BI ROI calculation: Issues and methodology

When talking about the challenges and opportunities while driving business performance and measuring return on investment (ROI), talking about business intelligence (BI) and business alignment cannot be left out. This aside, it’s critical to understand that there are different opinions about BI and its related ROI calculations. Some global case studies claim 1,000+% ROI, while some research analysts claim that 80% of BI initiatives fail to deliver. This is not surprising, because, for the following reasons, BI ROI is difficult to measure in some projects, although it is very evident in others. Here are some of the issues you should look out for when conducting ROI exercises for BI deployments.

Ownership: The question of ownership is tricky when it comes to BI. The software is usually co-owned by the business and the technical department. Figuring out the levels of credit given to each entity can be difficult.

 Cross-selling and complex networks: The mesh of information and influencing factors makes calculations of BI ROI rather complicated.

Original purpose: Another impediment while calculating the ROI of a BI solution is that it was never meant to be a performer but an enabler. The benefits which can be derived from it lie in the decisions of the strategists who make use of information coming from it. ROI of your BI deployment depends on the execution of the information generated by the solution.

 That said, there are at least four ways of calculating BI ROI.

 Use total cost of ownership: The task of calculating returns on BI is not impossible. If not ROI, maybe a new model could be used for calculating BI ROI. One model could be using the total cost of ownership—correlate the capital invested in deploying the BI solution with the increase in profits.

Use a blueprint of goals: Another feasible method is to check if the BI solution has achieved its intended goals. For this, a prior assessment of the situation and the definition of a clear blueprint (of expected progress) are very important. A best practice of sorts is to determine the aspiration level in the organization, and how the solution will help. Using this as a checklist may help in calculating BI ROI.

Estimating tangible and intangible benefits: BI can yield ROI through tangible and intangible benefits. The tangible benefits can be calculated by evident increase in profit margins, by the impact that the solution has had on the impacted practice, by the removal of non-performing assets, and by the improvement in customer satisfaction. This will be a way of calculating surrogate BI ROI. The list of intangibles would include technology consolidation, market exploitation, targeting the right customers, data management through surveys, negating non-performing assets, identification of fraud which would harm the company’s reputation, and avoiding money launderers.

 

1

Leveraging information: Information generated through the BI solution can be used for leveraging research and developing business strategies. This will also help put in place a data system that can be accessed to base new plans of action. The success or failure of these can be considered for calculating BI ROI.

Here's what Brooks and two BI analysts have learned about calculating ROI and effectively justifying BI investments.

1. Collaboration between IT and business is essential..

It's difficult to justify BI's price tag as an IT overhead cost, according to Betsy Burton, vice president and distinguished analyst with Gartner. IT needs to work with business users to figure out the business value of a BI application, she said.

That's exactly what Brooks does at BCBST. While his team provides guidance and estimates resource usage and technology costs, they look to business users to justify the project's value.

"We really want the business areas to provide the benefits," Brooks said. "It's not up to us in IS. We can say how much it will cost, but someone in the business ought to be able to quantify that benefit."

2. Don't get hung up on hard metrics.

One of the biggest challenges in BI projects is determining accurate before-and-after metrics, according to Gerry Brown, senior analyst with Towcester, U.K.-based Bloor Research International Ltd.

"If you don't know where you're beginning from, it's difficult to work out the benefit at the end -- what your ROI is. You need accurate metrics at the beginning and accurate metrics at the end," Brown said.

But then some organizations run into a chicken-and-egg problem. Without a BI system, they don't have accurate metrics. Without accurate metrics, they have trouble justifiying the potential ROI of a new BI system. So organizations should do their best to find some hard measures, such as where BI deployments will reduce costs or increase sales, but the real focus should be on soft benefits.

3. ROI calculations are difficult -- and not always necessary.

The BI projects that Brooks leads at BCBST always have some kind of ROI calculation, he said. Some projects enable obvious cost reductions by eliminating manual processes. But most initiatives require collaboration with business people to determine ROI metrics, asking questions

2

such as, 'How many clients will this new reporting tool help us gain or retain?' The calculation is different for each project, he said, a sentiment echoed by Gartner's Burton.

 "There's not a magic ROI equation for BI," Burton said. "There's clearly value and benefits, but that doesn't really get to the ROI. What you need to focus on is: 'What is the business value?' 'How am I driving the business forward?' "

Bloor's Brown also recommended pushing ROI justification problems back to a potential BI vendor. Vendors may be able to provide references from customers -- in similar industries -- that can share their metrics.

"The supplier should be a source of ideas and best practices, and if they can't help you justify the investment, you really have to question whether you want to go with that supplier," Brown said.

4. The "soft" benefits of BI are the most important.

The analysts and Brooks all agreed that while hard metrics are important, organizations should sell their executives on BI's soft benefits.

"The main benefits you get from BI are intangible benefits of strategic value, such as faster reporting, better management information, better decision making and more productive users," Brown said.

And even without hard metrics, there are often soft benefits that executives can appreciate, Brooks said. For example, a recent corporate performance management project at BCBST enabled the company to get rid of a manual, spreadsheet-based planning process -- improving visibility and accountability.

5. Executive sponsorship really helps.

When Brooks was first trying to sell his management on the concept of an enterprise data warehouse, he wrote a white paper explaining the potential benefits and circulated it widely. This document made its way to an executive who promised to help Brooks make the project a reality.

Executive sponsorship makes it much easier to sell these kinds of soft, intangible benefits, according to Howard Tripp, a BI infrastructure consultant on Brooks' team.

"It helps to find somebody with credibility and a lot of political capital and attach yourself to them if you're trying to get buy-off for the first time," Tripp said.

Here's what Brooks and two BI analysts have learned about calculating ROI and effectively justifying BI investments.

3

Maximizing Your Business Intelligence ROI

Maximizing Your Return On Investment From Business Intelligence

1. Know Where The Benefits Lie.

Besides delivering Online Analytical Processing (OLAP) - driven historical analysis or predictive modeling based on neural-network algorithms, a BI solution can do much more to maximize the return on investment (ROI) of your BI and Data Warehousing by:

generating reports with less drain on IT and staff time. Cutting down on the time and amount of staff required to create a report can be an easy way to illustrate how much money you will save with this solution.

enabling executives to see and react to trends. Sales managers can be alerted to changes in demand across products, geographies, and even individual accounts.

enabling managers to see and address inefficiencies. By using BI to analyze operational data, you can reveal longstanding patterns of waste and lost revenue.

providing a means for setting standard and checking performance against those standards. Your company will maximize revenue and profits by setting and achieving sales and efficiency targets. Use your business intelligence solution to obtain valuable insight into historical performance data and establish reasonable goals for the company.

delivering historically based predictions of the future. This is where the “data mining” comes in, where hidden patterns in customer data can be discovered to provide your salespeople with unexpected cross-selling opportunities to increase revenue per customer.

2. Organize your data warehouse.

Preparing your data for the BI project is an essential part of maximizing your ROI. Obviously, your BI solution won't solve anything or make you any money until it is given data to analyze, and usually the quality of the analysis depends on the quality and organization of your data.

Many times, your executives will want to leverage data from a number of sources within your organization, and even if your company's relevant data resides in a single repository, a thorough validation and “data cleaning” of your databases should occur, to make sure that no nasty surprises should occur. Make sure to factor in enough time and labor for this process to occur before the BI package is deployed at your company.

3. Use it or lose it.

Your company won’t realize the full potential of the new BI package unless a serious dedication is put into training your staff, and integrating new business processes that utilize the creation these BI reports. Without fully maximizing the breadth and repeatability of the new software, you won't be able to maximize the ROI of your BI project.

4

BI requirement Analysis

Our Business Requirements Methodology for BI provides you with: 

A direct, traceable link from your business objectives to the data they demandClarity starts with the business drivers at the topmost levels within your organization, and then maps a course to the detailed data elements you need to address them. This takes a coordinated and inclusive approach to your business and its players; we have honed this approach over years of project experience.

Full engagement of the business communityThis generates ownership in, and adoption of, the eventual BI solution.

A formal, repeatable process for examining business dynamics, gathering new requirements, and incorporating them into your BI solutionsThis enables you to change, enhance, and fine tune your BI solutions at any given time, over time, so that they can grow along with your business.

Requirements that are accurate and achievableWe make sure that your BI requirements are grounded in reality so that your BI solution doesn’t suffer from the all-too-common “high expectations, low return” predicament.

A clearly defined BI project scopeThis minimizes surprises as well as your risk. It also ensures that your BI solution produces the precise results your stakeholders are looking for, without going off into the weeds.

5

Total Cost of Ownership for Business Intelligence Application

December 26, 2007 by Raj Sheelvant

The cost for implementing the BI tools is rising and therefore the CIO and other business managers are becoming aware of new licensing and implementation costs. There are several options. The BI tools are rolled up into the Enterprise applications. Some vendors provide stand alone BI tools. Then there is Open Source BI application. Both Traditional and Open Source Vendors now provide SaaS delivery model. How can anyone compare open-source options versus Traditional BI? How do you calculate Total Cost of Ownership (TCO) for the BI application?Information Builders has a good white paper on this very subject (Click here to read the white paper). There are several components for the BI application that need to be taken into account while calculating the TCO.

I am happy to see Software Functionality in Information Builders’ white paper diagram (as shown above). Many organizations will look into Hardware, Software, User Training, Support and Maintenance and Time to implement when comparing BI applications. Some organizations also compare Software Architecture Scalability and Data Architecture to calculate TCO. But, many organizations do not do a good job of analyzing and assessing Software Functionality. They mainly go through the list of all the functionality that

6

exists for that application. If the list of Software Functionality for BI tool A is greater than B, then the conventional thinking is that Software A is better. But what if that functionality is not relevant to that firm? In my view, the first thing the firm needs to do before analyzing the TCO of the BI tools (or any other Enterprise Application) is to understand WHY they want to use Business Intelligence Application after all. What data have they been collecting and are willing to collect (it depends of how easy it is to collect good quality data)? The firm need to have a clear understanding of HOW BI application is going to enable their Business Strategy. Once the organization begins to do the detailed analysis of what data they have and need (in the context of their Business Strategy), only then the functionality of that software application begins to become relevant. If a firm implements the functionality of BI application that in no way provides any competitive edge, it’s a total waste of valuable resource. What ‘intelligence’ the organization will gain looking at some irrelevant data?

Bottom Up And Top Down Approaches To Estimating Costs For A Single BI Report

7

Posted by Boris Evelson on January 23, 2010

Blog post info and actions

7 Recommendations Print Email 11 comments

Blog post body

How much does it cost to produce a single BI report? Just like typical answers to most other typical questions, the only real answer is “it depends”. But let’s build a few scenarios:

Scenario 1: Services only. Bottom up, ABC approach.

Assumptions.

Medium complexity report. Two data sources. 4 way join. 3 facts by 5 dimensions. Prompting, filtering, sorting ranking on most of the columns. Some conditional formatting. No data model changes.

Specifications and design – 2 person days. Development and testing - 1 person day. UAT – 1 person day.

Loaded salary for an FTE $120,000/yr or about ~$460/day. Outside contractor $800/day.

Cost of 1 BI report: $1,840 if done by 2 FTEs or $2,520if done by 1 FTE (end user) and 1 outside contractor (developer). Sounds inexpensive? Wait.

Scenario 2. Top down. BI software and services:

Assumptions:

Average BI software deal per department (as per the latest BI Wave numbers) - $150,000 50% of the software cost is attributable to canned reports, the rest is allocated to ad-hoc

queries, and other forms of ad-hoc analysis and exploration. Average cost of effort and services - $5 per every $1 spent on software (anecdotal evidence) Average number of reports per small department - 100 (anecdotal evidence)

Cost of 1 BI report is $8,250. Still sounds inexpensive? Let's keep going.

Scenario 3. Top down. Information management software and services.

Assumptions:

Average BI software deal per department (as per the latest BI Wave) - $150,000 Average ETL software deal per department (as per the latest ETL Wave) - $150,000

8

Cost of 1Tb DW (as per latest DW Wave) - $50,000. Let's also figure in a 3x for production + development test + DR environments.

50% of the software (and DW) cost is attributable to canned reports, the rest is allocated to ad-hoc queries, and other forms of ad-hoc analysis and exploration.

Average cost of effort and services - $5 (anecdotal evidence) Since the effort of building full blown DW/ETL environment usually go beyond one department,

let's increase the number of reports by 3x to 300

Cost of 1 BI report also comes out to $8,250 since we are now using economies of scale for ETL and DW across several departments. But that's not the end of it.

Scenario 4. Top down. Fully loaded:

Assumptions:

10% of enterprise operational data quality cost of $1M and 2x for services 10% of enterprise operational MDM cost of $5M and 2x for services 10% of an enterprise portal fully loaded (hardware/software/labor) cost of about $3M (as per

Matt Brown) Not counting (since I don't have good numbers - if you do, please provide) a) 50% of enterprise

performance management applications b) servers (physical or virtual) for production, development, test, UAT and DR regions c) additional data center support and infrastructure

Cost of 1 BI report is now $15,250. Still waiting to collect more data on the 4th bullet point above, but I can easily see how the truly fully loaded cost might grow to $20,000.

Of course this is only one side of a complete picture, cost/benefit equation, since the cost of producing a BI report cannot be looked without referencing the value it provides. After all, if that one report produces $100,000K in cost savings or in additional revenues, then even $20,000 becomes very attractive.

Suggestions for bringing the cost of BI down?

Since services and support are major parts of the cost equation - enable end user self service 100 reports is a very low estimate, most organizations have more. Practice agile BI to reduce the

effort it takes to develop each report, and ensure that the requested reports are actually used. Leverage other best practices for reducing your BI costs found here. In certain specific use cases, consider BI Saas.

9

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from Vish Agashe (not verified) on Sat, 01/23/2010 - 15:19

Boris,

This post is thought provoking and I am sure that you will get a lot of discussion going.....I personally think that you need to create metrics which will help you normalize cost/value/usage across the reports and help you create fair comparison across all scenarios you mentioned.... here are my thoughts

Value: Looking at reports without value they create might result in comparing apples and oranges. Obviously your scenario’s 3 and 4 are using lot of resources because they need that level of sophistication to product those reports. I think looking at just cost without factoring in value created by reports does not give you a fair picture. Possibly a composite metric which could capture “Reporting $ required for per $ of value created” would be a better measure to compare investments in reports across these scenarios. That way a light weight report (scenario 1) can be fairly compared with heavy weight report scenario 3 or 4).

Audience/# of users: We need to factor in the # of users who are going to consume this report. Normalize the cost of the reports across # of users. So a metric like Reporting $ per user for a report would help normalize comparisons across reports.

Also, in scenarios 2 through 4, it seems to me that your are assuming a complete analysis area and not just “single report”.(basing this assumption on fact that you are factoring in the other investments done in the enterprise data warehouse). In this case…. There are many reports/report outcomes which will come out of those activities not just single report (For example building sales by territory report which allows you drill downs across sales territory, verticals etc…. will result in many reports).

let me know what your thoughts are

Vish Agashehttp://vishagashe.wordpress.com

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from Boris Evelson on Sat, 01/23/2010 - 16:10

Vish, very constructive suggestions, thanks. I redid the numbers a bit and that lowerd the fully loaded cost to $13K-$20K. Also, yes, it definitely makes sense to mention the value of these reports, but it's not the purpose of the blog to try to build a BI ROI business case. That's a tough proposition that I reviewed here http://www.forrester.com/rb/Research/business_case_for_bi_now_more_critical/q/id/54955/t/2

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from James Kobielus (not verified) on Mon, 01/25/2010 - 09:03

10

Boris:

Excellent analytical approach. But some things are still missing from the analysis.

First, you only include upfront costs of developing reports, but you don't include life-cycle costs of report maintenance, which probably are proportional to report complexity, number of fields, number of joins, and number of sources. Perhaps you should include a life-cycle cost multiplier in your equation, factoring in report complexity. That would increase report costs, of course, while delaying the break-even date for each report.

Second, you amortize "average BI software deal" cost only by the number of reports in a given department, but fail to include the fact that this cost is also spread across other BI apps, such as ad-hoc queries, dashboards, intelligent search, and interactive visualization. If you include those other apps in your analysis (I like to refer to this as "economy of scope," that will reduce the cost per BI report.

Third, you can't realistically estimate the per-report value by speculating on the possibility that a single report costing, let's say, $13,000, leads to a business opportunity worth, let's say, $100,000. I refer to that as the "lottery value" of BI--in other words, the possibilty that some scrap of actionable info led to a breakthrough insight that unlocks unlimited potential value. By that same token, you could justify anything as as the potential "ticket to paradise." (Keep in mind that the only person who ever cashed in a ticket to paradise had 2 of them, and that he already had money in his name).

Jim

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from Mike Boyarski (not verified) on Mon, 01/25/2010 - 18:25

Boris:Interesting analysis. I'm curious why open source BI & ETL would not be a consideration for lowering costs? Typically a support and update subscription to OSS is significantly less than traditional solutions, while self support versions are completely free. Also, might be helpful to represent your data as a table to read more easily.

- Mikehttp://www.jaspersoft.com

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from John Santaferraro (not verified) on Mon, 01/25/2010 - 19:51

Boris,Great work on showing some different ways of determining the cost of a report. It proves that developing a cost model is an art, not a science. But there is some science to it.

11

I know you are not trying to use this as an ROI model, but that seems like a good test for the numbers. So, my thought is to apply it to one of our customer scenarios.

A couple of years ago, we helped one of our customers set up a Business Intelligence Competency Center. As a result of new governance models and better cross-polination between business and BI, they have reduced the number of reports being generated by analysts from 6000 down to 180. The best part of this story is that with fewer reports, they are exceeding the expectations of the business compared to pre-BICC.

So, here's the math...

If you take the low end of the bottoms up approach, they would be saving $10.7M. If you take the top down approach, they would be saving $48M. Either way, it's a very significant savings.

I would love to send your data to our customer and get their feedback. Even if the end result is not accepted by them, the approach is certainly one they should consider. Thanks for your work on this one.

-John

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from Paul Boal (not verified) on Mon, 01/25/2010 - 20:35

John,It took me a while to have any faith in the numbers, so I went ahead and did my own rough calculations based on a large report development effort I participated in over the past year. The per report numbers (using a highly normalized database, rudimentary reporting tools, and waterfall methodology) come out to be about $2,000 of effort per report. Thanks for taking the time to work through some of the other math.

The analysis begs the question, though - how much can an organization expect to save by following the advice you provide?

Self Service yields a 20% savings?Agile BI practices is a 15% cut in development time?

Any metrics on that part of the conversation or what highest cost components are in the development costs. Technical skills. Subject matter expertise.

Thanks for the thought provoking numbers!

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from Mark Lorion (not verified) on Mon, 01/25/2010 - 21:42

Boris, this is great. I find it remarkable that more has not covered on this topic in the industry – I think you’re on to something.

12

Based even on your conservative estimates, one can see that the cost of running a traditional BI deployment can get significant – quickly exceeding the cost of the software and hardware itself. With high per-report costs like this, it’s no wonder IT organizations force users to really think through their questions and requests before embarking on report writing efforts.

But if users are forced to map out their precise questions in advance, what room is left for users reacting to interesting things spotted in reports, exploring follow-on questions, or asking an unanticipated question? While the costs alone are an argument for more “self service” BI and analytics, the real benefit for more user-driven models is that users themselves can ask and answer their own questions as they come up without going through IT for every new request. This leads to new insights and better decision making.

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from John Santaferraro (not verified) on Tue, 01/26/2010 - 01:34

Paul,It was the business to IT interaction, taking place in the BICC, that lead to the savings. The IT side learned to ask questions about what the business actually needed and the actual use of the data. And the business finally understood more about what the BI team could produce. When these two worlds came together, many of the reports were eliminated because they were no longer necessary. It's the process of information governance in the BICC that leads to the savings. Tom Gransee wrote a great white paper on "Building a Business Intelligence Competency Center" that might interst you. It's one of the best I've read: http://ow.ly/10saR Tom used to teach at TDWI.

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from Henk (not verified) on Tue, 01/26/2010 - 09:04

L.s,

Good article. In the costs however i miss the DB License and maintenance costs.... which can make a huge difference.

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from Pat (not verified) on Tue, 01/26/2010 - 13:38

Thanks for the thought-provoking article Boris. Of course there are often more factors that can be brought into a method for estimating costs for BI report development. Some big ones are: pre-packaged enterprise data models (denormalized views/queries and dimensional models), pre-packaged ETL scripts for popular ERP/CRM applications, pre-packaged reports/dashboards as well as offshore report development. I like John's comment about the BI Competency Center as well...building fewer of the highest value reports would definitely help.

re: Bottom Up And Top Down Approaches To Estimating Costs For A Comment from Cheeta (not verified) on Fri, 02/19/2010 - 16:33

13

Boris, just posting a reference to Roman's article about your calculations. Would be curious to see your reply as well.

14

Calculating the ROI for Business Intelligence ProjectsIndividuals leading organizations are continuously evaluating the cost verses the benefit of one option over another. A typical question is: Which one will yield the greatest benefit to the organization? Understanding and quantifying the costs and benefits of each option are necessary to answer the preceding question. Increasingly, project managers are asked to evaluate the cost versus the benefit of undertaking a business intelligence (BI) project. Several financial measures can be applied such as the internal rate of return (IRR), net present value (NPV), payback period and return on investment (ROI). While each has its benefits, a commonly accepted financial measure is ROI.

Overview of ROI

The ROI provides individuals with a financial measure that quantifies the financial benefits over the costs of a BI project. The calculation evaluates the discounted projected cash flows derived from the savings generated by the BI project divided by the initial investment. With this financial measure, several assumptions have to be made that can significantly impact the analysis. These assumptions include estimating the cost of the BI project, the cost to maintain the current reporting environment and an acceptable time horizon or payback period. Quantifying these assumptions can be challenging, but the information is available from third-party organizations and internal groups within the organization.

How to Estimate the Cost of a BI Project

What is the total cost of implementing a BI application? The cost can be divided into two categories: direct and indirect. Direct costs are tangible cash outlays an organization can clearly identify with respect to the initiative and includes the purchase price of the software, maintenance or support fees, implementation expenses such as internal and external labor costs, additional hardware and software needed to support the BI application, and user training. The indirect costs are not as easy to identify or quantify. Because they usually occur after the BI application has been implemented, they are often not factored into the total cost of implementing a BI application. However, these indirect costs are a major component of the total cost. They include upgrade of client machines, upgrade of network communication, upgrade of supporting software, additional internal support for users and user training beyond the initial training. Understanding the total cost of implementation is imperative if the organization needs to stay within budget. It can also help determine the phases of implementing the BI application. Cost components of this project such as software costs, maintenance or support fees and average configuration cost can be obtained from external resources. The estimated cost of implementing a BI application will be used in the ROI calculation.

15

Example

XYZ Corporation is interested in implementing a BI application to serve as its enterprise-wide, ad hoc query and reporting tool. However, the project sponsor and senior management wants to know what the ROI would be on the BI project because it will be a tremendous undertaking. XYZ Corporation’s current reporting environment requires 1,200 hours/month of support. Replacing the current reporting environment with a BI application will incur the following expenses:

Expenses

Hardware $250,000

Software $400,000

Labor $750,000

Total $1,400,000

Assumptions Proposed duration of the BI project is one year.

Ongoing support of the XYZ BI environment requires the following resources:

# Position %Time

2 BI operational support 100%

1 Database administrator 10%

1 System administrator 10%

1 Network administrator 5%

1 Trainer 25%

BI software maintenance cost is 10 percent per year. The number of work hours per individual per year is 2,000. The average hourly labor rate is estimated at $75. XYZ’s investment yield is 9 percent. Three-year time horizon for ROI calculation.

16

XYZ with a BI application:

Year 0 Year 1 Year 2 Year 3

Hardware $250,000

Software $400,000 $40,000 $40,000 $40,000

Labor $750,000 $375,000 $375,000 $375,000

Total $1,400,000 $415,000 $415,000 $415,000

 

XYZ without a BI application:

Year 0 Year 1 Year 2 Year 3

Labor $1,080,000 $1,080,000 $1,080,000 $1,080,000

Total $1,080,000 $1,080,000 $1,080,000 $1,080,000

Net Savings n/a $665,000 $665,000 $665,000

Discounted Net Savings at 9% $1,683,311

Return on Investment

Discounted Net Savings at 9% $1,683,311

BI Investment $1,400,000

Return on Investment 120%

17

Figure 1: Calculations

Since the rate of return is significantly greater than 0 percent, conducting the BI project will be financially beneficial to the organization. In addition, since the ROI percentage is greater than 100 percent, the payback period for the BI project is better than the three-year time horizon used in the ROI calculation.

Performing a ROI Sensitivity Analysis

After applying the organization’s financial measurements to the BI project, a sensitivity analysis can be performed. A sensitivity analysis is conducted by numerically creating scenarios for a variety of project outcomes. Each scenario is assigned a probability, and the appropriate financial measurement is applied. For a BI project, three outcomes may be a successful, partially successful and failed BI implementation. A percentage is assigned to each outcome as to the likelihood that the outcome will occur. If the percentage assigned to a successful outcome is less than 50 percent, the project should be reevaluated and the critical success factors need to be addressed because the chances of a less than successful project is great. Applying the ROI in a sensitivity analysis can help executives evaluate the risk and potential gain or loss of the BI project. For the example in Figure 2, a probability percentage as been assigned to each outcome for XYZ Corporation’s BI project.

Scenerio % Probability Gain/(Loss) Weighted Outcome

Successful 60% $1,683,311 $1,009,987

Partial Success 30% $ - $ -

Failed 10% $(1,400,000) $(140,000)

Totals 100% $869,987

Figure 2: Probability Percentages

Since the probability of success is greater than 50 percent and the total weighted outcome is significantly greater than $0, the potential gain to XYZ Corporation from the BI project outweighs the risk of failure.

Nonfinancial Considerations of a Business Intelligence Project

While the ROI calculation is one measure to evaluate a BI project, there are other nonfinancial considerations that should also be addressed. These nonfinancial considerations, or qualitative analysis, may include improved information dissemination, improved information access,

18

propagation of knowledge about the organization through training and the use of the BI application. Striking a balance between the financial measurement and the qualitative analysis is crucial in both winning support and in the ultimate success of a BI project.

Summary

The quantitative and qualitative benefits of a BI project need to be evaluated before the project is undertaken. Calculating the ROI on a BI project is one means of measuring the benefit to the organization. But even more critical to the success of the BI project than the calculated costs, benefits and ROI is the extent of buy in for the project from the executive leadership and the business operations of the organization. Having support for the BI project from senior management as well as user involvement in the configuration of the application(s) is essential to its success. Without the necessary support and involvement, the ROI calculation for the BI project is meaningless.

client interaction in BI projects

19

Brief Profile:The client is a US based bank with worldwide locations, providing all aspects of banking operations, such as Retail and Investment banking, Treasury management, and Portfolio Management. The assignment was scoped for Treasury Management for the Asia Pacific region.

Objective of the assignment:To conduct situational analysis of the existing reporting structure, evaluate and recommend BI Tools, to assess client-reporting requirements, and design performance dashboards. To design the BI rollout plan, including choice of BI tool, DW and ETL strategies.

Approach to the Assignment:

Situational Analysis: 10 days of interaction with the Singapore Center by interviewing process owners and by gathering and reviewing various data for a clear cut understanding of the problems in the Treasury Operations.

Expectation Survey: An offsite activity wherein the Business Heads of various entities were involved in providing information on specific issues which set the priorities for the Project.

Problem Definition: Based on the situational analysis and the expectation survey, a clear-cut definition of the problem and a defined action plan was evolved.

Balanced Score Card definition: 5 days of on-site interaction with Top Management helped define the short and long term goals. Eight Key Performance Indicators (KPI) were identified to measure the effectiveness of Business Processes.

Performance Measuring System Design: Based on the data availability, importance of the measurement, frequency of KPI monitoring, and drill down of data, a Performance dashboard - which became the input for the Business Intelligence process - was evolved.

Business Intelligence Initiative: Using Business Objects, a business intelligence initiative was designed. Cubes with various dimensions were designed to monitor the KPIs and generate various views and reports. Automation would ensure auto refreshing of cubes and periodic publishing of reports.

Benefits:

A BI project roll out plan was designed specific to the customer, resulting in identifying the right tools, right timelines and project effort and time estimation

Key Performance Indicators were identified Dash boards and Balanced score cards were developed Unbiased recommendation of BI Tools was provided.

Timelines:

Initial study and gathering requirements - 6 weeks BI project implementation - Five months Training of client staff and fine tuning BI implementation: 2 months

20

Team composition (for initial study):

On Site: Senior Process consultant and BI Expert Offsite: Domain experts in Banking domain

21