ANALYSIS OF THE IMPACT OF INFORMATION TECHNOLOGY INVESTMENTS-A SURVEY OF INDONESIAN UNIVERSITIES

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1 ANALYSIS OF THE IMPACT OF INFORMATION TECHNOLOGY INVESTMENTS-A SURVEY OF INDONESIAN UNIVERSITIES Leo Willyano Sanoso and Yulia Deparmen of Compuer Science, Pera Chrisian Universiy, Surabaya, Indonesia ABSTRACT In recen years, he uilizaion of informaion echnology has been magnificenly increased in service indusries, paricularly, educaion insiuion, which by using Informaion Technology relaed producs such as academic informaion sysem and learning managemen sysem. In Indonesia, universiies inves enormous resources in informaion echnology (IT), wih lile evidence of he laer s effeciveness. Sakeholders sruggle wih gauging how effecive or ineffecive making hese invesmens ruly is, given he lack of insrumens of measuremen by which o esablish, for insance, an inernal rae of reurn or a period of recovery on invesmens. This paper invesigaes he impac of invesmen in informaion echnology on he reurn on asses (ROA) of seleced privae universiies in Indonesia for he period using Adaped Informaion Economics. By using his mehod, i is possible o implemen ino oher universiy. Primary and secondary daa were colleced during his research. The sudy recommends ha universiies should increase invesmens in sofware, hardware and infrasrucure which will enhance heir Managemen Informaion Sysem and profiabiliy. Keywords: IT invesmens, managemen informaion sysem, universiy, impac, reurn on asses. INTRODUCTION Informaion is an imporan resource in he operaion and managemen of organizaions. The availabiliy of appropriae informaion is vial for effecive performance of managerial funcions such as planning, organizing, saffing, direcing and conrolling. Indeed, oday's organizaions run on informaion using informaion sysem. An informaion sysem encompasses ransacion processing sysems, managemen informaion sysems, decision suppor sysems, and sraegic informaion sysems. In recen years, he uilizaion of informaion echnology has been magnificenly increased in service indusries, paricularly, educaion insiuion, which by using Informaion Technology relaed producs such as academic informaion sysem and learning managemen sysem. Therefore, many organizaions are compeing o inves in order o opimize he resources a heir disposal The huge of money of which mus be paid o inves in informaion echnology (IT) makes many people began o wonder, are we spending enough or oo much on informaion echnology?. The fac saes ha he benefis of IT invesmens can be couned (angible) or uncouned (inangible). These benefis are also here which can be fel direcly and here are also only be fel afer a cerain period of ime. Much of he research on invesmen analysis of informaion echnology (IT) has been carried ou for he various fields in recen years, paricularly by developing counries, for example in Fiji [1], in Mexico [2] and in China [3]. Analysis of IT invesmens in he banking indusry has done in Nigeria [4], Ghana [5] and Kenya [6]. Analysis of IT invesmens in elecommunicaions companies in France have also been carried ou [7]. In Turkey, has done an analysis of IT invesmens on naional and mulinaional companies [8], while in China a similar sudy on he indusry supply chain [9]. In Indonesia, universiies inves enormous resources in informaion echnology (IT), wih lile evidence of he laer s effeciveness. Sakeholders sruggle wih gauging how effecive or ineffecive making hese invesmens ruly is, given he lack of insrumens of measuremen by which o esablish, for insance, an inernal rae of reurn or a period of recovery on invesmens. There is also no evidence by which o link IT invesmen o improvemens in a universiy s performance. This paper invesigaes he impac of invesmen in informaion echnology on he reurn on asses (ROA) - The reurn on asses measures he rae of reurn on he asses by he universiy - of seleced universiies in Indonesia for he period using Informaion Economics. In his sudy, IT invesmen level, IT usage, IT a making decision process conceps and heir effecs on echnology orienaion, fuure orienaion and universiy performance were invesigaed and a research model was developed. The sudy specifically assesses how he adopion of MIS by universiies managemen in Indonesia impaced on he service performance of heir universiies in erm of reurns on asses. Furhermore, he paper basically is divided ino five secions. Secion one is he inroducion as above; Secion wo is he lieraure review and heoreical framework. Secion hree is he research mehodology adoped for he sudy, followed by secion four which is discussion of resuls and findings, and secion five is abou conclusion and recommendaions. INFORMATION ECONOMICS Informaion Economics (IE) is a se of equipmen (ools) o quanify he compuaional coss and benefis of an IT projec [10]. This mehod was inroduced by 2404

2 Marilyn M. Parker and his eam of IBM in 1985, which is used o quanify he cos and benefis of IT projecs. IE mehod is a developmen of he Cos Benefi Analysis (CBA) radiional. IE was developed because of he needs of he company o find ou how he economic impac of IT invesmens on he company. IE is used o analyze he coss and benefis, which quanify he cos of IT projec resuls, are expeced o provide benefis o he company. The basis of IE is value which can be regarded as a size and cos incurred by he company, which is associaed wih he progress of he company's business. Meanwhile, according o Robson (1997, p237) IE explicily evaluaing invesmen alernaives and informaion sysems by idenifying and evaluaing, scoring, and ranking, he posiive facor (value) and negaive facors (risk or uncerainy ) from a se of poenial invesmen candidaes. Value is based on he profi from he compeiion, refleced in he performance of presen and fuure daing [10], which will increase profis in excess of is compeiors and he value will make he managemen is willing o do invesmen. Cos is a measuremen of he amoun of resources needed o obain a produc [10]. Cos specified in he measuremen currency (e.g. rupiah or dollars). In IE, here are wo ypes of coss, namely invesmen cos and ongoing cos. Mainenance coss are included in he ongoing coss. IT Benefis are divided ino wo caegories: angible benefis and inangible benefis. Tangible benefis are benefis ha direcly affec he level of corporae profis, while he benefis are inangible benefis ha seem o have a posiive influence on he company bu do no direcly affec he company's profi [11, 12]. Aciviies wihin a company can be divided ino wo major pars, namely he business aciviies and echnologies ha suppor business aciviies [10]. The erm "domain" iself is used o characerize he wo differen aciviies. IE uses he wo domains as a model. From he sandpoin of he business domain, he value creaed by he use of IT, such as an increase in revenue, cos reducion, and increased effeciveness. From he sandpoin of echnology domains, can be seen he value of he benefis derived by he business domain. Cos Benefi Analysis is he mos common echnique used o quanify he coss and benefis of an IT projec [13, 14]. To perform a cos benefi analysis, i mus firs deermine he coss and benefis are worh o be aken ino accoun, how coss and benefis weighed, and o achieve all his, wha obsacles would be likely o arise. Cos is he amoun of resources allocaed/spen o finance he projec. Meanwhile, he benefi is savings, cos reducion, profiabiliy, increase effeciveness or produciviy of he employees. The coss will be calculaed by using he developmen coss and running coss workshee. While he benefis will be calculaed using Linking Value, Value Acceleraion, and Value Resrucuring, Valuaion and Innovaion echniques. Afer deermining he expeced benefis and coss of projec implemenaion, he relaionship of hese benefis agains he coss needs o be defined [15]. There are several approaches used o develop he relaionship beween coss and benefis, including: Simple Reurn on Invesmen (ROI) This echnique is also called he accouning rae of reurn. Simple ROI is he raio of he average ne income of he projec on he projec's inernal invesmen. This mehod is excellen for projec daa processing or informaion sysems. Expeced implemenaion coss, operaional coss and benefis are deermined for many years o come. Presen Value (PV) The presen value is a fuure amoun of money ha has been discouned o reflec is curren value, as if i exised oday. The presen value is always less han or equal o he fuure value because money has ineresearning poenial, a characerisic referred o as he ime value of money. PV = ( C) (1 i) Where (C) is he fuure amoun of money ha mus be discouned, is he number of compounding periods beween he presen dae and he dae where he sum is worh (C), and i is he ineres rae for one compounding period. Inernal Rae of Reurn (IRR) The inernal rae of reurn (IRR) is a rae of reurn used in capial budgeing o measure and compare he profiabiliy of invesmens. IRR calculaions are commonly used o evaluae he desirabiliy of invesmens or projecs. The higher a projec's IRR, he more desirable i is o underake he projec. Assuming all projecs require he same amoun of up-fron invesmen, he projec wih he highes IRR would be considered he bes and underaken firs. Because he inernal rae of reurn is a rae quaniy, i is an indicaor of he efficiency, qualiy, or yield of an invesmen. This is in conras wih he ne presen value, which is an indicaor of he value or magniude of an invesmen. An invesmen is considered accepable if is inernal rae of reurn is greaer han an esablished minimum accepable rae of reurn or cos of capial. Analyze proposed projec by looking a he IRR calculaion is as follows: IRR greaer han required rae of reurn, he projec is accepable. Moreover, if IRR < required rae of reurn, he projec is rejeced. Ne Presen Value (NPV) NPV is he difference amoun beween he sums of discouned: cash inflows and cash ouflows. I compares he presen value of money oday o he presen value of money in he fuure, aking inflaion and reurns ino accoun (Hayes e al, 2005). This mehod uses a discoun (1) 2405

3 rae ha is deermined by he cos of capial o esablish he presen value of a projec. NPV formula is as follows: NPV = ( C) ( C ) n n n 0 0 (1 i) 0 (1 i) 0 (1 i) R (2) where: is he ime of he cash flow, i is he discoun rae and R is he ne cash flow i.e. cash inflow - cash ouflow, a ime. Reviewing he proposed projec NPV gives insrucions (indicaed as follows): NPV is posiive means he projec proposal is accepable. NPV is 0 means neural. NPV is negaive means he projec proposal is rejeced RESEARCH METHODOLOGY This research uses boh descripive and field survey research mehods wih a populaion of 5 privae universiies in Indonesia. The research uses primary and secondary daa of seleced universiies. For he secondary daa, i is a ime series daa herefore he daa o be used for his sudy is pooled daa ha examines he impac of informaion echnology projec on he Reurn on asses. Research mehodology ha has been conduced by he researchers can be seen in he Figure-1. Firsly, he benefis of informaion sysem mus be idenified. Idenificaion of he obained benefis wih he implemenaion of informaion sysem divided ino wo pars, namely he angible benefis and inangible benefis. Tangible benefis were colleced from reduced operaing coss direcly on he economic workshee impac. While inangible benefis will be calculaed by he concep of value linking, value acceleraion, value resrucuring, and innovaion valuaion. A preliminary sudy based on he exen of he use of IT in universiies. Semi-srucured inerviews were held wih he execuive managemen, middle managemen and operaion managemen, focusing on he benefis achieved from he IT invesmens a operaional level. Figure-1. Research Mehod. In he IE framework, he values and risks are needed o be weighed. To find he weighing for he value and risk, necessary ools like quesionnaire are needed. Quesionnaires carried ou on people who are concerned and aware and involved in he SI Academic. This quesionnaire is on a 5-poin liker scale, wih 1 indicaing excellen benefis, and 5 indicaing no benefis a all. Nex, he evaluaion of he financial domain includes CBA analysis, linking value, value acceleraion, and value resrucuring. The evaluaion of business domains includes sraegic mach analysis, compeiive advanage, compeiive response, managemen informaion sysems, and organizaional projec risk. Evaluaion of echnology domain includes analysis of sraegic archiecure, definiional uncerainy, echnical uncerainy, and IS Infrasrucure Risk. Finally, he weigh of he simple ROI calculaion, combined wih he assessmens of he business domain and he echnology domain, are hen combined using he IE scorecard. DISCUSSION AND RESULTS There is value and risk of informaion sysems in he conex of business domains and echnology domains ha enable o quanify financially because of he values and risks are generally inangible. In he IE framework, he weighed value and risks are needed. Quesionnaire is a required ool o deermine he weighed value and risk. Quesionnaires carried ou on people who are concerned and aware and involved direcly in he informaion sysem. The facors in he business domain are divided ino five caegories, namely financial values, sraegic 2406

4 values, sakeholder values, risk sraegy compeiion, and organizaional risk and uncerainy. Whereas in he echnology domain is divided ino hree caegories, namely: sraegic values, compeiive sraegy risk, and organizaional risk and uncerainy. The weighed value is presened in Table-1. In he sysem developmen and implemenaion, invesmen coss are a mus. Invesmen coss include he cos of hardware and sofware. The cos of he hardware is all expenses associaed wih he purchase of physical compuer equipmen. The example of iniial invesmens in he hardware is compuer server, memory, and sorage. The cos of he sofware is all expenses associaed wih he purchase of sofware for he server. The example of iniial invesmens in he sofware is operaing sysem and daabase managemen sysem. Table-1. Weighed value. Business Domain Condiion Weighed Score Financial Value Reurn on Invesmen High Sraegic Value Sraegic Mach High Compeiive Advanage Medium + 4 Compeiive Response Medium + 4 Managemen Informaion for CSF High Sakeholder Value Service and Qualiy Medium Environmenal Qualiy High Agiliy, Learning and Empowering High Cycle Time Medium + 4 Mass Cusomizaion Medium Compeiive Sraegy Risk Business Sraegy Risk Fair - 3 Organizaional Sraegy Risk and Uncerainy Business Organizaion Risk Fair - 3 Technology Domain Condiion Weighed Score Sraegic Value Sraegic IT Archiecure Fair Compeiive Sraegy Risk IT Sraegy Risk Low Organizaional Sraegy Risk and Uncerainy IT Definiional Uncerainy Low IT Technical and Implemenaion Risk Medium - 4 IT Service Delivery Risk Fair Toal of Value Toal of Risk and Uncerainy In addiion o he iniial invesmen coss, running coss are also calculaed for 5-year calculaed from he year 2012 o he year 2017 in he developmen of his sysem, running coss will be incurred include mainenance coss of sofware, labour coss, and he cos of elecriciy. 2407

5 Value linking is used o evaluae financially he combined effecs of improving performance of a funcion any consequenial resuls from a separae funcion. Some of he effecs ha resul in improved performance as inangible benefis such as increasing employee produciviy and reducing human error. Table-2. The assessmen of business domain and echnology domain. Business Domain Condiion Score Financial Value Reurn on Invesmen High + 1 Sraegic Value Sraegic Mach Fair Compeiive Advanage Fair Compeiive Response High Managemen Informaion for CSF High + 5 Sakeholder Value Service and Qualiy High + 5 Environmenal Qualiy Fair + 4 Agiliy, Learning and Empowering Fair Cycle Time High + 4 Mass Cusomizaion Fair + 4 Compeiive Sraegy Risk Business Sraegy Risk High Organizaional Sraegy Risk & Uncerainy Business Organizaion Risk Low Technology Domain Condiion Score Sraegic Value Sraegic IT Archiecure High Compeiive Sraegy Risk IT Sraegy Risk Low - 2 Organizaional Sraegy Risk & Uncerainy IT Definiional Uncerainy Medium - 3 IT Technical and Implemenaion Risk Medium IT Service Delivery Risk Fair - 4 Toal of Value Toal of Risk and Uncerainy - 22 Assessmen on he business domain consiss of 5 caegories, namely: financial values, sraegic values, sakeholder values, sraegic compeiive risk, and organizaion of risk and uncerainy. While, assessmen of he echnology domains include: sraegic values, compeiive sraegy risk, and organizaion of risk and uncerainy. Table-2 summarizes he assessmen of business domain and echnology domain. Afer weighing and scoring, IE Scorecard was creaed. I can be seen in Figure

6 The weighing form is used o calculae he weighed values and risks. The inerface of his form can be seen in he Figure-4. Figure-2. IE Scorecard. Afer doing he calculaions of weighed score and ge he value of 120.8, hen his value will be incorporaed ino he liker scale o deermine and assess how much influence invesmen and informaion echnology sysems o universiies. This value is insered ino a liker scale wih maximum and minimum values obained from Table-2. Based on hese values, he score of predicae Table is designed o caegorize feasibiliy scores of a projec. Predicae Table can be seen in Table-3 wih a value of 120.8, he projec is considered good and worhy o be applied and developed o suppor he aciviies of he business processes a he universiy. Table-3. Predicae Table of IT Projec. Score Predicae Very Good Good Fair (-1) - 53 Low (-65) - (-2) Very Low Figure-4. The Weighing Form The IE scorecard form is used o calculae he IE Score and saved ino he daabase. This form can be seen in he Figure-5. Afer performing he analysis, an applicaion was developed in order o faciliae he calculaion of ROI, NPV, and IE Score. The program was creaed by using Microsof SQL Server 2005 for he daabase and he Microsof Visual Basic Ne 2010 as programming language. The main form of he applicaion can be seen in he Figure-3. Figure-5. The IE Scorecard Form. Figure 3. The Main Form. CONCLUSIONS Overall, he obained resuls from he quesionnaires in IE Scorecard resuling in a oal projec value of Using he predicae Table, he value of means he projec ges a good raing. This shows ha he projec of universiy informaion Sysems is feasible o develop. The sudy recommends ha universiies should increase invesmens in sofware, hardware and infrasrucure which will enhance heir Managemen Informaion Sysem and profiabiliy. These resuls should 2409

7 be imporan o universiy managers and praciioners beside IT researchers; because IT invesmens have a vial role oday s organizaions. The invesmens coss are imporan for organizaions. Hence, IT s role in he organizaions and maximize he benefis of IT are very imporan for performance and success of he organizaions in he fuure. This sudy can be done in universiies a developed counry such as Ausralian and he resuls can be compared. Informaion Economics has shown ha an invesmen in informaion echnology is no adequaely evaluaed mahemaically only. There are values which can no be quanified, which is a unique value in he business domain and echnology domain ha needs o be considered. The resuls of his research will be more accurae if here is more in-deph analysis including inangible benefis. REFERENCES [1] Prasad A Informaion echnology and business value in developing economies: a sudy of inangible benefis of informaion echnology invesmens in Fiji. The Elecronic Journal of Informaion Sysems in Developing Counries. 34(2): [2] Marinez R.S Analysis and measuremen of he impac of informaion echnology invesmens on performance in Mexican companies: developmen of a model o manage he processes, projecs and informaion echnology infrasrucure and is impac on profiabiliy. Inernaional Business and Economics Research Journal. Oc (10): [3] Chang Y.B., Gurbaxani V The impac of ITrelaed spillovers on long-run produciviy: an empirical analysis. Informaion Sysems Research, Sepember : [4] Dandago K.I., and Farouk B.K.U Impac of invesmen in informaion echnology on he reurn on asses of seleced banks in Nigeria. Inernaional Journal of Ars and Commerce. Oc (5): impac on invesmen by privae and sae-owned firms?. Informaion Economics and Policy. 25(1): [8] Zehir C., Muceldili B., Akyuz B., Celep A The impac of informaion echnology invesmens on firm performance in naioan and mulinaional companies. Journal of Global Sraegic Managemen. June : [9] Cheng J.H., Lee C.Y The effec of informaion echnology invesmens on he marke value of supply chain firms: An improved even sudy approach. Asia Pacific Managemen Review. 13(1): [10] Parker M., Benson R, and Trainor H Informaion Economics: linking business performance o informaion echnology. Prenice Hall, New Jersey. [11] Remenyi D., Money A, Banniser F The effecive measuremen and managemen of ICT coss and benefis. 3rd Ediion. CIMA Publishing. [12] Griffihs P. and Remenyi P Informaion Technology in financial services: A model for value creaion. Elecronic Journal of Informaion Sysems Appraisal. 6(2): [13] Lin C., Pervan G, and McDermin D IS/IT invesmen evaluaion and benefis realizaion issues in Ausralia. Journal of Research and Pracice in Informaion Technology, 37(3), [14] Dekleva S Jusifying invesmens in IT. Journal of Informaion Technology Managemen. 16(3): 1-8. [15] Laudon K. and Laudon J Managemen informaion sysems: managing he digial firm. 13h Ediion. Prenice-Hall [16] Hayes R., Pisano G, Upon D, and Wheelwrigh S Operaions, sraegy, and echnology: pursuing he compeiive edge Wiley. [5] Leckson-Leckey G.T.Y., Osei K.A., and Harvey S.K Invesmens in informaion echnology (IT) and bank business performance in Ghana. Inernaional Journal of Economics and Finance. May (2): [6] Khakasa E Firm size and informaion echnology invesmen appraisal: evidence from commercial banks in Kenya. Proceedings of he IABPAD. Dallas-Texas April [7] Lesage R., Flacher D., Kim Y.B, Kim J.H, and Kim Y.H Compeiion and invesmen in elecommunicaions: Does compeiion have he same 2410