NOTE - AN ECONOMIC-ANALYSIS OF IS BUDGETS

This paper conducts an empirical analysis of information systems budge t data focusing on the implications for the efficient production of in formation services. We use a model of the production of information se rvices based on the economic theory of production to develop testable hypotheses for budget behavior. In particular, we focus on two importa nt issues: (1) the allocation of the information systems budget to its two largest components-personnel and hardware, and (2) the existence of scale economies in the provision of information services. These iss ues are examined using budget data collected through a survey of infor mation systems managers in Fortune 500 corporations. We find that the optimal ratio of personnel to hardware expenditures is independent of the scale of the information systems organization for a given set of p rices, and that there are no measurable economies of scale in the prov ision of information services. The implications of the analysis for th e management of information services are discussed.