Dave Kasabian's Pervasive Performance Management Blog: The Business Intelligence ROI Conundrum

Pervasive Performance Group Blogging on BI and Performance Management Practices

The Business Intelligence ROI Conundrum

The ROI conundrum is that while the greatest value from BI may come from the intangibles, the best justification for BI spending comes from tangible ROI. If BI will save or make money it is easier to justify spending than if it just “makes resources more efficient” or "improves management decision making". To deal with this conundrum an ROI case needs to have the right blend of tangible and intangible ROI.

Tangible ROI

The definition of tangible is ‘capable of being appraised at an actual or approximate value’. When we think about tangible ROI we think about things like cost reduction, revenue improvement, headcount reduction and decreased IT costs. These tangible benefits are calculated by establishing baseline costs and identifying opportunities for BI to eliminate some of these costs. For example it may be possible to eliminate some systems, reduce the cost of performing a process or eliminate that process altogether. Often a BI vendor or service provider will help you develop a tangible ROI estimate.

Through inventory analysis a manufacturing company was able to reduce excess inventory by 1% resulting in a $2M cost saving.

We often think of tangible value as having an exact number attached it like the example above. But it is important to remember that the definition of tangible is ‘…appraised at an actual or approximate value’, it does not have to be an exact number. If, for example, analysis of customer data uncovers opportunities to increase cross-selling success rate by 1-2% that might equate to several million dollars in cost savings or revenue enhancement. Can you attach an exact amount? No, but it is OK to apply some estimates to determine approximate value as long as you can apply a logical defense to the estimate. This defense can be based on what other companies have accomplished. Again, your vendor or service provider can likely provide customer case studies that you can use to approximate tangible value. For example, from the example above you could estimate what the impact would be if your business was able to reduce excess inventory by 1%. This way an estimated tangible value can be applied without a detailed ROI analysis.

Intangible ROI is elusive
The definition of intangible is “inability to assess the value gained from engaging in an activity.” There is little debate that there is value in the intangible benefits of BI such as faster and more informed decision making or one version of the truth. The question is how can we measure the impact of intangible benefits? Measuring these intangible benefits can be done by creating a series of assumptions to determine the impact these types of benefits can have on the bottom line. As of intangible value is "more productive employees". How do you quantify that? One global company found that via call center analytics they could reduce and better allocate call volume. This more balanced burden on their call center staff lowered their attrition rate which saved $1.25M in hiring and training costs while improving customer satisfaction. In this way they were able to quantify the intangible value of "more productive employees". In this economy, it is common to rely soley on tangible ROI to justify BI expenditures. But my advice is to use a blend of tangible and intangible ROI to build the best case for BI.