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Beyond the Data Warehouse:
The Return on Information

online columnist John Ladley     Column published in DMReview.com
June 12, 2003
 
  By John Ladley

If information is an asset and it is managed as such, then it follows that business cases should be fairly easy, right? The last article, "The Value of Information," which appeared in the May issue of DM Direct reviewed the benefits of information as a true, accountable asset. Unfortunately this is not the case. Most recent attempts at ROI for information pursuits still focus on narrow traditional parts of the benefit case.

Let me explain.

If an information delivery mechanism is developed (a BI or DW application, for example) it has no value or ROI potential until it is used by the business to accomplish business goals.

The business case for information asset management (IAM) is based on how the data is used and what it is used for. Benefits will stem from business processes that are business recognized and ideally, approved. This promotes buy-in, of course. In addition, the business process emphasis also focuses the BI delivery team. Business orientation should produce explicit, measurable goals. Finally, the accountability of the business users and IT team will be evident.

Traditional ROI for information projects (data warehouse, repository, meta data, etc.) all focus on one aspect of the benefit universe.

There are three benefit areas in this universe that can appear in an information business case:

  1. IT Efficiency - This is the traditional area where organization's justify IAM projects by the cost-avoidance approach, e.g., what would it cost if we did not manage information better. The metrics achieved in this area are related to lower costs of information gathering, integration vs. redundancy costs, storage and processing efficiencies, and lower development costs. This is a good start, but total emphasis on this area will not sustain any IM component (repository, DW, BI, etc.) If it did, there would be many more great data warehouse successes and fewer DW teams looking for ROI at this time.
  2. Risk Management - Government regulations (e.g., Sarbanes-Oxley, HIPAA) have created a highly motivating set of business benefits - those of managing the risks inherent by not managing information very well. Large fines and jail terms are proving highly motivating for executives who realize that their information is not verifiable. The benefit to these types of projects is manifested in goodwill and equity valuations.
  3. Business Improvement - This is the "pure" business benefit - the area of most interest in recent times (topic of the last article) and the focus of all good business cases - the positive cash flows, increased profits or lowered costs that result from business units embracing an information solution to business problems vs. throwing requirements at IT to deliver data. Examples of these are projects using information to achieve more customers, lower costs detect fraud, increase promotion effectiveness, etc.

The traditional IM project usually ends up looking like that shown in Figure 1. Justification of an information project (DW, etc.) with this view may get the project going; however, sustaining it long term is, at best, at risk. This is because there is still no business skin in the game.

Figure 1: Traditional Information Management Project
Figure 1: Traditional Information Management Project

In fact, the traditional emphasis business case presents a few items to be avoided in an IM business case. Most of these take a pure efficiency view of the information solution. However, they are not quantified as the IT staff does not follow through on the ultimate advantage to the business. These typical reasons to do IM, but not to include in the business case are:

  • Faster access to information: Access is too abstract - if there is a process that will be sped up, then grab that benefit.
  • Better quality data - Unless there is a formal measurement of data quality, data quality is relative and, therefore, a project with this justification has no focus
  • Faster decision making - Again, if cycle times are decreasing due to data usage, then that is the benefit, not the faster decision.
  • Better decisions - Since 80 percent of any business decision is made up of experiences and context in addition to the raw data, this is no way to determine if decisions have improved.

The ideal business case will look at all aspects of the benefit equation. Ideally, the benefits should push more to business benefits and risk management and deemphasize the IT aspect. This promotes better buy in overtime. Figure 2 demonstrates a more balanced business case.

Figure 2: A Balanced Business Case
Figure 2: A Balanced Business Case

Summary

A business case (or ROI) for any information management project will require a balanced business case. The IM professionals in an organization must review all aspects, not just focus on the IT efficiencies or cost-avoidance items. This may seem like the only way to do a business case, given the historical difficulty in deriving good ROI for information projects. But to stop there and say any other ROI case is impossible is to absolutely shirk the business responsibility any IT department member has as part of a business team. Like the Seabees in WW II, the difficult needs to be done soon; the impossible may take a little longer.

The contents of this article are Copyright 2003 by DM Review and KI Solutions. Any use, quotation, repurpose, duplication or replication of the diagrams, concepts or content without permission of DM Review and the author is prohibited.

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For more information on related topics visit the following related portals...
Project Management / Development.

When John is not writing poetry as a hobby, he is a director for Navigant Consulting, which recently acquired KI Solutions, a management consulting firm specializing in knowledge and information asset management and strategic business intelligence planning and delivery. Ladley is an internationally recognized speaker and, more importantly, hands-on practitioner, of information and knowledge management solutions. He can be reached at jladley@navigantconsulting.com. Comments, ideas, questions and corroborating or contradictory examples are welcomed.

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