Evaluating Information Technology Investments



In fiscal year 1996, executive agencies expect to obligate more than $26 billion for information technology (IT) investments and operations. This IT spending represents a critical investment of public tax dollars affecting virtually every government function. Creating a government that works better and costs less demands high returns on information technology (IT) investments and reduced systems development risks.

This guide sets out an analytical framework for linking IT investment decisions to strategic objectives and business plans in Federal organizations; it supplements existing OMB policies and procedures. OMB's objective is to provide information on 1) what OMB expects from agencies and 2) how agencies can reduce the risk and maximize the net benefits from their IT investments. The guide was written with assistance from GAO and is based on strategic information management practices in successful organizations.End Note 1, End Note 2

This guide describes the critical success elements and key phases that should be a part of a mature IT investment process. The IT investment process an agency designs should match the culture and organizational structure of the agency. The overriding objective is that senior managers be able to systemically maximize the benefits of IT investments through use of the IT investment process.

The investment process, depicted in Figure 1 below, consists of three phases: selection, control and evaluation. As Figure 1 indicates, the three phases of the investment process occur in a continuous cycle of selection, control, and evaluation. Information from each phase flows freely among all of the other phases with the exception of evaluation. The evaluation component of the process has a unidirectional information flow to the selection component. The evaluation component is used to verify or modify the criteria used during selection.

Select; create a portfolio of IT project investments that maximizes mission performance, using a standard set of criteria for consistent comparison of projects.

Control; measure ongoing IT projects against their projected costs, schedule, and benefits and take action to continue, modify, or cancel them.

Evaluate; 1) determine the actual return on investment of an implemented investment against the agency's mission and 2) adapt the existing process to reflect "lessons learned".

The control and evaluation phases are conducted throughout the year and their results are fed into the selection phase, which in turn feeds back to the control and evaluation phases.

This guide begins by identifying three attributes that characterize successful investment processes in best practice organizations. The guide then is organized by the phases of the investment process. Within each phase, the guide will describe: 1) the steps involved , 2) applicable management techniques and tools, 3) key questions to ask, and 4) examples from best practice organizations.