A system dynamics tool for IT investments.

Abstract

Systems dynamics modeling is the technique of constructing and running a model of an abstract system in order to study its behavior without disrupting the environment of the real system. The process simulated in this study, that is, evaluation of IT investment projects, is one of increasing importance as it has been observed that 90% of all senior IS managers have no idea how to determine the value of information systems. In an era where cost overruns and cancelled projects cost millions of dollars, a simulation tool which can rapidly calculate the benefits to be derived from an information system can be very useful. The existing literature identifies noticeable gaps between academic theories, commercially available methodologies and actual evaluation practices promoted by organizational rules and structures, informal practices implemented by stakeholders and academic recommendations which are not used in practice. Problems relating to evaluation of IT investment projects were established-. Understanding these problems would in the long run reduce losses due to failed IT investments. In this study, five different methodologies were investigated taking into account the suitability or goodness of the framework, bias, focus and complexity. The System Dynamics Methodology was found to be the best as the others had serious shortcomings. A model derived from earlier work by Seddon et al., as well as Delone and Mclean was used to construct a dynamic hypothesis that helps to realize the interrelationships between the critical variables. A causal loop diagram derived from the dynamic hypothesis was also constructed. A simulation tool for evaluating IT investment projects was developed to help managers cut down on time spent debating investment decisions, cut down on costs, reduce information overload and help researchers evaluate related problems. The simulation tool was used to analyze how different variables interact to affect the total benefits of an information system. It was observed that only a strong interaction of people, information, and technology can improve business performance, and consequently lead to Information Systems success.