AFM241 Final: Final notes.11
30 May 2018
School
Department
Course
Professor
- A study found that functional and physical scope resulted in a positive impact on market
valuation. Altogether, investors responded even more favorably to ERP projects that had
the greatest organizational integration potential.
6.5 Summary and Concluding Remarks
- ES adoption is one of the most challenging IT investments that a firm will undertake.
- Managers must decide between not investing in ES where they would fall behind the rest
of the industry or dealing with the many risks associated with ES implementation by
investing in it.
- A way to determine the cost of ES is to use total cost of ownership (TCO) where
hardware, software, professional services and internal staff costs are recognized in the
timeline involving initial installation and a two year following period.
- As a company grows, the number of users goes up, thus increasing software and
services costs.
- The costs of ERP remain expensive regardless of the type of company.
AFM241 Chapter 7 Notes: Evaluation of IT Investments
7.1: Introduction
o Investments in enterprise system require more elaborate evaluation.
o Evaluation of these benefits and costs have been one of the trademarks of IT capable
firm
o Objectives of evaluation of IT projects:
o It helps managers think carefully and quantify expected benefits and costs of
proposed IT initiatives.
o It makes managers suggesting investments aware that there are limited
resources and preference should be given to projects giving the highest payoff.
o Introduces an element of accountability as well as benchmark for evaluating
the actual performance of IT investments
o Typical measured for evaluation includes payback period, return on investment,
internal rate of return, and net present value
o Payback: time it takes to recover the initial investment
o Tends to favour short-term projects
o Does not consider returns that occur after the payback period
o Ignores the time value of money
o ROI: takes into consideration the entire lifecycle of an investment but does not account
for the time value of money
o Payback & ROI are used when the need for a detailed analysis of a project is not very
important small in size and implementation time and when the expected costs and
benefits are relatively clear
o IRR: actual rate of return from an investment or the interest rate that makes the PV of
expected benefits equal its costs
o Accounts for time value of money but depending on the cash flows of a project
it may have more than one IRR
o NPV: does not have these limitations and have been the traditional tool for evaluating
investment proposals
o NPV and IRR are suitable and tend to be sued for IT projects which are relatively
large and their expected benefits/costs stretch over several years.
7.2: Capital Budgeting Analysis
o Madam Souza, CEO of BlueBikes, decided to acquire and relatively old manufacturing to
produce bikes.
Document Summary
A study found that functional and physical scope resulted in a positive impact on market valuation. Altogether, investors responded even more favorably to erp projects that had the greatest organizational integration potential. Es adoption is one of the most challenging it investments that a firm will undertake. Managers must decide between not investing in es where they would fall behind the rest of the industry or dealing with the many risks associated with es implementation by investing in it. As a company grows, the number of users goes up, thus increasing software and services costs. The costs of erp remain expensive regardless of the type of company. Afm241 chapter 7 notes: evaluation of it investments. Investments in enterprise system require more elaborate evaluation: evaluation of these benefits and costs have been one of the trademarks of it capable firm, objectives of evaluation of it projects: It helps managers think carefully and quantify expected benefits and costs of proposed it initiatives.
