Portals eNewsletters Web Seminars dataWarehouse.com DM Review Magazine
DM Review | Covering Business Intelligence, Integration & Analytics
   Covering Business Intelligence, Integration & Analytics Advanced Search
advertisement

Resource Portals
Business Intelligence
Business Performance Management
CRM
Data Integration
Data Quality
Data Warehousing Basics
EAI
EDM
EII
ETL
More Portals...

Advertisement

Information Center
DM Review Home
Web Seminars & Archives
Newsletters
Current Magazine Issue
Magazine Archives
Online Columnists
Ask the Experts
Industry News
Search DM Review

General Resources
Bookstore
Industry Events Calendar
Vendor Listings
White Paper Library
Glossary
Software Demo Lab
Monthly Product Guides
Buyer's Guide

General Resources
About Us
Press Releases
Awards
Media Kit
Reprints
Magazine Subscriptions
Editorial Calendar
Contact Us
Customer Service

Business Intelligence Building Blocks:
A Strong Business Case Gets Results

online columnist John L. Doran     Column published in DMReview.com
December 5, 2002
 
  By John L. Doran

DMReview.com would like to introduce John Doran as our newest columnist. John is the director for BI Solutions within the Energy, Utility and Chemical industry vertical at Cap Gemini Ernst & Young. He will provide thought leadership and focus on the components of a successful BI/DW solution. Look for his Business Intelligence Building Blocks column the first week of each month.

Businesses today need powerful decision-making frameworks (data warehouse, data marts, balanced scorecards, analytics, etc.). Positioning these frameworks requires a strong business case. The cash flow characteristic associated with the business case is key and requires special attention in order to strengthen the business case.

Current Environment

For years, organizations have been striving to leverage their vast data resources to increase competitive advantage. With the recent downturn in the economy, organizations are paying significant attention to internal processes with the primary objective being streamlining operations and reducing costs. However, since many organizations' data assets reside in more then one transaction system, the need to develop a common data warehouse or get more out of an existing data warehouse is becoming critical in order to provide transparency into existing business operations. According to a CFO Transformation study conducted by Cap Gemini Ernst & Young earlier this year, the two top issues facing the collective group are: 1) accuracy of reporting and 2) operational decision making. Providing an organization with the right business intelligence framework is essential for supporting these business requirements and other information-driven initiatives that rely on data across multiple systems.

There are multiple components that need to come together to support this business intelligence framework. Over the next several months, this column will provide a perspective on the critical elements required for successful development and implementation of this framework. The first and most important component for success is the business case. For years many IT organizations have claimed that it is too difficult to develop a business case for better information. However, based on today's economic climate, the strength of the business case will determine the quality of the business intelligence framework.

The Business Case

Why develop a business case? Three primary drivers behind the business case are: 1) to demonstrate the strategic alignment and urgency of the proposed project, 2) to define the proposed project scope, and 3) to demonstrate the financial and operational benefits associated with the proposed project. In addition to these areas, the business case can help identify risk and strategies for managing them, identify and better understand rejected alternatives and target resource requirements needed to accomplish the project. All of this information can be used to document and layout an implementation road map.

Not all business cases are created equal. In some organizations, the business case development process is time-consuming and rigorous. Our recommendation is to customize the effort for the level of investment under consideration. With that said, components of the well-constructed business case contain the following elements.

  • Summary - Provide the operational and financial highlights of the business case.
  • Introduction - Explain motivation for proposed project.
  • Solution Description - Identify the proposed actions, developments along with scope and timing.
  • Benefits Discussion - Identify the expected financial and operational benefits, both one time and ongoing, their magnitude, certainty and timing. Benefit estimates should be provided in terms of ranges and should indicate the associated probabilities of various outcomes.
  • Costs Discussion - Identifying all costs in financial and operational terms associated with the project, both initial and ongoing. As in the case of benefits, cost estimates should be provided in terms of ranges and should indicate the associated probabilities of various outcomes.
  • Risk Management Discussion - Identify the risks associated with the proposed project and approach for managing these risks.
  • Value Creation Discussion - Identifying, in financial terms, the value created by the proposed project, along with its sensitivity. This sensitivity should be expressed in terms of a probability distribution of the various outcomes.
  • Discussion of Alternative Solutions - Provide the description, benefits, costs, risks and valuation of alternatives to the project.
  • Value Measurement Plan - Identifying the approach to tracking and measuring the value created by the proposed project.

Out of all of these elements, I want to introduce an emerging perspective on measuring and estimating value creation. The heart of many financial measures (ROI, NPV, IRR) involves an understanding of discount rate, projected cash flows and the time-value of money. For the remainder of this article I want to focus on the elements that go into the cash flow projections.


Figure 1: Elements of Cash Flow Projections

Cash Flow is King

Cash flow projections for a number of business intelligence solutions (e.g., data warehouses) have a tendency to focus predominately on the changing "reporting" environment. For example, the cash flow projections are based upon the difference between the cost of supporting the current state reporting environment and the new proposed cost of supporting the future state environment. This is an acceptable approach; however, the real essence of why you are investing in such a project goes so far beyond just reporting. Establishing your business case on this alone is only providing a partial view of what the investment is all about.

If you want to build a rock-solid business case, the cash flow projections should not only include the cost difference between current state and future state, but they must include areas within the business that account for cost reduction associated with a business process and/or increased productivity (revenue focused) that is attributed to better decision making. However, the problem is getting the business executive to place a stake in the ground and stand behind an assumption statement indicating that the given solution can either reduce costs or increase productivity by a "single" point estimate. The specific single point estimate is the primary problem.

We recommend replacing the single point estimate with a range estimate that is appropriately tied to a probability distribution (normal, triangular, uniform, lognormal, etc.). In turn, this is used to calculate NPV with the results expressed in terms of a probability distribution. Subsequently, translating this result into terms that are understood by the business community provide the essential elements for strengthening the overall business case.

In the next column, I will provide a case study that expands upon these concepts and shows how to integrate them into the overall ROI calculation.

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

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

John L. Doran is the national business intelligence service line leader for EnFORM Consulting Group, one of the fastest growing consulting companies providing end-to-end technology solutions. Doran has more than 15 years experience, 10 of those providing consulting services through global management consulting provider Cap Gemini Ernst & Young where he previously led business intelligence activities within the energy, utility and chemical industry verticals. You can reach him at (713) 350-1004 or via e- mail at John.Doran@enform.com.

Solutions Marketplace
Provided by IndustryBrains

Autotask: The IT Business Solution
Run your tech support, IT projects and more with our web-based business managemen. Optimizes resources and tracks billable project and service work. Get a demo via the web, then try it free with sample data. Click here for your FREE WHITE PAPER!

See Enterprise Business Intelligence in Action
See how business intelligence can be used to solve real business problems with this live demo from Information Builders

Help Desk Software Co-Winners HelpSTAR and Remedy
Help Desk Technology's HelpSTAR and BMC Remedy have been declared co-winners in Windows IT Pro Readers' Choice Awards for 2004. Discover proven help desk best practices right out of the box.

Save on Business Intelligence and Data Warehousing
Leverage Open Source database software and PC-based commodity hardware for an unsurpassed price/performance value. ExtenDB transforms the economics in developing a Business Intelligence infrastructure.

Online CRM solutions from Salesforce.com
Online Customer Relationship Management solutions - sales force automation, customer service and support, and marketing automation. All this and no software! Designed for rapid deployment and adoption. Free 30-day Trial.

Click here to advertise in this space


E-mail This Column E-Mail This Column
Printer Friendly Version Printer-Friendly Version
Related Content Related Content
Request Reprints Request Reprints
Advertisement
advertisement
Site Map Terms of Use Privacy Policy
SourceMedia (c) 2005 DM Review and SourceMedia, Inc. All rights reserved.
Use, duplication, or sale of this service, or data contained herein, is strictly prohibited.