In this topic 6 sections
Establish a baseline and include modest improvements
Compare proposals against a realistic continuation option: what performance, costs and risks would occur without the proposed investment? Also consider limited changes to the existing system. A better summary, exception report or drill-down facility may reveal patterns already present in the data. Missing or unreliable input data requires a different remedy.
Management information systems can provide periodic summaries, exception information and reports requested for particular questions. Choose the form that serves the decision rather than measuring improvement by report volume.
Concept sources: OpenStax, Introduction to Business, section 13.3, book published 2018 — management reports and decision support; the linked page is a maintained edition.
Examine the whole process from capture to use. A faster report is of little benefit if it arrives after the decision, uses inconsistent definitions or leaves the underlying bottleneck unchanged.
Evaluate value through several lenses
These approaches address complementary questions. A functioning installation demonstrates delivery; it does not establish that the intended business outcome has improved.
| Evaluation lens | What it examines | Practical application |
|---|---|---|
| Objectives and derived value | Whether actual outcomes meet the original purpose | Compare customer waiting time with the agreed service objective |
| Decision payoff and financial evaluation | Whether better decisions produce benefits worth their costs | Estimate avoided losses, additional contribution and implementation costs |
| Value-chain analysis | Where activities create benefits or remove constraints | Trace how an information change affects procurement, delivery and customer support |
| Weighted ratings and information economics | Relative merit across financial and non-financial criteria | Weight agreed criteria, assess evidence and compare proposals or a project portfolio |
Weighted scores expose judgement. Explain scales and weights, test their effect on rankings and avoid counting the same advantage several times.
Concept sources: GAO, Information Technology Investment Management, March 2004, “Defining the Portfolio Criteria” — selection criteria and relative weights.
Soh and Markus explain why expenditure does not automatically become improved organisational performance: conversion into useful capabilities and their subsequent use matter. This supports examining adoption and business effects between purchase and final outcomes.
Concept sources: Soh and Markus, How IT Creates Business Value: A Process Theory Synthesis, ICIS 1995 — abstract and sections 2–3; full paper.
Build a complete benefits and costs schedule
Tangible benefits can be credibly quantified in financial terms, such as a reduction in paid processing hours. Intangible benefits, such as better confidence in information or improved customer experience, are harder to price reliably. They still belong in the assessment, supported by observable indicators where possible. Do not invent a monetary value merely to fit a spreadsheet.
| Cost group | Items to investigate |
|---|---|
| Acquisition and setup | Equipment, software, development, configuration, interfaces and migration |
| Transition | User testing, training, temporary parallel operation and disruption |
| Continuing operation | Subscriptions, support, communications, maintenance and upgrades |
| Resources diverted | Staff capacity or other opportunities sacrificed to deliver the project |
Distinguish one-off and recurring amounts, internal and external resources, and cash expenditure from other economic costs. Avoid double counting a staff payment and the same staff time as an additional cash outflow. Hours released become cash savings only where payments actually fall; otherwise they may create capacity for other work.
Opportunity cost is the value of the best alternative forgone. An irrecoverable past expenditure is a sunk cost and should not favour a replacement proposal or justify retaining a poor system. Focus on amounts that differ between the available choices.
Concept sources: OpenStax, Principles of Accounting, Volume 2, section 10.1, book published 2019 — relevant, sunk and opportunity costs; maintained online edition.
Test cash-flow timing and uncertain assumptions
Financial appraisal should recognise when costs and benefits occur. Net present value discounts future incremental net cash flows at an appropriate required return and subtracts the initial investment. Keep assumptions about inflation, tax and the discount rate consistent. A positive estimate depends on the forecast, rather than guaranteeing the result.
Concept sources: OpenStax, Principles of Accounting, Volume 2, section 11.4, book published 2019 — discounted cash-flow appraisal; maintained online edition.
Sensitivity analysis changes an assumption to expose its effect; scenarios change several related assumptions together. GAO's historical appraisal guidance calls for documented baselines, life-cycle costs, benefits, risks and sensitivity of estimates.
Concept sources: GAO, Assessing Risks and Returns, February 1997, section 2.2, printed page 40 — project appraisal and assumptions.
Assign responsibility for risks and realised benefits
A business case needs an implementation path. Poor consultation can create an unusable design; scarce specialists can delay work; overruns can consume expected savings. Technology or applicable requirements may change. Migration errors can interrupt operations, while inadequate training can prevent effective use.
Assess likelihood and consequence, assign owners and choose responses. Test conversion with reconciliations and recovery arrangements. Schedule training around actual work and provide support during changeover. Record each benefit's baseline, measure, owner and expected timing, then compare actual results after implementation. Explain shortfalls and correct causes rather than declaring success because the system is running.
- Set objectives and baseline
- Compare alternatives and whole-life effects
- Test assumptions and risks
- Assign delivery and benefit owners
- Implement and measure outcomes
- Correct or reconsider
Sources and further reading
- OpenStax, management information systems: report formats and decision support.
- Soh and Markus, 1995 publisher record: processes connecting investment with business value.
- OpenStax, relevant information: opportunity and sunk costs.
- OpenStax, discounted cash flows: the NPV illustration's method.
- GAO, February 1997 risks and returns guide: business cases, assumptions and review.
- GAO, March 2004 investment framework: weighting portfolio criteria.