# 2002-Calculating the ROI for Business Intelligence

• View
110

0

Tags:

Embed Size (px)

### Text of 2002-Calculating the ROI for Business Intelligence

Calculating the ROI for Business Intelligence ProjectsJonathan WuBASE Consulting Group, Inc.October 2002

Presentation Information

Author: Jonathan Wu Company: BASE Consulting Group, Inc. Presentation title:

Calculating the ROI for Business Intelligence Projects

Why Calculate a Return on Investment (ROI)?Individuals calculate ROI for the following reasons:

Quantify the financial benefits of the project Prioritize IT projects Determine allocation of resources

Agenda

Financial measures How to estimate the cost Performing a ROI sensitivity analysis Non-financial considerations Business intelligence ROI case study Conclusion Questions and answers

Financial MeasuresNet Present Value (NPV) of project benefit Internal Rate of Return (IRR) Payback period Return on Investment (ROI)

1/5

Financial Measures

2/5

Net Present Value (NPV) of project benefit

Calculation of the discounted projected cash flows of project benefit from the date of implementation NPV formula NPV = CF1 (1 + r)1 + CF2 (1 + r)2 + CF3 + + CFn (1 + r)3 (1 + r)n

Legend CF r n

The net cash flow for each year that the NPV is to be applied The borrowing rate or investment yield rate for the organization The total number of years for which the calculation is to be applied

Financial Measures

3/5

Internal Rate of Return (IRR)

Calculation of the rate that will make the present value of the projected cash flows equal to the investment IRR formulaInitial Investment = CF1 + CF2 + CF3 + + CFn

(1 + r)1

(1 + r)2

(1 + r)3

(1 + r)n

Solve for the r to calculate the IRR Legend CF The net cash flow for each year that the IRR is to be applied r The Internal Rate of Return n The total number of years for which the calculation is to be appliedContent Copyright 2002 BASE Consulting Group - All Rights Reserved Template Copyright 2002 Business Objects - All Rights Reserved

Financial Measures

4/5

Payback Period

Calculation of the number of years that are required for the discounted projected cash flows to equal the initial investment Payback Period formula Payback Period = Initial Investment (NPV of project benefit / N years)

Financial Measures

5/5

Return on Investment (ROI)

Calculation evaluates the discounted projected cash flows derived from the benefit generated by the project divided by the initial investment ROI formula ROI = NPV of project benefit X 100 Initial Investment

Agenda

Financial measures How to estimate the cost Performing a ROI sensitivity analysis Non-financial considerations Business intelligence ROI case study Conclusion Questions and answers

How to Estimate the CostThe cost of implementing a BI project can be classified into one of three types: Hardware Software Labor

1/7

How to Estimate the CostHardware Cost The cost of the hardware devices required by the project

2/7

Examples Client systems Server system(s) Network communication hardware

How to Estimate the Cost

3/7

Software Cost The cost of the software applications required by the project Examples

How to Estimate the Cost

4/7

Labor Cost The cost of internal and external resources dedicated to the project

Examples Project manager Business analyst(s) BI application specialist(s) Trainer(s)

How to Estimate the Cost

5/7

The total cost of implementing a BI project can be divided into two categories: Initial Recurring

How to Estimate the Cost

6/7

Initial Cost The cost an organization incurs for the BI project that are a one-time event

Examples Hardware cost for the project Software license fees Labor cost associated with the development, implementation, and deployment of the BI solution

How to Estimate the CostRecurring Cost The cost associated with the maintenance and support of the BI solution after the BI project has been implemented

7/7

Examples Software maintenance fees Labor cost to maintain the solution and to train individuals on the BI solution

Agenda

Financial measures How to estimate the cost Performing a ROI sensitivity analysis Non-financial considerations Business intelligence ROI case study Conclusion Questions and answers

Performing a ROI Sensitivity Analysis

1/2

A sensitivity analysis addresses the probability of various outcomes and quantifies the financial impact of the BI project Example Outcomes Successful Partially successful Failure % Probability 60% 30% 10% 100%

Performing a ROI Sensitivity Analysis

2/2

The % probabilities associated with each potential outcome must be validated with available research information When performing the sensitivity analysis, the total project benefit should be greater than the initial investment for the benefit to outweigh the risk

Agenda

Financial measures How to estimate the cost Performing a ROI sensitivity analysis Non-financial considerations Business intelligence ROI case study Conclusion Questions and answers

Non-Financial Considerations

1/2

Non-financial considerations or qualitative analysis should be assessed and factored into the project business case Examples Improved information dissemination Improved information access Propagation of knowledge about the organization through training and use of the BI solution

Non-Financial Considerations

2/2

In certain cases, qualitative aspects can be quantified after the BI solution has been implemented as a postproject ROI assessment Examples Assessment of sales channel after September 11th Financial analysts working more efficiently Reduction of paper expense

Agenda

Financial measures How to estimate the cost Performing a ROI sensitivity analysis Non-financial considerations Business intelligence ROI case study Conclusion Questions and answers

Recommended

Documents
Documents
Technology
Documents
Automotive
Documents