Accounting information systems Chapter 17: Evaluating AIS Investments

it ignores the time value of money

A weakness of the payback period is _____. it ignores the time value of money fails to consider the size of the project. it is sensitive to the discount rate applied. it is easy to calculate and understand.

costs

IT projects offer important benefits to organizations but also involve substantial costs.

case

Organizations need to create a business case for an IT investment.

internal rate of return

The discount rate that makes the project's net present value equal to zero is called the _____. accounting rate of return payback period internal rate of return net present value

net present value

net present value is calculated as the sum of the present value of cash inflows minus the sum of the present value of cash outflows.

discount

Internal rate of return is the discount rate that makes the project's net present value equal to zero.

discount

Present value equals the cash flow for each period divided by one plus the discount rate to the power "t."

initial

The payback period equals the initial investment divided by the increased cash flow per period.

Before

_____ prioritizing the alternative IT initiatives based on the financial metrics, the project team should test the impact of changes in assumptions on the various financial metrics of the project.

IT implementation costs

All but the following are examples of direct operating costs incurred after implementing an IT project. IT implementation costs Help desk support Hardware replacement Decommissioning the old system

several

Because each financial metric has both strengths and weaknesses, IT initiatives should be evaluated using several metrics.

not

Benefits should be measured in comparison to the revenues and costs that will occur if the IT initiative is not implemented.

breakeven

Both payback period and breakeven analysis both compare the costs with benefits of an IT project with considering the time value of money.

relevant

In considering alternative IT investments, relevant costs include incremental expenses of developing, implementing, and operating proposed IT initiatives.

Assess business requirements Identify potential solutions Estimate costs, benefits, and risks Assess value proposition

List the sequence of steps in the economic justification process in order of occurrence. Assess value proposition Estimate costs, benefits, and risks Assess business requirements Identify potential solutions

Alignment solution is not aligned with firm strategy Solution solution will not deliver projected benefits Financial solution will not deliver expected financial performance Technological technology will not deliver expected benefits Change part of firm will not be able to change

Match the description with the name of the IT project risk category. Drag and drop application. Alignment Alignment drop zone empty. Solution Solution drop zone empty. Financial Financial drop zone empty. Technological Technological drop zone empty. Change

financial

The benefits of an IT investment should be measurable in financial terms.

risks

The business case should consider the risks of not doing the project.

success

The business case should define how the success of the project will be measured.

The likelihood of achieving the benefits The change and proposed technology The anticipated benefits

The business case should focus on which of the following? The likelihood of achieving the benefits The members of the project team The change and proposed technology The anticipated benefits

return

The business case should specify the expected return on investment for the project.

recommend

The final step in the process is to assemble the analyses for alternative IT initiatives and recommend the preferred alternative.

to assess business requirements

The first step in the economic justification process is _____. to assess value proposition to identify potential solutions to estimate costs, benefits, and risks to assess business requirements

value

The last step in the economic justification process is to describe the value proposition for the preferred alternative.

process

The term "benefit dependency" indicates that IT functionality must be combined with complementary changes to deliver business process change that results in improved performance.

indirect

The total acquisition cost includes direct and indirect costs required to acquire and deploy technology.

implement

Total acquisition costs include all direct and indirect costs to acquire and ____________ the IT initiative. purchase operate implement

True

True or false: The firm's senior executives need to understand the financial implications of the IT initiative so they can decide whether to allocate resources to it.

complementary changes

When considering "benefit dependency", IT functionality and _____ are precursors to business process change. improved performance complementary changes IT staff talent

Solution risk Change risk Alignment risk

Which of the following are categories of IT initiative risks that should be addressed? Solution risk Change risk Litigation risk Alignment risk

Training costs Hardware costs Software costs

Which of the following are examples of direct costs of acquiring information technology? Training costs Hardware costs Software costs Help desk costs

Disposal costs Software upgrades Maintenance contracts

Which of the following are examples of direct operating costs after implementing an IT project? Peer support Disposal costs Software upgrades Maintenance contracts

What key business issues are addressed? How will success be measured? How much will it cost?

Which of the following are questions that the business case should address? What key business issues are addressed? Who will be assigned to the project team? How will success be measured? How much will it cost?

Thorough consideration of alternatives Justification of anticipated value

Which of the following are reasons that companies develop business cases for major IT investments? The benefits of IT investment are obvious The costs cannot be determined Thorough consideration of alternatives Justification of anticipated value

Acquisition costs Maintenance costs

Which of the following are relevant costs of IT investments? Acquisition costs External benchmarks Increased revenue Maintenance costs

They involve substantial costs. They offer opportunities to create value. As much as 20% of IT spending is wasted.

Which of the following are true about IT investments? They involve substantial costs. Most IT projects are mismanaged. They offer opportunities to create value. As much as 20% of IT spending is wasted.

Reducing errors Elimination of manually intensive activities

Which of the following could be potential sources of cost savings from an IT investment? Expanding the market Protecting revenue streams Reducing errors Elimination of manually intensive activities

Internal rate of return Net present value

Which of the following financial metrics consider the time value of money? Payback period Accounting rate of return Internal rate of return Net present value

Business disruption costs

Which of the following is not an example of direct acquisition costs? Project Management Costs Business disruption costs Software costs Development costs

Select appropriate discount rate Establish relevant time frame Assess sensitivity to assumptions

Which of the following must be determined to use capital budgeting techniques for each IT alternative? Select appropriate discount rate Capitalize initial costs Establish relevant time frame Assess sensitivity to assumptions

3

he relevant time frame for most IT initiatives is 3 years or less, since technology changes rapidly.