EVA and Technology Assessment

by John Berry

When it comes time to replace machinery, equipment, or computer systems, a business owner knows intuitively that value creation out of these new investments can occur only when returns exceed the company's cost of capital. The emergence of economic value added (EVA) as a management philosophy and performance metric elevates this business imperative from gut-level intuition to objective analysis for all investments, including information technology. Organizations that adopt the EVA philosophy and the economic arguments behind it will find they experience a deeper understanding of the drivers of value from any IT expenditure while building greater discipline into the decision making around those investments.