Deck 15: Evaluating Ais Investments

Question 1

For a firm considering AIS and IT initiatives, accountants can play an important role in which of the following ways?
A. Auditing the financial statement reports created by the new system.
B. Implementing the controls in the new technology.
C. Developing and reviewing the business case for the initiatives.
D. Entering transactions into the new system.

Answer 1

Developing and reviewing the business case for the initiatives.

Question 2

Time that employees devote to self-training on new technology is an example of direct operating costs.

Answer 2

False

Question 3

Which of the following is not a direct acquisition cost of an IT initiative?
A. Cost of hardware
B. Cost of business disruption
C. Cost of project management
D. Cost of software development

Answer 3

Cost of business disruption

Question 4

In making the business case for an IT investment, companies should assess the sensitivity of results to the assumptions.

Question 5

The value proposition step in the analysis of an IT initiative should focus on five questions, including the timing of expected benefits.

Question 6

Which of the following is an example of project risk?
A. The technology will not work as expected.
B. The IT project is not aligned with the company's strategy.
C. The financial benefits may not be delivered.
D. The IT project may exceed budget.

Question 7

Which of the following is not a direct operating cost of an IT initiative?
A. End-user data management
B. Ongoing hardware replacement
C. Software upgrades
D. Hardware disposal

Question 8

One weakness of the internal rate of return financial metric is that larger projects tend to have higher internal rates of return.

Question 9

The benefits of an IT project are not necessarily measurable in financial terms.

Question 10

Benefits are often estimated without complete information.

Question 11

In addition to technology, which of the following is required in order that a firm may achieve desired business process improvements for its IT invesment?
A. Other enabling (complementary) changes.
B. Software configuration.
C. The Balanced Scorecard and associated strategy map.
D. Business Intelligence.

Question 12

The appropriate cost of capital to use in valuing an IT project is the same regardless of the project riskiness.

Question 13

Which of the following is not one of the potential approaches to quantifying the expected benefits of IT initiatives?
A. Real option theory.
B. Simulation.
C. External benchmarks.
D. Expert opinion.
E. Performance futures theory.

Question 14

Which of the following is not a question that businesses should answer before making major IT investments?
A. What key business issues does it address?
B. What are the risks of doing the project?
C. How will success be measured?
D. None of the above

Question 15

Net present value techniques compute the unique rate of return for a particular IT project.

Question 16

Organizations have developed techniques for evaluating IT projects for several reasons. Which of the following is not one of those reasons?
A. Selecting one investment often means forgoing other potentially value-increasing investments.
B. IT projects often require new sets of skills, which may not be readily available, or may be cost-prohibitive to build.
C. IT projects often require large amounts of capital, and for most firms, capital resources are limited.
D. IT projects often involve changes in business processes that will affect substantial portions of the organization.

Question 17

Which of the following is not a reason that large IT projects require economic justification?
A. IT is a commodity, every firm makes IT investments
B. IT investments require large amounts of capital
C. Capital resources are limited
D. Major IT projects can affect substantial portions of the organization

Question 18

Capital budgeting techniques provide precise estimates on an IT projects costs and benefits.

Question 19

The business case for an IT project does not need to address risk, since risk will be factored into the discount rate.

Question 20

Which of the following is not a potential benefit of an IT investment?
A. Revenue enhancement
B. Revenue savings
C. Cost avoidance
D. Revenue protection

Question 21

Which of the following would not be considered an indirect operating cost for an IT initiative?
A. End user data entry.
B. User self-training.
C. User peer support.
D. End user data management.

Question 22

When considering the sensitivity of estimates used to evaluate IT initiatives, which of the following are you likely to do?
A. Use multiple metrics to evaluate each IT initiative.
B. Test the impact of changes in assumptions on the various financial metrics.
C. Consider which groups in the organization will benefit.
D. Develop exact quantifications of costs and benefits.

Question 23

After identifying the relevant risks associated with an IT initiative, which of the following is not something that the project team should consider regarding each risk?
A. The financial impact of the risk scenario occurring.
B. The probability of the risk scenario occurring.
C. The potential benefits of the risk scenario occuring.
D. The cost of mitigating the risk.

Question 24

Which of the following is a key advantage of the Net Present Value metric for evaluating an IT initiative?
A. It relates estimates using accrual accounting.
B. It is easy to calculate.
C. It considers the time value of money.
D. It is sensitive to the discount rate applied.

Question 25

Acquisition costs for an IT initiative include all of the following except:
A. Software licenses.
B. Training.
C. Maintenance fees.
D. Project management.

Question 26

Benefits of IT initiatives should be measured in comparison to which of the following?
A. The amount of information available.
B. Current inputs of the existing IT processes.
C. Revenues and costs that will occur without implementing the initiative.
D. Non-financial aspects of the project.

Question 27

Which of the following is the formula for payback period?
A. Increased cash flow per period / initial investment.
B. Initial investment / increased cash flow per period.
C. CF_t / (1 + r)^t
D. (Average annual income from IT initiative) / (Total IT initiative investment cost).

Question 28

Which of the following risks considers the possibility that the new IT system will not be implemented on time or within budget?
A. Solution risk.
B. Change risk.
C. Alignment risk.
D. Project risk.