Individuals 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.
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.
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