A Simple Method for Causal Analysis of Return on IT Investment

This paper proposes a method for examining the causal relationship among investment in information technology (IT) and the organization's productivity. In this method, first a strong relationship among (1) investment in IT, (2) use of IT and (3) organization's productivity is verified using correlations. Second, the assumption that IT investment preceded improved productivity is tested using partial correlation. Finally, the assumption of what may have happened in the absence of IT investment, the so called counterfactual, is tested through forecasting productivity at different levels of investment. The paper applies the proposed method to investment in the Veterans Health Information Systems and Technology Architecture (VISTA) system. Result show that the causal analysis can be done, even with limited data. Furthermore, because the procedure relies on overall organization's productivity, it might be more objective than when the analyst picks and chooses which costs and benefits should be included in the analysis.