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Business Intelligence Return on Investment Issues

  • April 01 2004, 1:00am EST

Many business intelligence (BI) programs calculate the financial ROI, and this calculation is being made with increasing frequency. The very act of considering how BI will improve the bottom line of a company through increasing income and/or reducing expenses will help to put BI on the path to success. This success could be the actual measured financial ROI, or it could just come about as a by-product of the initial focus on ROI. Sometimes, well-meaning programs will use ROI calculations to justify a program; however, the measurement of the actual ROI can be a daunting experience, especially if the calculation was entered into lightly.

The difficulty arises because BI seldom provides a first-order (i.e., easy to calculate) ROI. Most BI programs do not simply sell subscriptions to customers and thus generate the income to offset the expenses involved in the build activities. Instead, BI usually triggers a decision that enables an activity that triggers another activity that eventually leads to a sale or an expense reduction. For example, by examining retail sales patterns in the Midwest, it is determined that bread is purchased in 60 percent of the cases in which butter is purchased. In response to this finding, a retail outlet decides to place bread and butter at opposite ends of the store to create more product impressions. Average ticket, overall sales and profit increase over the next few months. We learn that those who purchase the bread and butter have slightly higher measures.

Even this level of indirection is difficult for companies to absorb regarding the impact of BI initiatives. As you can see, BI ROI is really a misnomer. BI ROI concerns business activities, such as product movement in the store, that happen to use BI. Rightfully, all the benefits and expenses, including those on the business side, associated with those activities belong in the one ROI.

Of course, the downside to the product movement strategy is the negative effect such a strategy has on customers that are frustrated when they are forced to walk all over the store to obtain these products. In this case, the strategy could be a matter of short-term gain but long-term loss. It requires intense full life cycle (i.e., multiyear) focus with a highly contingent articulation of the ROI.

Furthermore, the world did not sit still while the store tried to measure the impact of this isolated business move. The global, national and local economies experienced a number of changes. The weather and moves by the competition may have impacted the results. These are hardly items under the control of the data warehouse build team. The full life cycle approach to ROI generates a high number of assumptions and ramifications.

While I do believe that those who put forward BI ROI should be responsible for the attainment of that ROI, they also should be allowed to state a number of contingencies, assumptions and alternative projections. Too many companies find problems with BI ROI because those in IT attempt to calculate the returns. In reality, IT is only qualified to state the cost of building the BI infrastructure (i.e., the data warehouse, associated marts and access tools). The business costs and, more importantly, the business returns from these business activities are clearly the domain of those involved in the project on the business side. Calculation of BI ROI can be effectively led by either of these contingents, but both need to be involved. It is simply unreasonable to expect IT to calculate the ROI. They are not in the position to state the returns as previously mentioned, and they often lack the statistical background to structure their findings.

The very question, "What is the ROI for BI?" requires the recipient to define BI. How do you do that? Many will limit their definition to those executing directive, interactive query against the data warehouse. This arbitrary distinction limits BI's reach within the organization. BI can often be used to distribute all manner of data to all manner of applications and usage environments -- ad hoc, visual, reporting and even operational systems.

BI ROI is really a series of ROIs for the various projects using the BI environment, and some of the benefits have no relation to any other benefit. Additionally, the time frames for the various projects have varying durations and start dates. You would never get out of the starting gate if you wanted to calculate a full BI ROI in most environments today.

However, calculation of BI ROI is still worth it. Involve the right individuals, structure it correctly, make it business ROI -- one of several in the BI environment - and don't limit the reach of BI in your organization in the process. And, be prepared for a lot of work!

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