Measuring IT Value Paper - Essay Example

Measuring Information Technology Value Introduction There are complete ways in which organizations can measure and viewbusiness value in relation to any form of IT initiative or system. In order for an organization to create business value it has to consider worth created within the internal IT, business procedure with consumer levels. Organizations have the mandate to initiate IT systems with clarified business reasons. This fact is sensible since from the value of a system is measurable through context of business priority.

One has the responsibility to consider that business priority at either the most imperative top or base line pay-off by the system. Another possible way is to distinguish the initiative expected from the priority to the business. The payoff has to provide a value that drives the success of the business. There are numerous systems with the capability to generate value, but to make a decision on the most significant measure is essential for alignment with the policies of the business. Metrics that measure the effectiveness of Information System and Information Technology In the business industry, there is always incorporation of numbers, which affirms that the information technology has to be part of the equation.

Research confirms that the metrics applied to compute the value of IT resources with the investments in an organization alter as CIOs exceed classic return-on-investment and total-cost-of-ownership formulas(Zee, 2009). The reason why these CIOs exceeds the two imperative formulas is to prioritize investments within their organizations. A good number of Information technology and business managers seem to have discovered novel metrics that they can apply to measure the effectiveness of both IS and IT in an organization.

There were claims that to conduct effective measures, the managers gut their entire metrics look through the placement of IP-based system services supplier to the side. There are some organizations such as the Hewlett Packard that opt to carry out a cost-benefit analysis that aims every project to determine the returns provided. In this case, the returns refer to projected operating earnings (Zee, 2009). These projected operating earnings according to Hewlett Packard tend to be either the investments dropped to the baseline or advanced revenue opportunities.

Some additional metrics that are relevant to measure the effectiveness of IT include the figure of lively projects, duration spent by organization on innovation against the sustainability of technology, and cost-benefit examination on completing projects. Methods used to measure the economic value of an Information Technology department to a company Economic value is an important aspect in the definition and measurement of value within an organization. In cases where an organization plans to make decisions that have an influence on the economic choices such as trade-offs in the distribution of resources, economic value is vital.

To take measures on economic value depends on what an individual’s preference (Zee, 2009). In an organization, the economic value measurements are determinable through maximum amount related to other things that the organization is willing to surrender in order to acquire a particular item. In an organization’s information technology department, economic value depends on the state at which the organization wants to establish its department. It is definite that there must be a height of willingness to acquire a certain product applicable to the department in order to determine the economic value.

Models for assessing the Information System value put in place by the Information Technology department From the present day state of organization with Information technology departments, it is evident that an accurate assessment of the latent value with the influence of an information system speculation has turned out to be an essential. The overall cost of the information system increases gradually due to the commoditization of hardware and software. There are other areas that are part of the organization’s information technology department such as labor and organizational costs, which keep escalating (Koller & McKinsey, 2010).

This intense situation puts pressure on the Information System professionals to start business perspective consideration. The professionals have to develop appropriate measures that they can view their systems projects from a business perspective. The appropriate business perspectives for such a case have to incorporate implementation of several quantitative approaches to enable an effective assessment to determine the value of an information system. Traditional Financial Ratios and Measurements Determine the Value of IT There are requirements to come up with a type of standard at a precise financial measurement that makes sure there is a validation within information technology.

In any given organization, it is obvious that need for knowledge of the returns from the investments made. Traditional techniques applicable in accounting are essential for calculations on financial returns from the investments of the organization (Koller & McKinsey, 2010). The traditional financial ratios also provide the net present value with internal rate of the returns. It is important to take note that the information system contains more in relation to investment returns. The IT department always contains an additional secondary benefit that is measurable through the application of other recital indexes.

Conclusion The value of information technology is imperative for any given organization in the present day and one has to take note that the measurement process is essential. It is valuable for an organization to conduct a valuation process of information system within an organization. Through the application of returns on investments with additional financial metrics hardly deducts the mustard without help. With the application of information technology assessment techniques where IT proficient’s and business applicants to take responsibility for dependable basis that can improve investment returns within an organization’s IT department.

Reference Zee, H. T. M. (2009). Measuring the value of information technology. Hershey, PA: Idea Pub. Koller, T., Goedhart, M. H., Wessels, D., Copeland, T. E., & McKinsey and Company. (2010). Valuation: Measuring and managing the value of companies. Hoboken, N.J: John Wiley & Sons, Inc.