Determining Return on Investment (ROI) for Business Intelligence (BI) projects can often be nontrivial. The direct benefits of implementing a BI solution often don’t encompass the numerous indirect benefits that can be difficult to quantify. Additionally, the indirect benefits for one firm may be different for another so there is no standard template to apply.
Unfortunately, there is more bad news. Firms that don’t assess their solution’s ROI face the risk of their budget getting cut if the company encounters financial constraints. Luckily, using basic finance principles, BI sponsors can assemble solution ROI by calculating the value created in reducing data collection time, reducing costs, increasing revenue, and reducing decision timelines. Here’s how:
Direct Reduction in Data Collection
ROI for BI projects can often be directly calculated when evaluating the reduction in data collection costs, the retirement of legacy systems, or the substitutional savings of one solution for another. In many organizations, many parts of the business have cobbled together spread-marts, access databases, or other analytics systems that implement custom models against departmental data sources. Many of the business personnel creating these systems spend a vast amount of time performing data integration/creating reports without easy to use data integration tools, and are left with very little time to analyze the data to find business cases for revenue generation or cost reduction.
Indirect Profitability Lift from BI
In most cases, the business value created from BI solutions cannot be directly linked to the solution itself prior to solution creation. The solution itself can allow business users to find business cases or business justification to implement business change that ultimately leads to increased profitability via revenue generation, cost reduction, or business efficiencies.
For example, a business analyst may be able to use BI to segment the data and gain understanding about profitability trends by product categories, sales channels, customer types, or other attributes of the business. By segmenting the data, the business can choose to implement different strategies that allow them to focus on what makes the biggest impact to company profitability. Using BI to manage or track key accounts is a common example of using BI to generate revenue. The business can implement customer incentive programs or other rebate initiatives to incentivize customers to buy more product or buy higher margin products. Yet another potentially valuable use for BI is the implementation of predictive analytic solutions. One such solution could allow the company to profile and model the attributes of its most profitable customers, and use those models to market to non-customers that meet the criteria of the model. Similarly, predictive solutions might help the company profile customers that defect from the company and develop solutions to reach out to those customers prior to defection.
Time to Action
At your company’s point in its BI journey, maybe BI hasn’t resulted in net new business solutions, but has introduced operational business efficiencies that provide value. For instance, does BI help you collect AR faster, or shorten your time to market for new products? At a minimum, if implemented correctly, BI solutions should help business users make more informed decisions on a quicker timeline. Business users can make decisions, use the capabilities of BI to monitor those decisions on a day-to-day basis, and ultimately make adjustments if necessary. Such scenarios allow users to realize the implications of their decisions prior to seeing the results in a quarterly or monthly P&L report or having their company’s results reported to the street.
Determining ROI for BI
When coming up with the ROI number for your organization, there are going to be direct and indirect benefits and you are likely going to have to make assumptions. It will be important to have business sponsors, leaders, and financial analysts estimate the potential value created from business efficiencies or business projects they will implement in BI. Additionally, it is important that some type of estimate should be made using at least one of the various financial models available (Net Present Value, Internal Rate of Return, Return on Investment, or others), so that the company knows the value they are getting for the solution investment.