Capital budgeting in information systems development

The results of an empirical study on the current usage of capital budgeting techniques for evaluating, terminating, and auditing information system investments are presented. Findings based on 134 senior MIS personnel and management executives indicate that capital budgeting has little impact on IS investment, and simple techniques such a payback period and cost benefit ratio are preferred over more sophisticated discount cash-flow models. Problems with cost and return estimations are shown to be the key factors that limit their use. It is suggested that the decision authority varies according to the project value and the type of decisions being undertaken.