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The ROI for data warehousing is an interesting approach.

By
  • Joe Oates, Sid Adelman, Scott Howard
Published
  • October 03 2002, 1:00am EDT

Q:

The ROI for data warehousing is an interesting approach. Anyway it is only focussing on monetary aspects. Do you know about methods used for profitability analysis (including all the benefits and costs) in warehousing?

A:

Scott Howard’s Answer: Again, costs/benefit is difficult to quantify and the algorithms for such vary too much from industry to industry and from business to business. Look at my answer to the question "I am trying to prove a business case to demonstrate the quantifiable business benefits of implementing data standards to support our heterogeneous ERP environment" this month for a real example of the real financial impact to a business should they not adapt a consolidated DW approach. Also consider the wasted and duplicated effort of having each department or each business unit construct and maintain their own independent and thus unreliable, from a consistency prospective, decision support environment.

Joe Oates’ Answer: I do not know of anything that exactly fits your needs that consulting companies don’t charge lots of money for. However, there is an ROI calculator that you can download from gantthead.com. I believe that it will have many, if not most of the items you are looking for.

Sid Adelman’s Answer: I assume you are talking about intangible benefits. This text is taken from Data Warehouse Project Management by Sid Adelman and Larissa T. Moss published by Addison Wesley in 2000.

The following are intangible benefits:

  • Competition One intangible benefit of having a data warehouse is that you will not be overwhelmed and buried by your competition. The majority of organizations in the United States and in many industrialized countries have some form of data warehouse or data mart. Those that are using them effectively put you at severe risk. Your competitors with an effective marketing data warehouse will steal your best customers. Your competitors with an effective manufacturing data warehouse will produce higher quality products at a lower cost. Those with an effective human resource data mart will have lower labor costs and higher employee morale. Morale could be improved by better understanding employee preferences for specific benefits packages and being able to evaluate multiple benefit options. Your competitors with a financial data mart will be able to tap the capital markets more effectively and deliver a higher price/earnings ratio on their stock. Your competitors will be able to develop successful products and get them to market more quickly than you are able. The data warehouse has the ability to combine internal data with data you can buy about your competitors and with data you research about your competitors (all legal and ethical). The competitive intelligence is what your analysts are able to discover (that tells you how you are doing compared to your competitors. The comparisons include percentage of the market by region, product, etc., your profit margins compared to theirs and your costs compared to theirs. Competitive intelligence tells you who your competitors are selling to and what they are charging.

  • Consistent Answers to Queries and Consistent ReportsOrganizations spend an enormous amount of time reconciling inconsistent reports. The data warehouse should provide one accepted source of data. With the correct operational controls on the ETL process and proper meta data, reports and queries should be consistent.
  • More Timely Information The goal is to make the information available sooner than you are getting the data today. You must be careful because the ability to load the data warehouse is dependent on the availability of the source data. If the operational systems that create the source data do not complete their processing until the 15th of the month, the load can not start until the 15th, and so users may not see their data any sooner than they are getting it today.
  • Reputation of the Organization Organizations are evaluated in a number of ways. The quality of management is given great weight as analysts determine a company's value. Lately, the technological capability of a company has become one of the major indicators of a company's worth and its ability to compete and survive. The price of a company's stock is strongly affected by analysts' and the stock markets' views of technological capabilities. A number of CEOs have indicated the way they are measured is by the price of the stock. CEOs are often compensated as a factor of the stock price and many have lost their jobs when the stock price has not kept up with that of the competition. The ability of an organization to make effective use of information has become a major topic in computer and industry publications, and this has had a strong impact on the organization's reputation. The data warehouse is the vehicle for providing information effectively.
  • Better Relationships with Suppliers Rather than an adversarial relationship, the connection with suppliers has become critical for companies that depend on timely and high quality supplies. This is not just for manufacturing organizations. Many organizations depend on information and services provided by outside enterprises. Organizations buy data, others have outsourced all or portions of their operations. The quality of material supplies, the quality of data and the quality of the service provided by outsourcers are critical to an organization's success. By providing information to these suppliers, an organization should be receiving higher quality and more timely supplies and services. A case in point is an automobile manufacturer that relies on a large number of parts manufacturers. The quality of these parts has a tremendous impact on the overall quality of the cars manufactured. The automobile manufacturer gives the supplier access to its data from the manufacturer's data mart. The data is captured in the assembly process and during warranty work. The supplier is only given access to his own data, not to the data of his competitors. This information (date of manufacture, plant of manufacture, team responsible for building the part, etc.) helps the supplier to build higher quality parts that, in turn, raise the overall quality of the manufacturer's cars. The automobile manufacturer is now able to negotiate reasonable quality goals with the suppliers, and these goals are based on actual experience, not just wishful thinking. The Internet is the preferred delivery vehicle for organizations outside of your own.

    Better relationship with wholesale customers. Using the previous example of the automobile parts supplier, this time from the position of the supplier, the customer is the automobile manufacturer. The supplier is anxious to provide the best service, the highest quality parts and to lock in the customer as much as possible. This can be done by providing the customer access to information about the supplies that would encourage the customer to buy products from this supplier and not from the competition. The customer is only given access to his data, not to that of his competitors. The most effective delivery of this information would be through a highly secured Internet connection.

  • IT Relationship with Users and Management IT has, for last 20 years, had a terrible relationship with users. Users are unhappy with long backlogs for their requests. They are unhappy with IT not understanding their requirements. They are generally unhappy with the services from IT. Some wag suggested that IT was the second most disliked department in most organizations – internal auditing taking the top spot. The dissatisfaction with IT is one of the primary reasons that IT functions have been outsourced and that departments are building their own IT capability. When these departmental data marts are built, they rarely follow any standards and the ability to share data within the organization becomes very difficult. The data warehouse provides an opportunity for IT to redeem itself. With the data warehouse, IT can deliver information quickly and accurately to the users. Users always have and always will expect instant gratification. The data warehouse will not be instant but will deliver much faster than the two-year backlog the users had been getting. With this change in service comes respect and trust. This should bring the user departments back into the fold and minimize further outsourcing and minimize the decentralization that comes from departments building their own systems.

    By outsourcing, organizations have given away much of the ability to respond quickly to competition and to the marketplace. Both outsourcing and departmental decentralization have foreclosed opportunities to integrate cross- departmental data. By healing the relationship between IT and the users, there is much more opportunity to integrate data, to better understand customers and better support the strategic goals of the organization.

  • Recruiting Good People Computerworld publishes a list of the "100 Best Places to Work in IT." People choose where they want to work – especially in a market where competent people are in short supply – based on a number of factors but a key factor is the reputation of the organization for being at the forefront of implementing interesting systems. Data warehouse is interesting and important and should be a major selling point to the potential employee.

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