Ghoneim and Irani Post-Implementation Evaluation and Indirect Costs associated with IT Projects Proceedings of the Eleventh Americas Conference on Information Systems, Omaha, NE, USA August 11 th -14 th 2005 An Exploratory Study of IT Indirect Costs Associated with IT Projects in the UK Ahmad Ghoneim Brunel University Ahmad.Ghoneim@brunel.ac.uk Zahir Irani Brunel University Zahir.Irani@brunel.ac.uk ABSTRACT As the cost of hardware continues to fall, IT projects still experience budget overruns, which in some cases result in the abandonment of the projects. It could be argued that a lack of understanding of the indirect costs associated with IT/IS investments is a major contributor towards this phenomenon. This paper presents findings from an exploratory study that aimed at investigating the level of awareness of IT managers in practice about the various cost factors that exist in the literature and identifying new cost factors that might not be yet included in previous studies. IT managers being unaware or unfamiliar with the variety of indirect costs that occur throughout a project’s life cycle might have an indirectly devastating effect on the overall budget successful implementation of the system. Although this fact has been expressed by academics and practitioners, little guidance has been provided to practitioners regarding the issue of indirect cost identification and management. Keywords IT evaluation, indirect costs, exploratory survey. INTRODUCTION In order to secure a bigger share of the market, organizations tend to invest substantial sums of moneys on IT investments. Yet, the costs of IT infrastructure continues to fall (Hamm, 2004), exerting more pressure on organizations to find another areas of savings to lower down their total investments costs. Organizations must try to find new areas for cost reduction other than the direct costs in the form of hardware and software. An area of cost reduction with lots of potential is that of the indirect costs associated with IT investments, where the indirect costs can be sometimes up to four times greater than the direct costs (Hochstrasser, 1992). This area could yet prove to be more difficult than the earlier, since indirect costs are not well identified and understood by managers in practice (Bannister el al., 1999). Cost identification has proven to be a problem during IT investment justification (Enzweiler, 1996), which results in an inaccurate recommendation, or sometimes abandoned procedure. As managers are becoming aware of the various costs of investment they tend to face the difficulty of identifying, managing and controlling these costs (Gaterell and Lester, 2000). According to (Powell, 2001), there is a need for a mechanism to identify and allocate IS costs. Furthermore, the process of cost identification is made more complex because many of the cost are hidden and occur outside the scope of the IS function (Hogbin and Thomas, 1994). In addition, there are many different cost models available in the literature and little guidance for manager making it difficult to decide which model to follow. The study presented in this paper attempts to address the gap in the area of IT Indirect costs through exploring and investigating the current situation in practice and highlight the gap between the literature and practice and the need for further research in the area. RESEARCH METHOD Previous research in the literature identified different sets of IT/IS cost factors categorized under different classifications. Each classification (cost model) is based on individual case enquiry conducted by authors throughout the IT/IS evaluation literature. No attempt was made to empirically validate the various costs elements and their taxonomies. This makes it inaccurate to generalize any of the cost models or elements that exist in the literature. Taking these facts into consideration, there was a need for a research methodology that would serve the purpose of giving an insight about the current situation of indirect cost awareness and usage within organizations and identifies areas for more in-depth investigation. A quantitative research strategy was adopted in the form of an exploratory survey questionnaire. This constitutes the first part of an ongoing enquiry in an attempt to develop a more generalizable cost model that can be used as a frame of reference by managers during the evaluation of IT investment proposals or post-implementation evaluation. The exploratory survey was designed as a cross-sectoral investigation with no pre-defined hypothesis, nor design for data analysis. This design follows the same dimensions of the exploratory survey studies described by (Babbie, 1973; Dillman, 1978). As for the design for the data 338