Governance of Enterprise IT (CGEIT) Certification Practice Exam

Return on investment (ROI) is most suitable as an IT investment appraisal method when?

1. The intangible benefits are expected to be insignificant.

2. The payback period of a similar IT project is known.

3. The risk associated with the return for similar projects is known.

4. The total cost of ownership (TCO) is relatively high.

The correct answer is: The intangible benefits are expected to be insignificant.

Return on investment (ROI) is most suitable as an IT investment appraisal method when the intangible benefits are expected to be insignificant. This scenario is optimal because ROI focuses on quantifiable financial returns and costs associated with an investment. When intangible benefits, such as improved employee morale or brand reputation, are minimal, the calculation of ROI becomes clearer and more straightforward. In such cases, it allows organizations to make decisions based on concrete financial metrics, ensuring that the investment can be justified primarily through tangible returns generated from the project. When intangible benefits are prominent, the ROI calculation might not capture the full value of the investment, leading to potential underappreciation of its strategic benefits. Therefore, a situation with insignificant intangible benefits aligns well with the strengths of the ROI method, as it emphasizes calculable financial impact rather than subjective or non-quantifiable outcomes. This clarity is crucial for stakeholders who require a solid return measurement to justify their investment in IT projects.