Measuring IT value and metrics for IS department effectiveness

¶ … metrics to measure the effectiveness of IS and IT values within an organization. The paper provides the differences between Effectiveness IT metrics and Efficiency IT metrics. The financial indicators and technical indicators are used to measure the IT values within IT department. The paper also draws the examples of conceptual model and IS success model in assessing the IS value in the IT department. The traditional financial ratio such as Return on Equity (ROE), and economic value which include level of productivity, increase in profitability and improvement in data accuracy have also been used to measure IT value.

In a contemporary business environment, Information Technology (IT) has become a powerful tool that business employs to achieve competitive advantages. IT improves time-to-market, enhance product quality, and decision support system. While firms incur substantial costs on IT to enhance business performances, measurement of IT investment is essential to examine the extent the IT has been able to enhance cost savings, business reputation, and improved productivity. Measuring the IT values is essential to measure the benefits that can be derived from the IT investments.

The objective of this paper is to recommend various metrics that could be used measure value in the IT department.

To measure the effectiveness of an IT department, the paper provides metrics to measure IT value in the IT department.

Metrics to Measure the Effectiveness of IT Department

One of the difficulties to manage an IT investment is the challenges in measuring the IT values. Effectiveness IT metrics measures the extent IT has been able to affect organizational performances. This includes customer satisfaction and conversion rates. On the other hand, Efficiency IT Metrics refers to the technical aspects, which includes availability and rate of speed with reference to transactions. Both the effectiveness and efficiencies of IT metrics are used to measure IT value within an organization.

Information Technology is an intangible asset that needs to be measure to determine the extent the IT investments has been able to improve organizational performances. The metrics to measure IT values are:

Financial Performance Indicator

Technical Performance Indicators

Bardhan, Krishnan, Lin (2004) argue that financial performance indicator includes return on assets (ROA), return on equity (ROE), increase in profitability, and return on investment (ROI).

On the other hand, Technical Performances Indicator reveals the extent the computer hard and software installed in the IT department have been able to improve company performances. Many organizations invest in IT to improve the efficiency of Human Resources Department (HRD). For example, firms use Human Resources Information System (HRIS) to enhance the performances of the human resources. In collaboration with the IT department, HRIS investments could used to be measure the extent the IT has been able to improve employee performances, and reduction of employee turnover. In addition, system availability and responsiveness, quality, speed and efficiency of the software used in the IT department are used to measure the effectiveness of the IT department.

Added to the financial and technical metric, there are methods to measure economic value of an IT department of a company.

Methods to Measurement of Economic Value of an IT department

In implementing the IT investment decision, the costs come up first before the benefits are realized. Net current value of future costs and benefits are used measure the economic value of the IT investment. Malec (2009) draws an example of the economic value of the IT investment in the Healthcare practice. The author argues that some hospitals have implemented the Electronic Health Record (EHR) in medial practice. Measurement of the economic values of the IT investment in the health organization includes improvement in patient safety, reduction of medical errors, process improvement, and improvement in the communication with the healthcare providers and the patients.

In addition, the economic value of IT department could also be measured in term of:

Better Inventory Control

Reduction in paper form

Greater labor productivity

Increase in the productivity of the other departments

Improvement in the data accuracy

There are different models to be used in assessing the IS value put in place in the IT department.

Models for assessing the IS value in IT department

Chung, Rainer & Lewis (2006) argue that the conceptual model is critical in assessing the value of information system (IS) in the IT department. The conceptual model states the concepts such as connectivity, modularity and compatibility in assessing IS value. Organization with the high level of connectivity, modularity, and compatibility will possess high technical infrastructure flexibility in the IT department. Compatibility is the ability to share information across the technological components within an organization, while IT connectivity is the ability to communicate effectively across an organization. Modularity is the ability to easily configure IT infrastructure for business process. As being revealed in the Fig 1, the conceptual model empowers employees and makes data readily available within an organization.

Fig 1: Conceptual Model

Source: Chung, Rainer & Lewis (2006).

However, DeLone & McLean (2003) argue that IS success model provides significant relations between information quality, user satisfaction, individual impact and organizational impacts. The model suggests that relations between information quality, user satisfaction, individual impact and organizational impacts enhance information quality, accuracy, decision-making performances and quality of work.