Planning Technology Investments for High Payoffs: A Rational Expectations Approach to Gauging Potential and Realized Value in a Changing Environment

Publication Type

Book Chapter

Publication Date



The importance of distinguishing between potential and realized value for IT investments has been recognized by senior managers and IS researchers since some time in the 1980s, when it became apparent that not all IT investments were likely to achieve equivalent levels of return on investment. This chapter explores a new perspective with respect to potential and realized value, specifically noting the importance that rational expectations of IT strategic planners and investment managers play in conditioning decisionmaking by senior managers. The key insights that we offer are as follows: (1) Since organizational, operational and market contexts will tend to vary around different kinds of IT investments, it is only natural that such heterogeneity in outcomes should be reflected in the heterogeneous expectations of the managers who make the investments; (2) With this in mind, it should also be apparent that understanding heterogeneity in both potential and realized value should be a matter of arriving at an appropriate set of expectations, based on the acquisition of relevant updated information over time that will permit adaptive learning to occur on the part of senior managers; (3) No matter what the process is that enables managers to update their expectations (and achieve rational expectations in the process about their IT investments), the planning process that leads to new estimates of the payoffs from specific IT investments should be tuned for encouraging the tracking of a trajectory of values for potential value. This view is analogous to what an investor would do in tracking the value of stocks held in an investment portfolio, which are subject to value changes based on a variety of forces that are likely to affect the future cash flows of the firm and the present value of its growth opportunities. We develop this IT investment planning perspective in terms of the underlying theory and offer a number of new conceptual and methodological ideas that will enable managers to think their IT investment processes through with a more effective understanding of the rational expectations that are likely to be inherent in them.


Information technology investments, investment planning, Management information systems


Management Information Systems

Research Areas

Information Systems and Management


Planning for information systems




W. R. King

First Page


Last Page





M. E. Sharpe

City or Country

Armonk, NY

Additional URL