Cost-benefit methodology for office systems

Abstract

The time savings times salary (TSTS) approach is a widely used methodology for the financial justification of office information systems, yet its theoretical basis is largely unexplored. In this paper, we identify its underlying economic model, including five critical assumptions. We find that the model, though somewhat restrictive, is not unreasonable. However, we find that the time-saving-times-salary calculation, per se, is implicitly based on a very particular assumption about how saved time will be used. This assumption has neither a behavioral nor normative basis, and we conclude that the TSTS calculation is not meaningful in most cases. An alternate approach, the hedonic wage model, is proposed. This model overcomes most of the deficiencies of the TSTS approach, although it has somewhat greater data requirements and computational complexity. A case study illustrating the use of the hedonic wage model is presented.