Dedan Kimathi University of Technology
Question
Asked 19 June 2014
Is there a method for calculating the monetary value of IT for an organization, taking tangibles and intangibles into account?
We are currently researching the impact and importance of IT from an insurance perspective - here the monetary value of IT becomes very important. Is anybody aware of an (established) method which is not necessarily estimating, but rather calculating the value? In addition, we are not looking for just the tangible elements/assets, but also the intangibles, especially the possibility of quantifying the monetary dependencies for the business model itself.
Most recent answer
i think cash flow projection of the business will work based on value of the service provided where every aspect of system used is given value from it output value
All Answers (9)
University of Jordan
Very interesting question, will look for you in my files, and if find any will post it. All the best.
The monetary value of assets for an organization is quite often an estimation , since it's not based on costs but on benefits (tangible and intangible). You could calculate the monetary value as the sum of the benefits that the organization has due to the adoption of those IT components. In this sense, you should simulate two scenarios, maybe with the Montecarlo method.
1 Recommendation
Hamburg University
Hello Barbara,
from my understanding you are already drifting too far into the question's problem here.
Let me ask you this question:
How would you calculate the monetary value of the benefits? How would you quantify/measure the benefits in order to sum them up?
I understand you idea of simulating two scenarios, but how do you get the necessary inputs?
My current thougts are widely spread, though very complex - possibly too complex:
Idea 1: Analyzing the business model, projecting it onto a generically defined enterprise architecture and define the monetary value of the corresponding elements/processes for its business model. Then investigating to what extent they are dependent on IT/IT is contributing and influencing them. In result you could get a precise monetary value of IT for a business model. Though it seems missing something from my point of view.
Idea 2: Combining ROI, earned value and net present value
I am eager to see the feedback on these two ideas!
1 Recommendation
Hello Yannick,
the calculation of the benefits depends on "why" the IT component was added and on the relation of the IT component to the activities of the organization. A good start is to look at "why" it was added/changed and measure that benefit, e.g., a new server is added in order to satisfy customers' requests more quickly ---> you look at the "mean time to satisfy a request" and then you assign a value to this time.
For the input, you can look at technical reports, statistics, talk with experts, etc. so, unfortunately, it's not an easy process.
For the idea 1, you can take a look at the Action-Profit Linkage Model:
Epstein, M. J., & Westbrook, R. A. (2001). Linking Actions to Profits in Strategic Decision Making. MIT Sloan Management Review, 42(3), 39–49.
Leiden University
I would recommend to have a look at Benefits Management: Delivering Value from IS and IT Investments by John Ward, Elizabeth Danie.
If you drop me an email I can send you some relevant material.
Hamburg University
Hey Hans,
you can reach me via yannick.bartens@uni-hamburg.de
University of Lisbon
I share the opinion of the HANS. Must do a literature review on the benefits management approach. This approach was developed especially with the focus on identifying, structuring, monitoring the benefits from the investments IS / IT in organizations.
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