Economic evaluation
According to the economic evaluation, the net value of information systems to the
organization is the difference between the actual benefits, in terms of improved
organizational effectiveness, and the cost of IS development. Profits may also be
derived from subtraction of the development cost from the real profits (Ives et al., 1983).
Early research into IS assessment focused mostly on the quantitative “hard” benefits,
such as cost savings and the level of technical soundness of the system, as an
indication of its successfulness. This type of evaluation focuses on quantitative results
such as reduced costs and improved process times. Economic evaluation is the most
subjective type of evaluation, but the results cannot be fixed as there are too many
factors that may affect them.
According to Drummond et al. (1997) there are four methods of economic evaluation
which are used for:
(1) cost minimization analysis;
(2) cost effectiveness analysis;
(3) cost utility analysis; and
(4) cost benefit analysis.