A decision support model for optimal timing of investments in information technology upgrades

Authors:
Nivedita Mukherji;Balaji Rajagopalan;Mohan Tanniru
Affiliations:
Department of Economics, School of Business Administration, Oakland University, Rochester, MI;Department of Decision and Information Sciences, School of Business Administration, Oakland University, Rochester, MI;Department of Management Information Systems, Eller College of Management, University of Arizona, Tucson, AZ
Venue:
Decision Support Systems
Year:
2006

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Abstract

In an environment of continuous change, organizations are faced with the challenge of deciding when to invest in information technology upgrades. While investing frequently is costly and at times risky, waiting too long can lead to lost competitiveness. Further, investing at a given time can preclude a firm from taking advantage of better technologies in the future. In the context of software upgrades, this study proposes and illustrates a decision support model to determine the optimal timing and choice of upgrades. Analysis confirms that even if continuous upgrading is feasible, it is not an optimal strategy when adoption costs are significant. Simulations show that investments in upgrades are best made when the gap between new technology and current: technology reaches a critical threshold. Among other factors, this threshold is influenced by technology cost, change management cost and opportunity cost.