VALUE AND COST OF INFORMATION
The value of information
is measured in terms of benefits to the organization. The benefits may be
tangible that can be easily quantified. For example, 5% increase in sales is a
tangible benefit, which corresponds to Rs. 50,000. If the cost of the information
that led to this additional profit is Rs. 20,000. Then the value of the information
is Rs. 30,000. Sometimes, the benefits may be intangible and cannot be easily
quantified. For instance, the information may help consumers to connect to a company
better. The employees may feel respected in an organization if more information
is shared with them. In both the cases, the attrition rate will decrease and
the corresponding benefit cannot be directly measured in terms of financial benefit
to the organization.
In fact, whenever an
organization identifies an opportunity for using information to its advantage,
it develops an information system. However before developing the system, a
cost/benefit analysis is done to figure out net benefit of the system. There are
many methods to assess value of information system, which is explained below.
1) Cost-benefit Analysis
IT project and
investments has to take its place in the queue for all too scarce cash resources,
and the rules for justifying are the same as for any other project.
A more sophisticated
argument is that, because the risks inherent in decision about IT are higher,
the expected ROI needs to higher before an investment can be justified.
