Firm size and information technology investment appraisal: evidence from commercial banks in Kenya
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Information technology expenditure in banks consumes an ever increasing portion of operating costs and revenues. As organisations continue increasing their investment in IS, the process of evaluating potential Information Technology (IT) investments becomes an important activity for an organisation’s management. This study attempts to establish whether the choice of IT investment appraisal approaches is associated with the size of a firm using evidence from commercial banking institutions in Kenya. Results of the survey show that there is a correlation between choice of approach and firm size. Among the banking institutions in Kenya, medium-sized banks focus the most on both the strategic and analytical approaches to IT investment appraisal. Majority of small banks have adopted relatively simple economic techniques such as payback period and cost-benefit analysis, and they do not focus on the more sophisticated analytical and integrated approaches as much as the medium-sized and large banks. Finally, large banks have adopted all of the appraisal approaches explored in this study. The results of this study help to establish banking industry-wide benchmarks and best practices in IT investment evaluation, thereby assisting IT executives to make more informed decisions for future investments.