INFORMATION TECHNOLOGY INVESTMENT: RIC COMBINED METHOD

ABSTRACT

Since the advent of information technology (IT), numerous multinational corporations have used IT to enhance management and operations and gain competitive advantages. Yet, many firms’ attempts to execute IT investments have not been entirely successful in achieving the desired outcome, which has regrettably led to tragic failures. However, the decision support system for IT investment has not yet reached a stage of development where it can be developed to aid decision-making in a thorough manner to successfully handle the IT investment for global corporations. Though, with the help of the RIC method, which uses ROI, Risk Assessment and Customer Satisfaction and has been successfully tested on 10 global IT companies, you can quickly and correctly select a project in which you can invest.

АННОТАЦИЯ

С момента появления информационных технологий (ИТ) многочисленные транснациональные корпорации использовали ИТ для улучшения управления и операций и получения конкурентных преимуществ. Тем не менее, попытки многих фирм осуществить инвестиции в ИТ не были полностью успешными и привели к желаемому результату, что, к сожалению, привело к трагическим неудачам. Однако система поддержки принятия решений по инвестициям в ИТ еще не достигла той стадии развития, на которой ее можно было бы разработать для оказания помощи в тщательном принятии решений для успешного управления инвестициями в ИТ для глобальных корпораций. Однако с помощью метода RIC, который использует рентабельность инвестиций, оценку рисков и удовлетворенность клиентов и был успешно протестирован на 10 мировых ИТ-компаниях, вы можете быстро и правильно выбрать проект, в который можно инвестировать.

Keywords: information technology, it, investment, method, risk, profit.

Ключевые слова: информационные технологии, айти, инвестирование, метод, риск, выгода.

INTRODUCTION

A. Research Project Overview

Information Technology (further IT) infrastructure and architecture are now very expensive business components that require investments, yet it is often very difficult to determine whether these monetary investments will justify themselves. It may take many years to invest in building a complicated production infrastructure for an organization, and it may take just as long to build a functional IT architecture for such facilities. Companies must plan for the necessary investments and have the analytical tools to accurately assess and quantitatively forecast both the investment costs and anticipated enterprise architecture benefits [5]. Researchers defined IT investment as including investments in IT projects, computers, telecommunications, hardware, software, and services. IT along with other investments including machine acquisition and training activities have significant influences on company productivity. Meanwhile, the investment grows at speed, which shows that it coupled with company performance remains inconclusive. In recent years, academics, economists, and business professionals have examined the impact of IT investments on businesses extensively and there are numerous ways to evaluate IT investments to gain effective and efficient results [10].

B. Problem Specification

One of the most important problems in investing in IT projects is the difficulty of choosing the right method that will help determine the profitability of investments in both tangible and intangible criteria.

C. Literature Review

From the perspective of Igor V. Ilin, Anastasia I. Levina, Alissa S. Dubgorn, and Alain Abran, the development and adoption of Enterprise Architecture (EA), including its IT elements, lead to increased transparency in business operations and improved agility in business re-engineering. They also propose investment and assessment models that offer several benefits. These models enable integrated comparison of the impact of adopting IT solutions versus fragmented deployment, more accurate calculation of investment project costs, shorter investment cycles encompassing physical and IT components, and the utilization of international software measurement standards such as COSMIC-ISO 19761 for practical implementation [5]. In another study by two enthusiastic researchers, HIT investments (Health Information Technology) were analyzed in relation to hospital financial outcomes using econometric and microeconomic techniques. By optimizing the distribution of investments based on the productivity associated with each input, the researchers determined the appropriate investment amounts for a global portfolio, providing a desired confidence level [9]. A paper published in 2015 [1] by Ali suggests that Information Technology Investment Governance (ITIG) is a crucial organizational competency that illuminates the relationship between IT investments and business performance. The study is based on resource-based theory and argues that ITIG enables organizations to maximize the benefits derived from their IT investments. An insightful research paper by Berghout in 2013 [2] emphasizes the advantages of creating detailed business cases for IT projects. While it requires substantial resources, developing such business cases is worthwhile, especially for organizations undertaking unfamiliar IT projects. These cases provide a better understanding of the project's business value and facilitate informed decision-making. To complement earlier studies and propose future research possibilities, Chen suggests the development of an effective IT investment decision model for global organizations. This model would demonstrate the applicability and utility of a framework for IT investment decision support [3]. Research conducted by Anggraeni Widya Purwita and Apol Pribadi Subriadi [10] highlights that the valuation of IT investments is influenced by two criteria: tangible and intangible benefits. Gender and IT investment decision-making [11] is a significant area of study, as mentioned in Witra's paper. Women's risk-averse behaviour has implications for investment efficiency, particularly in complex calculations. Female managers, according to Mirza's research, contribute to an asset's efficiency and help organizations minimize unnecessary spending, especially in developing economic contexts. Furthermore, Shin's research indicates that the presence of female directors strengthens board monitoring and directly impacts decision-making. Given the continuous increase in IT spending, understanding what makes IT investments profitable is crucial. Lee's study emphasizes the importance of considering how technology is utilized to achieve business outcomes rather than solely focusing on IT itself. The study examines the link between IT spending and business expansion based on real-world data, stressing the need for businesses to prioritize investments that yield bottom-line results and navigate the IT paradox effectively [7].

METHODOLOGY

We consider our research quantitative research, as we explore something better. In order to solve the investment problem, we have created a method called RIC and uses three criteria (Fig.1).

1) R stands for Risk (Risk Assessment)

2) I stands for Investment (Return On Investment)

3) C stands for Customer (Customer Satisfaction)

Each criterion is responsible for the main investment parameters: 1) both tangible and intangible; 2) tangible; 3) intangible, so that the method produces the best predictable result.

RIC method 

                                                                        (1)

where:

 = Risk Assessment

 = Return On Investment

 = Customer Satisfaction

Figure 1. RIC method

A. Risk Assessment

The Risk Score is a relevant measure for the assessment of a stock’s attractiveness. 0 % corresponds to a very high risk and 100% corresponds to a very low risk. Evaluating the risks associated with an investment is crucial. Investors analyze factors such as market volatility, economic conditions, regulatory risks, technological risks, and operational risks to determine the level of risk exposure and the potential impact on investment returns.

B. Return on Investment

ROI measures the profitability of an investment by comparing the return or profit generated to the initial investment cost. It helps assess the potential financial gains or losses associated with an investment (Fig.2).

                                                 (2)

Figure 2. ROI data

C. Customer Satisfaction

Customer satisfaction can be measured using customer surveys or feedback mechanisms. The results can be expressed as a percentage of satisfied customers, indicating the level of customer satisfaction with the investment.

         APPLICATION AND RESULTS

In order to check the results, data from Macrotrends [8], Infront Analytics [6] and Comparably [4] websites were used. We selected 10 companies and their readings from the last 5 years, then checked the results (Fig.3).

By using the RIC method we can get different results, but there are certain values that show the level of investment reliability.

30 % and less - not recommended to invest in the company

30 % until 60 % - recommended to invest in the company

60 % and more - highly recommended to invest in the company

For these 10 companies, we got good results - now we know whether it is recommended to invest or not and we see that formula actually works.

CONCLUSION AND FUTURE WORKS

Based on the results obtained using the RIC formula, it can be argued that it works correctly. This research takes into account tangible, intangible and both tangible and intangible factors. One of the main criteria for obtaining a more accurate investment analysis is taken. The formula helps to quickly determine the correctness of the investment. Since this study was successful, further work is planned to possibly change the criteria in this formula (for example, consider Cost Benefit Analysis (CBA), Return of Assets (ROA), etc.) in order to possibly find an even more accurate method for companies of various types, ranging from small to the world’s largest giants of the IT industry.

Figure 3. RIC method results for IT companies

References:

1. Ali S., Green P., & Robb A. Information technology investment governance: What is it and does it matter // International Journal of Accounting Information Systems. 2015. Vol. 18. P.1-25.
2. Berghout E., & Tan C.W. Understanding the impact of business cases on IT investment decisions: An analysis of municipal e-government projects // Information and Management. 2013. Vol. 50. P.489-506.
3. Chen P.S., Yen D.C., Lin S.C., & Chou C.S. Toward an IT investment decision support model for global enterprises // Computer Standards and Interfaces. 2018. Vol. 59. P.130-140.
4. Comparably. Comparably - website with financial data [Electronic resource]. URL: https://www.comparably.com/brands/  (accessed: 01.05.2024).
5. Ilin I.V., Levina A.I., Dubgorn A.S., & Abran A. Investment models for enterprise architecture (EA) and IT architecture projects within the open innovation concept // Journal of Open Innovation: Technology, Market, and Complexity. 2021. Vol. 7. P.1-18.
6. Infront Analytics. Infront Analytics - website with financial data [Electronic resource]. URL: https://infrontanalytics.com  (accessed: 01.05.2024).
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8. Macrotrends. Macrotrends - website with financial data [Electronic resource]. URL: https://www.macrotrends.net/  (accessed: 01.05.2024).
9. Meyer R., & Degoulet P. Choosing the right amount of healthcare information technologies investments // International Journal of Medical Informatics. 2010. Vol. 79. P.225-231.
10. Purwita A.W., & Subriadi A.P. Information technology investment: In search of the closest accurate method // Elsevier B.V. 2019. Vol. 161. P.300-307.
11. Witra W.P.P., & Subriadi A.P. Gender and information technology (IT) investment decision-making // Elsevier B.V. 2021. Vol. 197. P.583-590.