Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

IT Investments at Fortune 1000 Companies Are Riskier Than Ordinary Capital Investments

03.01.2008
A study of Fortune 1000 companies shows that investments in information technology carry higher risk than other capital investments, according to the Management Insights feature in the current issue of Management Science, the flagship journal of the Institute for Operations Research and the Management Sciences (INFORMS®).

Management Insights, a regular feature of the journal, is a digest of important research in business, management, operations research, and management science. It appears in every issue of the monthly journal.

“Investigating the Risk–Return Relationship of Information Technology Investment: Firm-Level Empirical Analysis” is by Sanjeev Dewan, Charles Shi, and Vijay Gurbaxani of the University of California at Irvine.

Investment decisions are guided by both expected returns and incremental risks, the authors note. Yet, outside of anecdotal evidence, very little is known about the riskiness of information technology (IT) investments, which make up an increasingly dominant component of firms’ capital asset portfolios. This paper attempts to fill this gap by analyzing a large-scale data set of IT capital spending by Fortune 1000 companies.

The authors find that IT investments are substantially riskier than ordinary capital investments, and that IT risk is associated with a substantial risk premium. This risk premium is 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. Furthermore, the results suggest that the timing of IT capital investment is a critical factor in managing both the risks and returns of IT investments.

The current issue of Management Insights is available at http://mansci.journal.informs.org/cgi/reprint/53/12/iv. The full papers associated with the Insights are available to Management Science subscribers. Individual papers can be purchased at http://institutions.informs.org. Additional issues of Management Insights can be accessed at http://mansci.pubs/informs/org/.

The Insights in the current issue are:

Performance Contracting in After-Sales Service Supply Chains by Sang-Hyun Kim, Morris A. Cohan, Serguei Netessine
Implications of Breach Remedy and Renegotiation Design for Innovation and Capacity by Erica L. Plambeck, Terry A. Taylor
Implications of Renegotiation for Optimal Contract Flexibility and Investment by Erica L. Plambeck, Terry A. Taylor
The Role of Pre-Entry Experience, Entry Timing, and Product Technology Strategies in Explaining Firm Survival by Barry L. Bayus, Rajshree Agarwal
Conditions That Shape the Learning Curve: Factors That Increase the Ability and Opportunity to Learn by Eelke Wiersma
Selecting a Selection Procedure by Jürgen Branke, Stephen E. Chick, Christian Schmidt
Consumers’ Price Sensitivities Across Complementary Categories by Sri Devi Duvvuri, Asim Ansari, Sunil Gupta
A Framework for Reconciling Attribute Values from Multiple Data Sources by Zhengrui Jiang, Sumit Sarkar, Prabuddha De, Debabrata Dey
The Machine Maintenance and Sale Age Model of Kamien and Schwartz Revisited by Alain Bensoussan, Suresh P. Sethi

INFORMS journals are strongly cited in Journal Citation Reports, an industry source. In the JCR subject category “operations research and management science,” Management Science ranked in the top 10 along with two other INFORMS journals.

The special MBA issue published by Business Week includes Management Science and two other INFORMS journals in its list of 20 top academic journals that are used to evaluate business school programs. Financial Times includes Management Science and four other INFORMS journals in its list of academic journals used to evaluate MBA programs.

About INFORMS
The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, financial engineering, and telecommunications. The INFORMS website is www.informs.org. More information about operations research is at www.scienceofbetter.org.

Barry List | EurekAlert!
Further information:
http://www.informs.org
http://www.scienceofbetter.org

More articles from Business and Finance:

nachricht Preferential trade agreements enhance global trade at the expense of its resilience
17.02.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Breakthrough with a chain of gold atoms

In the field of nanoscience, an international team of physicists with participants from Konstanz has achieved a breakthrough in understanding heat transport

In the field of nanoscience, an international team of physicists with participants from Konstanz has achieved a breakthrough in understanding heat transport

Im Focus: DNA repair: a new letter in the cell alphabet

Results reveal how discoveries may be hidden in scientific “blind spots”

Cells need to repair damaged DNA in our genes to prevent the development of cancer and other diseases. Our cells therefore activate and send “repair-proteins”...

Im Focus: Dresdner scientists print tomorrow’s world

The Fraunhofer IWS Dresden and Technische Universität Dresden inaugurated their jointly operated Center for Additive Manufacturing Dresden (AMCD) with a festive ceremony on February 7, 2017. Scientists from various disciplines perform research on materials, additive manufacturing processes and innovative technologies, which build up components in a layer by layer process. This technology opens up new horizons for component design and combinations of functions. For example during fabrication, electrical conductors and sensors are already able to be additively manufactured into components. They provide information about stress conditions of a product during operation.

The 3D-printing technology, or additive manufacturing as it is often called, has long made the step out of scientific research laboratories into industrial...

Im Focus: Mimicking nature's cellular architectures via 3-D printing

Research offers new level of control over the structure of 3-D printed materials

Nature does amazing things with limited design materials. Grass, for example, can support its own weight, resist strong wind loads, and recover after being...

Im Focus: Three Magnetic States for Each Hole

Nanometer-scale magnetic perforated grids could create new possibilities for computing. Together with international colleagues, scientists from the Helmholtz Zentrum Dresden-Rossendorf (HZDR) have shown how a cobalt grid can be reliably programmed at room temperature. In addition they discovered that for every hole ("antidot") three magnetic states can be configured. The results have been published in the journal "Scientific Reports".

Physicist Dr. Rantej Bali from the HZDR, together with scientists from Singapore and Australia, designed a special grid structure in a thin layer of cobalt in...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Booth and panel discussion – The Lindau Nobel Laureate Meetings at the AAAS 2017 Annual Meeting

13.02.2017 | Event News

Complex Loading versus Hidden Reserves

10.02.2017 | Event News

International Conference on Crystal Growth in Freiburg

09.02.2017 | Event News

 
Latest News

Switched-on DNA

20.02.2017 | Materials Sciences

Second cause of hidden hearing loss identified

20.02.2017 | Health and Medicine

Prospect for more effective treatment of nerve pain

20.02.2017 | Health and Medicine

VideoLinks
B2B-VideoLinks
More VideoLinks >>>