Determining Return on BI Projects

BI ROI thought leadership roused by hardware and software vendors regularly report analyses demonstrating the positive return on their BI products. That approach is hotly debated amongst BI professionals.

Those who do, rather than sell, claim a more realistic approach is a standard cost-benefit analysis, using currently accepted BI concepts to frame product ROI considerations.

Quantifying the hard benefits of BI is extremely difficult, leaving many BI programs using more internal metrics to compare the performance of their BI solutions against expectations. This includes many soft benefits such as:

Faster and more accurate reporting
Richer support for decision making
Increase in users accessing information - decrease in the time of that access.

Attempting a purely financial calculation approach to ROI, may appeal to the CFO but the output is likely to be no more than an imprecise, and sometimes arbitrary estimate.

By identifying the cost upfront, and the benefits applied along the BI roadmap is a more valid analysis that better BI performance management to business strategy. In addition, it provides a clearer understanding to the business of the expected deliverables of all BI iterations in the program.

This approach is often refered to as ‘The Performance-Driven Roadmap’. It does require a leap of BI faith by the business to allocate time, energy and dollars but provides a more practicable route to reason than attempting a fail-prone financial IT/business collaboration to determine ROI.

As companies move away from reporting on purely financial dimensions, and adopt methodologies such as Balanced Scorecard that measure corporate performance across four dimensions [Financial, Process, People, Customer], it is only natural that single-minded financial analysis to determine the fate of new business initiatives should also be updated to a wider dimensional model.

A recent HBR article denounced the current ROI model for BI, claiming that using traditional discounted cash flow [DCF] and net present value [NPV] calculations where present value of business with BI is contrasted with a business without BI that is assumed to have unchanging performance is nothing more than nonsense [1]. This is the very attitude that potentially kills innovations such as BI.

Rather than managing innovation portfolios using a ‘stage-gate review’ process that starts with a portfolio of potential new programs progressively culling the possibilities through a series of phases until only the strongest remain, a more proactive methodology is gaining acceptance – discovery driven planning.

Discovery-driven planning reverses the stage-gate review by:

Constructing acceptable revenue and cash flow
Identifying the inputs to support the numbers
Create a project review checklist of ranked critical assumptions
Revise the checklist at each phase, using it as a project plan, quickly test whether inputs are still valid
If, at any stage, assumptions prove untenable, the project is scuttled.

With discovery-driven planning, the ongoing emphasis is on the assumptions, which can change with learning - not the numbers, which are already credible.

“More often than not, failure in innovation is rooted in not having asked an important question, rather than in having arrived at an incorrect answer.”

The Corporate Performance nivana is where:

All business processes routinely use intelligence and analytics to evaluate performance
Knowledge driven by BI is seen as being as central to running the business as the processing of transactions in the enterprise resource planning (ERP) platform
Company leaders have moved above and beyond a go/no-go BI decision based on simple data clarification form and net present value

Are BI and analytics are emerging as indispensable apps akin to ERP?

[1] Clayton M. Christensen, Stephen P. Kaufman and Willy C. Shih. “Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things.” Harvard Business Review, January 2008.