The most likely reason for this productivity paradox is the inability to properly measure the benefits associated with information technology. Now many information technology projects do not only reduce costs but are also designed to produce other benefits. The measurement problem is also more severe when looking at benefits as compared to costs. While errors in measurement affect both the costs and benefits associated with an information technology project, measurement errors tend to be biased towards underestimating benefits because of their intangible nature. The development of quantitative methods to measure the benefits of information technology are especially important since the management review process tends to be biased against qualitative benefits.
Management typically assigns greater weight in the decision making process to quantitative benefits.
The three most common techniques used are internal rate of return, net present value, and payback. However, net present value analysis has some associated limitations that can result in the value of a project being underestimated. A traditional net present value analysis makes implicit assumptions concerning an expected scenario of cash flows. It also ignores the synergistic effects that an investment project can create. Net present value analysis usually underestimates investment opportunities because it ignores management's flexibility to alter decisions as new information becomes available.