What’s the R in ROI (for BI)?

June 6, 2011   //   Business Intelligence, , , , , ,

It’s happened to all of us. The project makes sense. You know in your bones that it’s the right thing to do. You’ve chosen the solution. You’ve identified the project team. You even have a go-live date identified. Then some muckety-muck asks the question: “Have you calculated the ROI for this?”

Return on investment. Simple. The increased revenue or decreased cost compared to the cost of the project. You get out the calculator and add up the investment side in minutes, and then you turn your efforts to the R side of the equation. You start with the easy ones:

  • Save time manually compiling data
  • Eliminate report creation costs
  • Eliminate those license costs (if you are replacing a more expensive BI solution)

This used to be good enough. In 2007, when money was free and a project could pay back over 24 months, the above return was more than adequate. Then bubbles popped and now project payback timelines are measured in single digit months. Time to do the real work.

Turns out, the big return for BI projects isn’t in efficiency, at least not the analysis efficiencies outlined above. The real return for business intelligence lies in better decisions. It is driven by the insight that comes from analysis that never would have been done without these tools. Insights like:

  •  Discovery of debt collection strategies that, when broadly applied, increase your collection rates by 5% (Example: Annualized commission increase of $120,000).
  • Identifying and eliminating excess raw material scrap on the night shift by 2% (Example: $400,000 annualized cost savings).
  • Eliminating mismatches between project forecasts and temporary worker requirements allowing for a 7% decrease in temporary labor (Example: $1,300,000 annualized savings).

This is the kind of return that shrinks the payback period to a few months or even weeks with a single insight. It is the kind of return that moves BI projects forward. Most importantly, it provides the direction to the project team to focus the scope on what matters.

So how do you find and define this kind of return? That’s my next post.