Evaluation of digital transformation programs

Basic research project

In the age of digital transformation, the majority of all companies are implementing digital transformation programs that typically have a long planning horizon and consist of a large number of IT investment projects (ITIPs) that build on each other. At the same time, about 25% of all ITIPs fail and 50% do not achieve their goals within the planned budget and/or time. These figures illustrate that companies often invest their available IT budget in the wrong way, due in part to inadequate profitability analyses for planning and selecting ITIPs. An important aspect in the evaluation of ITIPs is the correct consideration of room for maneuver that project managers can, but do not have to, exploit during the project term. Such room for maneuver is also referred to as real options, e.g., to postpone or cancel an ITIP or to extend it to a follow-up project. In the scientific literature, standard models of financial option theory are often used to evaluate real options in ITIPs. However, these standard models simplify the complexity of real options analysis (ROA), as the underlying assumptions cannot be transferred to real investments, such as ITIPs. In a previous project funded by the FWF, we critically analyzed and adjusted these assumptions to better reflect the fundamental characteristics of ITIPs. In doing so, we found that the assumptions of the ROA approaches existing in the literature do not adequately represent the fundamental properties of ITIPs, and that the ROA approaches thus lead to incorrect evaluations.

The goal of the proposed follow-up project - which falls into the interdisciplinary field of business informatics - is therefore the development and prototypical implementation of a new ROA approach that enables an adequate evaluation of Digital Transformation Programs (VaDiTraP).

Methodologically, the planned work is based on the Design Science Research research approach. Accordingly, we design, implement and evaluate an ROA approach that adequately maps the characteristics of ITIPs. With this approach, we not only generate scientific knowledge in several disciplines (i.e. business informatics, finance, economics), but also the prerequisite for a better planning and selection of ITIPs in companies. Although ROA approaches are considered highly relevant in practice today, they are not currently used for two reasons: (1) Decision makers are dissatisfied with the results of currently available ROA approaches; (2) Currently available ROA approaches are too complex for application in business practice. With the proposed research project, we address both issues.

(1) We develop an ROA approach that leads to a better evaluation of IT projects in the context of digitization programs.

(2) We develop a prototype implementation with a graphical user interface and test the prototype for usability and user acceptance in workshops with business experts.

Thus, this research project helps to improve both the results of ROA and the acceptance of ROA in the evaluation of digitization programs.

Funding body: FWF - Austrian Science Fund

Project period: November 2019 - October 2023