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The Value of Information

Published
  • May 09 2003, 1:00am EDT

Every so often you have one of those grand days where the sun shines, cool breezes wander though the house, and you get a tax refund. Then you have one of those days where you say something that is spot on and helps someone. That makes a grand day into a great day. 

Recently, this column’s constant emphasis on information and knowledge content value through action generated some rewarding feedback from a reader. Without revealing too many details (the project is still underway), an organization reading about actionable information applied that concept to a rather large data warehouse/content management combined project with increased business buy-in and rather splendid results.

There is also increasing mention of “actionable” business intelligence etc. at the trade shows and in vendor marketing material. This is a sure sign of the relevance of an idea. The bottom line is that an aggressive, business process oriented approach to knowledge and information management, when combined with traditional information discipline, will create value.

Of course, after the sunny day and cool breezes, it can get dark and rain. Reality hit home when I was asked, “How can I value information without the big project? We know our information is valuable, but how do we measure it?” Many organizations want to know how to present the potential value of information and knowledge to upper management. They need to do this proactively, i.e., before a data warehouse team is let go to save money or a data administration department is downsized.  During a time of expense reductions and minimal IT spending, every IT expenditure is scrutinized, including once untouchable data warehouses or collaborative portals.

There have been volumes written on the intrinsic value of information. At this time in the early 21st century, that is not enough. Intrinsic value, or potential value, has no meaning to beleaguered CEOs. Three results will motivate a CEO – more customers, more profit or lower costs. If knowledge projects aren’t being created on of the three aforementioned goodies, hang ‘em. Fortunately for the information or knowledge manager, there is some work being done on valuing information and knowledge, and developing metrics to demonstrate and assess the value of information assets, i.e., hard financial measurement.

Financial Valuations

When you strip aside the abstractions, the financial valuation of information focuses on what portion of the balance sheet or income statement information is reported and how is it calculated. These details require some understanding of financial management concepts; this article will go over the high-level aspects and future articles will delve more deeply.

Since many readers of this column are technicians, some accounting fundamentals need to be reviewed. If your intelligence is insulted, ignore Figure 1. If not, feel free to review the financial statement primer.


Figure 1: Financial Statement Primer

Information on Financial Statements

Balances sheets can be enhanced with information through two approaches. One approach essentially states the way you mange information and the kind of information you have and appears on the balance sheet as asset, but as an intangible asset. The calculations for this are still debated by the accounting types, but a strong case has been made, especially for mergers and acquisitions, that information and other intellectual content appear on the balance sheet.

Similarly, there is a move now to audit information portfolios of organizations and assign a present value, or a value based on an implied interest rate. Calculations weighted by relevance (or latency or whatever else is important at that time) are made against cash flow associated with business process or intellectual content.

Wall Street is defining the equity corner of the information balance sheet at this time. In essence, the Wall Street types are examining how organization mange their data and assigning a point or two to stock valuations. Eventually, this appears on the equity part of the balance sheet. This is indirect, but happening nonetheless.

Income statements are also seeing the affects of information projects but in a more direct fashion. Essentially, the direct benefits of information projects are being calculated from a business perspective. “Better access to data” isn’t making it to first base, let alone allowing a project to get started. Again, particular cash flow and benefits are being associated with the business processes and content then internal rates of return and cash flows are identified. Accountability for income statement changes are assigned and off you go.

Summary

There is a new area of information accounting developing that will remove information and knowledge projects from the realm of abstract and fluffy accountability and place it into serious business goals. There is really no intellectual excuse for the data administration of a data-intensive IT department to avoid developing some proactive business cases that depict the value of information in knowledge within an organization. 

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