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Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,Chapter 13,*,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,Chapter 13,*,Chapter 13,1,Chapter 13,Economics of IT,Chapter 131Chapter 13Economics,Chapter 13,2,Learning Objectives,Identify the major aspects of the economics of information technology.,Explain and evaluate the productivity paradox.,”,Describe approaches for evaluating IT investment and explain why is it difficult to do it.,Explain the nature of intangible benefits and the approaches to deal with it.,List and briefly describe the traditional and modern methods of justifying IT investment.,Identify the advantages and disadvantages of approaches to charging end users for IT services(chargeback).,Identify the advantages and disadvantages of outsourcing.,Describe the economic impact of EC.,Describe economic issues related to Web-based technologies including e-commerce.,Describe causes of systems development failures,the theory of increasing returns,and market transformation through new technologies.,Chapter 132Learning Objectives,Chapter 13,3,Computing Power vs.Benefits,Evaluate,the productivity,the benefits,the costs,other economic aspects of information technology,What does growth in computing power mean in economic terms?First,most organizations will perform existing functions at decreasing costs over time and thus become more efficient.Second,creative organizations will find new uses for information technologybased on the improving,price-to-performance,ratio and thus become more effective.,What is the payoff from IT investments?,How can it be measured?,Chapter 133Computing Power vs,Chapter 13,4,Moore,s Law,Chapter 134Moores Law,Chapter 13,5,Productivity,-One measure,Possible explanations of the paradox,problems with data or analyses hide productivity gains from IT,gains from IT are offset by losses in other areas,IT productivity gains are offset by IT costs or losses.,Productivity,is a ratio than measures outputs versus inputs.It is calculated by dividing outputs by inputs.On a company by company basis major benefits from information technology investments have been shown.However,it is very hard to demonstrate,at the level of a national economy,that the IT investments really have increased outputs or decreased inputs.The discrepancy between measures of investment in information technology and measures of output at the national level has been called the,productivity paradox,.,Chapter 135Productivity -On,Chapter 13,6,Benefits and Costs,-Other measures,Evaluating IT Investments,Value of Information in Decision Making,Traditional Cost-Benefit Analysis(tangibles),Scoring Matrix or Scorecard(intangibles),Distinguishing between investments in infrastructure and investments in specific applications will assist the analysis.,IT infrastructure,provides the foundations for IT applications in the enterprise(,data center,networks,date warehouse,and knowledge base,)and are long-term investments shared by many applications throughout the enterprise.,IT applications,are specific systems and programs for achieving certain(,payroll,inventory control,order taking,)objectives and can be shared by several departments,which makes evaluation of their costs and benefits complex.,Chapter 136Benefits and Costs,Chapter 13,7,Value of Information,-evaluating,One measurement of the benefit of an investment is the value of the information provided.The,value of information,is the difference between the,net benefits,(benefits adjusted for costs)of decisions made using information and the net benefits of decisions made without information.,It is generally assumed that systems that provide relevant information to support decision making will result in better decisions,and therefore they will contribute toward the return on investment.However,this may not always be the case.,Chapter 137Value of Informati,Chapter 13,8,Cost-,Benefits Analyses,-,evaluating,In,Net present value,(NPV)calculations analysts convert future values of benefits to their present-value equivalent by discounting them at the organization,s cost of funds.They then compare the present value of the future benefits to the cost required to achieve those benefits.,Return on investment,(ROI)measures the effectiveness of management in generating profits with its available assets(,the higher the better,).It is calculated by dividing net income attributable to a project by the average assets invested in the project.,Capital investment decisions can also be analyzed by,cost-benefit analyses,which compare the total value of the benefits with the associated costs.Traditional tools used to evaluate capital investment decisions are,net present value,and,return on investment,.,Chapter 138Cost-Benefits Analy,Chapter 13,9,Cost-,Benefits Analyses,-,evaluating,Chapter 139Cost-Benefits Analy,Chapter 13,10,“,Costing,”,IT Investments,-,evaluating,Placing
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