IT investments present 'substantial risk'
Date : 01 01 2008 Category : Technology
VNUNET.COM Latest updatesRobert Jaques, vnunet.com, Wednesday 2 January 2008 at 00:00:00
US scientists warn investors to be careful
A study of Fortune 1000 companies shows that investments in IT carry a higher risk than other capital investments. A report by Sanjeev Dewan, Charles Shi and Vijay Gurbaxani of the University of California at Irvine found that IT investments are "substantially riskier " than ordinary capital investments. The study has been published in the current issue of Management Insights in the journal Management Science. IT investments are associated with a "substantial risk premium" driven in part by the lost option value of making irreversible capital investment decisions. A key implication of the findings is that managers should apply a substantially higher discount rate when evaluating IT investments relative to other types of less risky capital investments. The results also suggest that the timing of IT capital investment is a critical factor in managing the risks and returns. Management Science Report: Investigating the Risk-Return Relationship of Information Technology Investment: Firm-Level Empirical Analysis
