How Much to Spend on Flexibility? Determining the Value of Information System Flexibility

Abstract

In the current paper, we outline several approaches to determine the value of information system (IS) flexibility, defined as the extent to which an IS can be modified and upgraded following its initial implementation. Building on an earlier conceptual model by Gebauer and Schober (2006), we calculate the value of IS flexibility for a numerical example with deterministic and stochastic model parameters. We compare the results of decision tree analysis and real option analysis and present the results of a simulation experiment. Besides practical implications, our results contribute to earlier research on IS flexibility as they highlight the need to include stochastic elements in the evaluation of IS flexibility.

Keywords: information system flexibility, decision tree analysis, real option analysis, simulation experiment