Fuzzy present value analysis model for evaluating information system projects.(Author abstract)

INTRODUCTION

The need for more information system projects continues to grow as we continue to witness rapid advances in information technology. The selection of the right project based on its economic analysis cannot be overemphasized. However, information system projects have numerous uncertainties and several distinguished characteristics that make their analyses challenging tasks. Information system projects have several characteristics, including a high level of professionalism, high technological base, time sensitivity of projects, interdependency among various projects, and intense collaboration of different project stakeholders. They are also subject to several conditions of uncertainty as a result of the combination of some or all of these characteristics.

Information systems (IS) are powerful and valuable tools that support communication and decision making in an organization (Alter, 1999; Ross and Beath, 2002). They use information technology (hardware and software) to capture, transmit, store, retrieve, manipulate, or display information. The era of information systems has changed completely in the last two decades because they have become essential tools for businesses to operate and survive. They are very critical for online and offline businesses and their applications are visible in several companies. Information system projects are intended to meet the information processing needs of an organization; therefore, they require the intense collaboration of different groups of stakeholders (internal and external): the project sponsor, users, suppliers, project team, support staff, customers, and even opponents to the project. Hence, the selection and implementation of the right IS project place companies in an enviable position among its competitors. The importance of the selection process has been recognized and emphasized by several researchers and practitioners (Brancheau and Wetherbe, 1987; Dos Santos, 1989; Guimaraes and McKeen, 1988; Kirby, 1996; Melone and Wharton, 1984; Ross and Beath, 2002; Santhannam and Schniederjans, 1993; Yeo, 2002). The optimal IS project is selected from several mutually exclusive or (mutually exclusive combinations of independent) projects as the case with other projects in an organization. However, IS projects involve group-oriented activities, organized and executed in teams; therefore, they are subject to all the benefits and problems of group dynamics, interactions, coordination, and communication (Ewusi-Mensah, 1997). Such interactions may be limited in other privately or publicly financed and operated businesses. The decision to invest in an information system requires proven economic analysis.

Economic analysis offers tools and techniques for evaluating risky projects, including information system projects. Those tools are not sufficient to place information system projects on a safe budget track. Some of the underlining problems are managerial, technical, and, of course, inappropriate economic evaluation techniques. Inappropriate economic evaluation techniques could lead to the selection of the wrong projects, under-budgeting, or overbudgeting. These indicate that there is a need for an

integrated approach for evaluating information system projects. The objective of this article is to develop a fuzzy model for evaluating information system projects based on their present value using a fuzzy modeling technique. This approach has the potential of enhancing the selection process of an IS project that meets organizational objectives and maximizes its benefits to the organization.

INFORMATION SYSTEM PROJECTS ECONOMICS

The techniques used to evaluate IS projects have been categorized as benefit-cost analysis, risk analysis, and financial comparisons (Alter, 2002). Generally, the benefit-cost analysis is the ratio of discounted benefits to discounted costs (Newnan et al., 2004). In economic analysis, project benefits are favorable consequences of the projects and project costs are monetary disbursements required of the sponsors. The term "dis-benefits" is also used to represent the negative consequences of a project to the organization. In relation to non-IS projects, these terms can be easily estimated within reasonable accuracy. The idea of comparing benefits and costs for IS projects may sound logical but it has limitations (Alter, 1999). Predicting either the benefits or the costs of a project may be difficult, for example, if the purpose of an information system project is to provide management information, to transform the organization, or to upgrade the IS infrastructure. Other issues include the difference between tangible and intangible benefits, the tendency to underestimate costs, the effect of the timing of costs and benefits (Alter, 2002), and the magnitude of B-C ratio for project acceptability. Information system project costs are tangible, but many of the benefits are intangible. Intangible benefits are important and should be accounted for adequately. IS cost analysis usually includes the cost of hardware, software, and programming. There are several other cost components that are easy to overlook, such as costs relating to problem analysis, training, and ongoing operation of the system. In reality, training, implementation, and troubleshooting consume so much time and effort that their costs far exceed the original cost of the hardware and software. IS project timing is another major concern. The timing of costs and benefits is typically of different streams. If the development takes longer, there will be a delay in accruing benefits and it is possible that the benefits may not be as originally anticipated. These are some sources of incomplete information in costs and benefits estimation for a valid B-C ratio analysis.

The risk analysis techniques are also usually used to evaluate information system projects. However, the amount of risk involved needs to be measured in some special way since IS projects are especially risky endeavors. Several IS projects suffer major disappointments including the possibility that the desired benefits will not be achieved or that the project will be completed late or over the budget, the inadequacy of system's technical performance, lack of user acceptance, and reduction in project importance as a result of a shift in priorities (Alter, 1999). These deviations from the ideal or expected situations require a more integrated approach for analyzing the risks involved.

The financial comparison approaches are based on the fundamental economic analysis measures of worth, such as net present value (NPV), internal rate of return (IRR), and discounted payback period (DPP). These measures also take into consideration streams of costs and benefits that are subject to the inadequacies in costs and benefits estimations stated above. Therefore, none of these measures can be said to be sufficient for analyzing information system projects with indefinite streams of costs and benefits.

Estimating either the benefits or the costs of an IS project is usually a difficult task because of several reasons. Some of the reasons are the uniqueness of each project, lack of historical data for cost estimation, indefinite streams …