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Strategic Insight:
Financial Return on Strategic Business Intelligence

  Column published in DM Review Magazine
June 2002 Issue
 
  By Richard Skriletz

Strategic BI delivers information that can help executives and managers make decisions that enhance revenues, contain costs, prevent losses and pursue new opportunities - decisions that improve a company's bottom line and its competitive position. However, two critical obstacles must be overcome to achieve success with strategic BI: financially justifying the BI investment and delivering high-value BI results that provide a real financial return. Unfortunately, standard IT project selection and delivery-management practices work against this success.

In most companies, project selection is based on financial justification as an essential factor for determining how best to use limited IT resources. Typically, financial justification is based on return on investment (ROI), a ratio, expressed as a percentage, of the projected investment and benefits. ROI is based on best knowledge of dollars to be invested and the value of benefits to be realized. Bankers use a process similar to that of selecting projects based on ROI when they determine which investments will be secure and safe. The project is selected, the investment is made and the financial results are monitored to see that the projected return is realized.

This process works effectively for operations-focused IT projects but is an obstacle for BI projects. After all, how do you place an economic value on delivering information?

Most IT projects provide a clear operational benefit. They streamline transaction processing, eliminate redundant activities and operationally impact the way business is done. The benefits are identifiable and easily understood by business management because the improvement is operations-focused. BI projects, however, improve the management and delivery of information, not the overall efficiency of operations. When BI benefits are calculated based on the identified impact on transaction processing, redundant activities and business operations, they appear quite small. The projected ROI of a BI project under these constraints, while consistent with other IT projects, most likely will not result in the selection and funding of the BI project.

Companies successfully justify a strategic BI project by looking at anticipated payback rather than calculated ROI. Payback focuses on maximizing the return without knowing exactly what it might be! The focus of strategic BI is on the potential payoff from increasing revenue per customer, saving costs associated with customer attrition, identifying and dealing with customers that cost your bottom line, improving the effectiveness of product merchandizing or reducing inventory costs. Review of the Web sites of major BI vendors reveals success stories documenting how the strategic use of BI technology produces savings of millions of dollars per year, new revenue generation of tens of millions per year and bottom-line profit improvements of 15 to 20 percent. Results such as these are not atypical; however, they are much less common than they should be. In my experience, companies obtain results such as these when they attack a business (not operational) pain and focus on the bottom line, not on an ROI projection. Business results are created, not calculated.

IT practices for delivering projects also present challenges. IT management requires project planning and satisfying the project requirements specified by business managers and staff. Management attention is on the swift delivery of software that satisfies operational requirements, completing the project and freeing valuable IT resources for the next project. Strategic BI focuses on business pain and enhancing the company's bottom line. Business results do not come from standard project practices; otherwise they would be easy to achieve. A strategic BI project must identify and deliver business intelligence that will inform decision-makers and help them make decisions that produce results for the company's bottom line.

BI requires a different project approach. First, target the strategic payback opportunities (business pains) that will provide bottom-line benefit to the company. Second, gather and analyze the information that will solve the business pain until the resulting business intelligence enables decisions and actions that will create the payback. This requires a delivery approach based on iteration to refine BI analytics until they help identify the actions that can produce the desired business results. Finally, once actions are taken, monitor business results to determine the actual payback realized.

The success stories of BI are examples of payback that was found, not planned. These companies focused BI on an important business issue, knowing that whatever the payback might be, it would be worth the investment. Focusing on business results requires management to act like an owner rather than a banker when considering BI projects. Owners demand business results and accept accountability for them.

Driving business results with strategic BI requires management and BI analysts to work together to create real payback. A corollary to this is that strategic BI, unlike other IT projects, is never complete. Strategic BI is an ongoing quest to discover and use information to improve business results. When a targeted payback is achieved, new BI opportunities are identified and new business intelligence is needed to pursue them. Modifying the way in which strategic BI projects are selected, funded and delivered is a small but essential price to pay for improving your company's bottom line.

...............................................................................

For more information on related topics visit the following related portals...
Business Intelligence and Strategic Intelligence.

Richard Skriletz is the national managing principal for business intelligence and data warehousing at RCG Information Technology, a leading national provider of IT professional services. Skriletz has more than 30 years of experience in information technology and consulting services in the computer, insurance, banking, utilities, telecommunications and manufacturing industries. He passionately believes that business intelligence is a critical success factor for business today and that successful business intelligence requires a focus on improving business results and strategy. Skriletz may be reached via e-mail at rskrilet@rcgit.com.

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