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Agree or disagree: Standard financial investment information and criteria are all that is needed to effectively evaluate IT outsourcing decisions - Essay Example

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Companies therefore assess their assets to make the decision of outsourcing essential. It is mainly the potential of reducing labor costs that compels any organization…
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Agree or disagree: Standard financial investment information and criteria are all that is needed to effectively evaluate IT outsourcing decisions
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Download file to see previous pages The evaluation should focus on how well the IT department or an outside IT provider supplies IT that is used to meet business requirement. The key indicators to assess will vary strongly between companies. Efficiency is often measured with the cost income ratio. Performance indicators will be, return on equity, total shareholder return, return on assets, earnings per share, and return on sales. The traditional financial methodology that is used is capital budgeting decision. Capital budgeting are those concerning investment in real assets e.g. machinery, facilities, management expertise and information technology. The useful life of IT investment tends to be shorter than real assets e.g. Land/machinery is often used for decades where as information system become obsolete in 2-5 years. Hence, capital budgeting is used in IT investment decision making and if it assumes any nature of IT that produces benefits for more than 1 year is considered a good decision.(1)
The company also needs to consider if investment in new technology is a better option than outsourcing. IT investments require upfront capital investment and measuring intangible benefits and time taken to accrue these benefits should also be considered and they are also subject to greater risks as they are exposed to physical risks which usually involves theft, data security laps, software vulnerability, redundancy of investment and also managerial risks which includes failure to achieve the required results within the time frame, more capital investment. (1)
Outsourcing of IT is a very common MIS management planning strategy. Outsourcing results in some benefits such as technology improvement which allows the outsourced company to avail new technology, financial gains by way of reducing IT payroll, recouping capital expenditure, productivity improvement, tax ...Download file to see next pagesRead More
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