analysis (DEA). The referent discipline for the discussion is production economics, and the authors review basic concepts concerning performance measurement, efficiency, productivity and economic contribution or value-added from an economist's perspective. DEA's promise lies in its ability to handle multiple input and output production environments and its management action orientation. As an illustration of this potential, DEA is applied to assessing the performance of an automated teller machine (ATM) network, an IT which creates economic impacts at various organizational levels of a commercial bank.