A Simple Method for Causal Analysis of Return on IT Investment

Area of Science:

• Health Informatics
• Information Systems Research
• Organizational Studies

Background:

• Assessing the return on investment for information technology (IT) is crucial for organizations.
• Establishing a causal link between IT investment and productivity improvements can be methodologically challenging.
• Existing methods may lack objectivity due to selective inclusion of costs and benefits.

Purpose of the Study:

• To propose and validate a novel method for examining the causal relationship between IT investment and organizational productivity.
• To test the temporal precedence of IT investment over productivity gains.
• To evaluate productivity in a counterfactual scenario, i.e., without IT investment.

Main Methods:

• Verification of the relationship between IT investment, IT use, and productivity using correlation analysis.
• Testing the assumption of IT investment preceding productivity improvements via partial correlation.
• Forecasting productivity at different investment levels to assess counterfactual outcomes.

Main Results:

• The proposed method demonstrates that causal analysis between IT investment and productivity is feasible, even with limited datasets.
• The study successfully applied the method to investment in the Veterans Health Information Systems and Technology Architecture (VISTA) system.
• The reliance on overall organizational productivity enhances objectivity compared to selective cost-benefit analyses.

Conclusions:

• The developed method provides a robust framework for understanding the causal impact of IT investments on organizational productivity.
• The approach offers a more objective measure of IT's contribution to productivity by considering overall performance.
• The findings suggest that IT investment can be causally linked to productivity, supporting strategic technology adoption.