Preliminary Thoughts on Cost-based Investment Decisions in IT: A Problem Analysis

Abstract

IT investments are evaluated using varying criteria, in which financial aspects play a central role. Today a financial estimation of the Total Cost of Ownership (TCO) or the Life Cycle Cost (LCC) is one of the pillars of IT investment decisions. While this approach works well for known cost factors, we argue that the existing cost-based approaches are insufficient for handling cost associated with stochastic elements (risks). In this paper, we present a short review of existing cost-based investment evaluations and use an example to illustrate why we feel that these approaches do not cover all necessary aspects of the consequences triggered by IT investments. We also suggest a rough outline for a solution to this problem as a roadmap for our future work.