Last Updated 10 Aug 2020

Financial performance – IT investment

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However, according to Hu and Plant (2001) cited in Sam Lubbe, discovered that there was no increase in the level of financial performance. Rather, it is the other way round – increased financial performance lead to increased IT investment. However, the study conducted by Emre Berk, Kamran Moinzadeh, Kar Yan Tam on the impact of IT capital on business performance of four newly-industrialized economies (NIEs) during the period 1983 and 1991 and found that the following observations- 'first, IT investment is not correlated with shareholder's return.

Second, there is little evidence that the level of computerization is valued by the market in developed and newly-developed countries. Third, there is no consistent measurement of IT investment as indicated by the mixed results across different performance ratios. " The organization may face a sudden raise of need for new investment, which in many cases is very vaguely calculated in terms of money, as the IT interment involves multiple factors to consider. The Costing models of IT projects vary and show different outputs and hence the figures are not always constant.

There are additional costing emerges from time to like, infrastructure and training costs that emerge very quickly than other segments due to high depreciation, innovation and high attrition rates in IT sector. However the following two examples shows a value improvement and direct ROI as a result of IT investment. Eg - 1: “Mitre Corporation, in 1995, launched a collaborative component to their intranet, called Mitre Information Infrastructure.

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To date, Mitre has invested $7. 2 million in the MII, netting an ROI of $62.1 million in reduced operating costs and improved productivity. ” (Source: usabilityfirst. com) Eg-2: “Diamond Bullet, a Foraker company, redesigned the architecture of a state government portal site that increased users' success at finding information from 72% to 95%, reduced their time in finding information by 62%, and resulted in significantly higher user satisfaction ratings. This led to an estimated savings of at least $1. 2 million per year for the citizens of the state and increased revenue for the state estimated to be at least $552,000.”

(Source: usabilityfirst. com) Importance of infrastructure: The performance gain from the investment in IT is measured in the quantifiable terms like ROI. But ROI of IT depends on infrastructure which includes human resource, capital availability, telecommunication network and power supply. According to Mike Martin, most of the IT budget goes on to applications which merely keep the organization in line with the rest of the industry, or offer a temporary, but easily replicable advantage.

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The maintenance of the applications requires infrastructure. The presence of satisfactory infrastructure is related to the ROI in IT because the adoption of IT requires supporting network of electricity, telecommunications and skilled people. In the field of information technology, infrastructure is a very crucial component. Implementing a cost effective IT Infrastructure that aligns with organization’s business strategy is essential to ensure the success of the Information Technology (Peter Weill, 1992).

Financial performance – IT investment essay

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