How much to spend on flexibility? Determining the value of information system flexibility

Upon the initiation of an information system (IS), decision makers typically have a choice between different levels of flexibility, that is the extent to which the IS can be modified or upgraded during its subsequent lifetime. In the current paper, we regard IS flexibility as an option that is available to the decision maker, and demonstrate several approaches to determine its value. Extending a previous theory of IS flexibility, we calculate the value of flexibility by applying decision tree analysis (DTA), real option analysis (ROA), and explicit risk assessment based on simulation experiments. We find that the deterministic treatment of IS flexibility tends to underestimate its value, whereas ROA can overestimate its value, in particular in low-risk situations. Our findings highlight the need for the concrete measurement of IS flexibility.