The R in ROI is Hard to Find
Most organisations seem to have the I part of this calculation well covered. In fact the investment is so well understood that it can typically be analysed by project and ongoing costs and by staffing, hardware, software, consultancy assistance and training. Indeed, we live in a climate where knowing these costs is vital.
Calculating the R is somewhat more problematic though. This is partly because the return is often a mix of the tangible and intangible but also because there are often multiple ways to justify a BI implementation. The first step in putting together a rock solid business case that will secure a green light is to consider which approach to use. What follows are some of the justification approaches that I have seen used successfully.
The Productivity Justification
One of the least unambiguous methods of calculating a return is productivity. If a monthly management report pack takes two heads (or FTE's) the whole month to prepare then there is an obvious and ongoing cost saving to be made by replacing this effort with an automated BI solution. However, even this can be a complex justification. A typical finance department deals with such a variety of tasks and activities that identifying the effort in this way is not always straightforward. Then there is all the hidden effort as countless cost centre managers produce their own subtle variations in Excel. Not only is this undermining the integrity of business information it is hiding the cost involved in sharing it. I have lost count of the number of business review meetings where managers spend more time debating the accuracy of their own spreadsheet than assessing what should be the single business view and making decisions. Generally speaking though, the cost of business productivity improvements can be assessed to a sufficient level of accuracy that it makes a credible business case.
However, whilst there are invariably productivity benefits to all Business Intelligence project, they are rarely the primary ones.
The 'Go to Jail' Justification
Another justification is that the information is mandatory and defies an ROI calculation because without the information the business cannot operate. Statutory obligations under acts like Sarbanes Oxley include titles that deal with enhanced disclosure and corporate fraud accountability that could even result in criminal penalties including prison. There is nothing like the threat of a fall all the way from the boardroom to the prison yard to focus the mind on reporting transparency. There are often many other benefits realised as a result of meeting these obligations but the production of legally required reports and the continued liberty of senior executives is often justification enough.
The Flying Blind Justification
This typically comes from someone from the senior management team. Multiple, poorly integrated ERP's and outdated information systems comprising a thousand manually manipulated spreadsheets can create the feeling of flying a very expensive aircraft without any instrumentation. I recently worked with a customer who had a completely new management team with ambitious plans to revitalise the business. The ultimate goal was to double the share price and to do this they had a solid understanding of where they needed to be. They had worked with a consultancy partner to determine where cost savings could be made and which revenue streams to accelerate or choke depending on their profitability profile. As a team they had a tightly defined set of key performance indicators and targets but could not get the information from existing systems which were operationally strong but KPI weak. The project was entirely justified on the strategic needs of the management team but also delivered consequential benefits to senior managers and middle managers too.
The Information as a Product or Service Justification
Using management information to add value to customer service offerings is an increasingly common project rationale. Information, typically available in a variety of operational systems has value to the customer once it has been integrated, cleaned, sanitised, summarised and made available as an extranet solution. An environmental organisation we are currently working with provides information back to their customers on the amount of waste that is being recycled on their behalf allowing them to demonstrate that they are meeting government and local authority targets and their duty of care. The data is a subset of information already being extracted into the corporate data warehouse and aside from winning new business is also becoming a mandatory requirement for some local authorities thereby freezing out some of the less information capable competitors.
The Big Problem Justification
The richest rewards are typically the least tangible though and are associated with having access to timely and accurate insight.
The return is a product of better decisions made as a result of having this insight so it is difficult to generalise and problematic when it comes to articulating it in numbers. Highly visible business issues can help here. A few years I partnered with an on-line retailer who had customer returns that exceeded £10m without having a handle on exactly why. In a wafer-thin margin business, a small percentage reduction in this number was a significant enough prize to justify a project to help them understand which product categories were being returned and for what reasons.
Large, visible, business issues that require information to understand and fix have been the mother of some great innovations in the field of business intelligence.
The BYO (Build Your Own) Justification
BI Implementations don't always have a big problem to hang their hats on or a new senior management team hungry for better, faster information. Indeed most do not. For these, the justification has to come from a considered review of the types of decisions that are being supported and the financial benefits of making better ones. Dorothy Miller, in her article Measuring the Return on Investment for Business Intelligence, describes the challenges of justifying BI more clearly than I ever could and recommends a Benefits Audit approach to assessing the benefits and therefore the value.
As a minimum, there should always be a section in the requirements documentation which articulates the requirements as business questions. These might include what is the order backlog?, what is the trend in sales win/lose?, how many deals are being discounted more than the average of 15% and what is the billable utilisation of each consulting team compared to the company average?
Again, the impact of accurate information to improve the business based on answering these questions is highly subjective but represents a good starting point for articulating the benefits and potential returns.
