Information Technology investments are usually considered by the business managers in terms of costs and benefits. Soft benefits are the part of IT investment making much more complex to evaluate the investment payback. It became very difficult to determine the value from IT investments because of some organizational factors. Anyway, the evaluation of IT investments is necessary and which becomes easy with the proper use of valuation methods.
Return on Investment (ROI) is a performance measure technique used to evaluate the efficiency of an investment by comparing with different investments. This approach is used when there is no requirement of detailed analysis and the costs and benefits are clear. Moreover, the project is short lived. To calculate the ROI, the benefits of an investment if divided by investment cost and the result if expressed either as a percentage or as a ratio.
Net Present Value (NPV) is an evaluation method used to determine the profitability of an investment. NPV is a better approach when the time value of the money is a major factor and the project lasts long enough. Usually, the Net Present Value calculated as addition of present values of incoming and outgoing cash flows over the period of time. Here, incoming and outgoing cash flows described as benefits and investments respectively.
Internal Rate of Return (IRR) is an investment valuation technique used to determine the percentage rate earned on each investments over the period. Most commonly used term for IRR is ‘Interest’. IRR calculation is made by comparing return of the IT investment with the corporate policy on rate of return. The project is considered as a good investment, when the IRR of the IT is higher than the company policy.
Return on Investment (ROI) is a performance measure technique used to evaluate the efficiency of an investment by comparing with different investments. This approach is used when there is no requirement of detailed analysis and the costs and benefits are clear. Moreover, the project is short lived. To calculate the ROI, the benefits of an investment if divided by investment cost and the result if expressed either as a percentage or as a ratio.
Net Present Value (NPV) is an evaluation method used to determine the profitability of an investment. NPV is a better approach when the time value of the money is a major factor and the project lasts long enough. Usually, the Net Present Value calculated as addition of present values of incoming and outgoing cash flows over the period of time. Here, incoming and outgoing cash flows described as benefits and investments respectively.
Internal Rate of Return (IRR) is an investment valuation technique used to determine the percentage rate earned on each investments over the period. Most commonly used term for IRR is ‘Interest’. IRR calculation is made by comparing return of the IT investment with the corporate policy on rate of return. The project is considered as a good investment, when the IRR of the IT is higher than the company policy.