Enterprise information analysis: Cost-benefit analysis and the data-managed system

A gradual evolution of systems design has occurred concurrently with the introduction of each new computer generation. The initial systems design was batch-oriented, largely a replacement of clerical functions supporting operational management, which lent itself well to a financial justification using classical cost-benefit analysis and which had virtually no intangible costs or benefits to consider. With the development of the facilities to support on-line systems came the development of “management information systems” and “management inquiry systems,” providing information and data as input to functional management for tactical planning. The intangible benefits of “better management decisions” were generally noted but not assigned a value in the cost-benefit analysis. The development of data-managed management information systems and decision support systems has extended information systems capabilities that provide the potential for integrated support of the strategic planning efforts of the enterprise. These systems cannot be cost-justified on the same basis as the “clerical function replacement” systems. From an accounting perspective, the costs (investments) should be treated differently. The benefits are intangible and, therefore, difficult to assess (1) in dollar terms and (2) in probability of occurrence; however, “hard” dollars will ultimately appear on the Profit and Loss Statement of the enterprise. (Table 1 provides a summary of the differences in the financial aspects of the systems.)