The classical approach
Classic Information Economics
Information Economics regards the ex-ante
assessment of IT investments. It is regarding
both the individual project and the project
portfolio and is meant as a frame work in order
to assign the scarce IT budgets in such a way
that the highest Added value is generated.
Information economics is a multi criteria analysis
instrument taking into account both tangible
indicators as intangible indicators.
The subject of Information Economics was developed by Parker and Benson (see Benson, 1991).
Main used Benefit Indicators (1)
1. Return on Investment (ROI)
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a
number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the
cost of the investment; the result is expressed as a percentage or a ratio.
The return on investment formula:
It is also possible to use similar indicators as net present value, etc
2. Strategic Match (SM)
Strategic match assesses the degree to which the proposed project responds to established corporate and
business strategies and goals. This dimension emphasizes the close relationship between IT planning and
corporate planning, and it assesses the degree to which a potential project contributes to corporate
Main used Benefit Indicators (2)
3. Competitive Advantage (CA)
Competitive advantage evaluates the degree to which the proposed project provides an advantage in the
marketplace, for example, inter-organizational collaboration through electronic data interchange.
4. Management Information (MI)
Management information is an assessment of a project's contribution to management's need for
information on core activities, e.g., activities directly involved in the realization of the firm's mission, as
distinguished from support and accounting activities.
5. Competitive Response (CR)
Competitive response evaluates the degree of business risk associated with not undertaking the project.
Main used Benefit Indicators (3)
6. Service and Value (SV)
Measurements of customer satisfaction (service and value) must be made from the customer's viewpoint.
This measurement takes into consideration such things as ease of
access, credibility, competence, reliability, courtesy, security and responsiveness. It also attempts to
measure the degree to which customers "like" to do business with the company.
7. Strategic IT Architecture (SA)
Strategic IT architecture assesses the degree to which the proposed project fits into the overall
information systems direction. It assumes the existence of a long-term IT plan, i.e., an architecture or
blueprint that provides the top-down structure into which future data and systems must fit.
Main used Risk Indicators (1)
1. Strategic Uncertainty (SU)
Strategic uncertainty is an assessment of the degree to which the business strategy is likely to succeed.
That is, information technology projects associated with a risky business strategy are also at risk, a fact to
consider in assessing a project's viability.
2. Organizational Risk (OR)
Organizational risk is an assessment of the degree to which an information systems project depends on
new or untested IT or Business skills, management capabilities, or experience.
3. IT Infrastructure Risk (IR)
The assessment of IS infrastructure risk is essentially an environmental assessment, involving such factors
as data administration, communications, distributed systems, etc. It assesses the degree to which the
entire IT organization is both required to support the project and the degree to which it is prepared to do
Main used Risk Indicators (2)
4. Definitional Uncertainty (DU)
Generally, definitional uncertainty assesses the specificity of the user's or business' objectives that are
communicated to the IT project personnel. When the user cannot properly describe a problem, the
technology department is hard-pressed to supply an answer (quality of requirement engineering).
5. Technology Uncertainty (TU)
Technology uncertainty assesses a project's dependence on new or untried technologies, which may
involve a single technology or a combination of new technical skills sets, hardware, or software tools.
Framework for Assessment of Projects
Every participant is scoring the project at the assessment items. The individual
scores are added and a mean result is calculated in order to prevent
manipulation of outcomes. Large differences between individual scores should
Assessment of an individual project
Name Function ROI SM CA MI CR SV SA SU OR IR DU TU
Average W ei ght
ROI = Return on Investment Score tabel
SM = Strategi c M atch 0= Of no Importance
CA = Competi ti ve Advantage 1= Of somewhat i mportance
MI = M anagement Informati on 2= Of l i ttl e i mportance
CR = Competi ti ve Respons 3= Of i mportance
SV = Servi ce and Val ue 4= Of great i mportance
SA = Strategi c IT Archtecture 5= Of very hi gh i mportance
SU = Strategi c Uncertai nty
OR = Orgi ni zati onal Ri sk
IR = IT Infrastrcuture Ri sk
DU = Defi ni ti onal Uncertai nty
TU = Technol ogy Uncertai nty
Framework for Assessment of Projects
• The framework can also be used in
communication with the business or from the
• Scoring can be done by a fixed group and/or
by project related stakeholders (However one
should take into account that stakeholders
tend to over/under-estimate scoring).
• A variance based on the statistical deviation
can be used to analyse the effect of mavericks.
Framework for Portfolio Assessment
The whole portfolio is assessed on al criteria. All criteria have received there
own weight. Based on added value and risk a score of importance can be
Assesment of Project Portfolio
Added Value Risks
Cri teri a ROI SM CA MI CR SV SA SU OR IR DU TU
Rel ati ve i mportance
W ei ght +/- + + + + + + - - - - -
A 0 0 0
B 0 0 0
C 0 0 0
D 0 0 0
0= Of no Importance
1= Of somewhat i mportance
2= Of l i ttl e i mportance
3= Of i mportance
4= Of great i mportance
5= Of very hi gh i mportance
The results of a portfolio assessment can also be plotted in a matrix table. The
matrix provides more information on Added Value vs Risks.
Added Value Score
A ssessm en t of Pr oject A
A ssesm en t
N am e Fu n ct i on RO I SM CA MI CR SV SA SU OR IR DU TU
A 3 4 3 2 5 3 0 2 3 2 4 1
B 4 5 3 4 5 2 1 2 3 3 5 1
C 4 5 3 4 5 1 1 2 3 1 5 1
D 4 4 3 2 5 0 0 2 4 3 5 1
A v er age W ei gh t Pr oj ect A 3,8 4,5 3,0 3,0 5,0 1,5 0,5 2,0 3,3 2,3 4,8 1,0
Assesment of Project A within Portfolio
Added Value Risks
Criteria ROI SM CA MI CR SV SA SU OR IR DU TU
Relative importance 4 5 4 3 2 4 3 2 4 3 3 2
W eight +/- + + + + + + - - - - -
A 3 4 5 3 3 5 2 1 2 3 2 5 74 37 37
B 4 4 4 4 4 4 4 3 2 2 5 3 80 32 48
C 3 3 1 5 2 5 1 1 1 1 1 1 60 11 49
D 4 3 3 3 3 3 3 3 3 3 3 3 60 33 27
In this example project A has a positive score, but is only third in line within the
Assessment Matrix example
The assessment matrix shows that none of the projects is good enough to
The model can be extended with a weight for Project costs in order to make
choices from a scarcity point of view.
Assesment Matrix with size
80 B 30
30 25 D
0 5 10 15 20 25 30 35 40 45 50 55 60
It is not only possible to have analysis per project, but also it is
possible to cluster projects to themes.
In PPM Deci si on process
• Continuity (Maintain) Budget
– Budget needed to keep to keep business momentum Pri ori ty < K€ 250 >= K€ 250
Mai ntai n No Yes
– Budget needed for mandatory changes Improve No Yes
Leadershi p Yes Yes
• Efficiency (Improve)
– Budget needed based on ROI for => K€ 250,-
• Business Innovation (Leadership)
– Budget reserved for high risk business innovation
• IT Innovation (Leadership)
– Budget reserved for high risk IT innovation
• Budget limits (<K€ 250,- change)
R.J. Benson (1991), Determining the value of
information Technology, in: “Handboek
J.A. Oosterhaven (2007), ICT-strategie en –
organisatie in theorie en praktijk, Sdu
Uitgevers BV, Den Haag.
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