A fuzzy goal programming model for strategic information technology investment assessment

Abstract

Purpose-The high expenditures in information technology (IT) and the growing usage that penetrates the core of business have resulted in a need to effectively and efficiently evaluate strategic IT investments in organizations. The purpose of this paper is to propose a novel two-dimensional approach that determines the deferrable strategy with the most value by maximizing the real option values while minimizing the risks associated with each alternative strategy. Design/methodology/approach-In the proposed approach, first, the deferrable investment strategies are prioritized according to their values using real option analysis (ROA). Then, the risks associated with each investment strategy are quantified using the group fuzzy analytic hierarchy process. Finally, the values associated with the two dimensions are integrated to determine the deferrable IT investment strategy with the most value using a fuzzy preemptive goal programming model. Findings-Managers face the difficulty that most IT investment projects are inherently risky, especially in a rapidly changing business environment. The paper proposes a framework that can be used to evaluate IT investments based on the real option concept. This simple, intuitive, generic and comprehensive approach incorporates the linkage among economic value, real option value and IT investments that could lead to a better-structured decision process. Originality/value-In contrast to the traditional ROA literature, the approach contributes to the literature by incorporating a risk dimension parameter. The paper emphasizes the importance of categorizing risk management in IT investment projects since some risk cannot be eliminated.

Literature Review – Using Multi-Criteria Decision-Making Methods in Information Technology (IT) Investment

“…The process of evaluation and selection involves simultaneous consideration of several attributes to rank available alternatives and choose the best [20]. Some studies reveal that investment evaluation methods provide a framework for measuring risk and benefits [3]. The results of literature, Multi Criteria Decision Making (MCDM) can use to evaluate IT project investment.…”

“…Some studies use the MCDM method for IT project investment have previously been implemented. The current literature review offers several IT investment methods that provide a framework for quantifying risks and benefits [3]. The framework is created using several Multi-Criteria Decision Making methods to produce the right decisions.…”

“…[5] Fuzzy AHP is proposed to tolerate obscurity and ambiguity in information. And [3] using fuzzy AHP for the risks associated with each investment strategy are quantified using a group. While in IT project selection MCDM, besides being used to determine criteria, it is also used to rank the priority order of projects that will be implemented.…”

An alternative IT investment framework based on university learning model in asset management

“…Fuzzy logic and goal programming have been applied together with the ROA as an alternative tool for the strategic IT investment (Zandi and Tavana, 2011). ROA was used to prioritise the investment options according to its value.…”

Ranking important factors on information technology in development free zone markets: An AHP implementation

“…They developed a conceptual framework by setting a linkage between organizational strategy and CSF of information system implementation in terms of three propositions and analyzed the data to verify the conceptual framework. Zandi and Tavana (2011) presented a fuzzy goal programming model for strategic information technology investment assessment. They proposed a novel two-dimensional method, which determines the deferrable strategy with the most value by maximizing the real option values while minimizing the risks associated with each alternative strategy.…”