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The Pain & Gain - ROI of BI

by Dashboard Insight, Dashboard InsightTuesday, August 27, 2013

Information Management breaks down the return on investment for bringing in business intelligence initiatives. Are you getting the best bang for your buck?

Spend a little time doing a Web search on the return on investment of a business intelligence project. If you have done your own ROI projections before, you’ll see the usual approaches: spreadsheets that help you capture and categorize costs and benefits. Fill in the spreadsheets with your own information and voilà, you have a very detailed and specific ROI for your project. And of course, we all know that the return on BI projects is huge! We see success stories everywhere where the ROI on someone else’s BI project was 100, 200, 300 percent or more.

Here’s a small reminder in case you’re a little rusty: The ROI of a project compares the cost of doing the project to the financial benefits that will be achieved by the solution produced by the project. The measurable quantities will be 1) the additional net income (i.e., profit) that can be generated and/or the reduction in costs that will be achieved and 2) the costs of the project. If presenting to a CFO, he or she will ask how much more money will go into the checking account, and how much less money will come out of the checking account (and over what time period). The actual ROI formula is:

For example if you invest $500,000 to build a new BI solution and expect $750,000 in profits (or cost savings) as a result (assuming the same time period for both), your ROI is ($750k - $500k) / $500k = 50 percent. That 50 percent is then compared to your company’s internal rate of return and to the ROI of other projects being considered in order to determine if the BI project is worth pursuing.

A detailed example of a ROI calculation can be found in this article from Information Management.

Where’s the ROI?

So why aren’t you seeing those huge ROI results when you do your calculation? Why are you struggling to come up with what looks like, at the very least, a break-even proposition? The short answer is that the true ROI of a BI project is based on both quantitative and qualitative measures, and the qualitative measures usually dwarf the quantitative measures. Except in rare cases, you will probably not be able to deliver a satisfying ROI for your BI project based on the quantifiable measures alone.

The main benefits of a BI solution typically have at least one degree of separation from the actual benefit that is realized. That is, a BI solution is usually not going to produce revenue, but it is going to facilitate revenue-producing activities. And a BI solution may not save more money right away compared to your current solution since you have to spend money for new hardware, software, training, etc.

If you ended up drawing the short straw and have been tasked with producing the ROI for the desired BI solution, you will likely find yourself struggling to tie quantifiable benefits directly to the BI solution and likewise will find only minimal concrete savings. However what you will learn in the process will likely convince you that BI solutions can indeed be a great investment that will provide huge returns to your company – just not directly. And it’s these lessons that you need to successfully convey to the people who will sign the checks for this project.

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Source: Information Management

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