Assessment of Capital Budgeting Decisions on Information System Investments; Evidence from Ethiopian Banks

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Addis Ababa University


Preliminary surveys and literatures on information system investments suggests a high increase on the level of investment, while there appears to be a lack of concrete empirical research on the area. In an attempt to explore the extent of this presumption, this research investigates the current state of IS investment and its process within Ethiopian banking institutions. Several theories and empirical outcomes were proposed to explain the investment pattern, appraisal techniques and post investment perception of IS adopters by the study subjects. To this end, the results of the study showed that information system investments are justified by information system heads, with the investment pattern focusing mainly on transaction processing systems (100%), management information systems (95%) and communication systems (63%). Furthermore, the study revealed the wide application of simple strategic investment appraisal methods, while the level of usage of discounted cash flow techniques and sophisticated analytical and integrated techniques being low. To illustrate, Strategic techniques were found to be very popular with Technical importance and SWOT analysis being used 100% and competitive advantage and critical success factor being used by 95% of the responding banks. Adding to this findings, the study showed the degree of perception investors have on the relative advantage brought by the system and the compatibility of the system with the organizations setting, in doing so the respondents showed a positive perception that was revealed with a mean value of 4.86 and 4.43, respectively: on a 1 to 5 scale where higher value represents higher agreement. Based on this findings, recommendations were made for a divers composition of professionals and appraisal techniques on IS investment justification process. Key Words: Information System, Information Technology, Investment Appraisal Techniques



Information system, Information technology, Investment appraisal techniques