Business intelligence ROI: Five keys to justifying BI investments
Analysts from Gartner and Bloor, and an experienced end user, recommend best practices for calculating the hard ROI metrics and soft benefits of BI investments.
Justifying the value of business intelligence (BI) investments is uniquely challenging, according to analysts and...
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end users -- particularly because there's no straightforward ROI equation.
Just ask Frank Brooks, senior manager of data resource management and chief data architect with Chattanooga, Tenn.-based BlueCross BlueShield of Tennessee (BCBST). He's been making the case for BI technology for years, spearheading the health insurer's first enterprise data warehouse project in 1996. Since then, he's delivered numerous applications on the platform, which includes IBM DB2 databases and Ottawa-based Cognos Inc.'s BI platform. But getting to this point wasn't easy, Brooks said. Before he could deliver any BI applications, he had to sell the concept of a data warehouse.
"A lot of the justification of an enterprise data warehouse really is based on someone at a very high level being able to conceptualize and envision the value of something that doesn't exist," Brooks said. "You're dealing with things like the value of providing better service to customers and the value of people making better decisions faster."
And therein lies the problem. It's hard, if not impossible, to calculate the ROI of better decision making, Brooks said. Unlike some IT systems that replace more expensive systems, manual processes or headcount, BI's benefits are often "soft" or intangible. While there may be some ROI metrics that support a business case, BI projects often require a bit of faith on the part of the people writing the checks -- and some savvy selling by IT and business users, Brooks said.
Here's what Brooks and two BI analysts have learned about calculating ROI and effectively justifying BI investments.
1. Collaboration between IT and business is essential..
It's difficult to justify BI's price tag as an IT overhead cost, according to Betsy Burton, vice president and distinguished analyst with Gartner. IT needs to work with business users to figure out the business value of a BI application, she said.
That's exactly what Brooks does at BCBST. While his team provides guidance and estimates resource usage and technology costs, they look to business users to justify the project's value.
"We really want the business areas to provide the benefits," Brooks said. "It's not up to us in IS. We can say how much it will cost, but someone in the business ought to be able to quantify that benefit."
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2. Don't get hung up on hard metrics.
One of the biggest challenges in BI projects is determining accurate before-and-after metrics, according to Gerry Brown, senior analyst with Towcester, U.K.-based Bloor Research International Ltd.
"If you don't know where you're beginning from, it's difficult to work out the benefit at the end -- what your ROI is. You need accurate metrics at the beginning and accurate metrics at the end," Brown said.
But then some organizations run into a chicken-and-egg problem. Without a BI system, they don't have accurate metrics. Without accurate metrics, they have trouble justifiying the potential ROI of a new BI system. So organizations should do their best to find some hard measures, such as where BI deployments will reduce costs or increase sales, but the real focus should be on soft benefits.
3. ROI calculations are difficult -- and not always necessary.
The BI projects that Brooks leads at BCBST always have some kind of ROI calculation, he said. Some projects enable obvious cost reductions by eliminating manual processes. But most initiatives require collaboration with business people to determine ROI metrics, asking questions such as, 'How many clients will this new reporting tool help us gain or retain?' The calculation is different for each project, he said, a sentiment echoed by Gartner's Burton.
"There's not a magic ROI equation for BI," Burton said. "There's clearly value and benefits, but that doesn't really get to the ROI. What you need to focus on is: 'What is the business value?' 'How am I driving the business forward?' "
Bloor's Brown also recommended pushing ROI justification problems back to a potential BI vendor. Vendors may be able to provide references from customers -- in similar industries -- that can share their metrics.
"The supplier should be a source of ideas and best practices, and if they can't help you justify the investment, you really have to question whether you want to go with that supplier," Brown said.
4. The "soft" benefits of BI are the most important.
The analysts and Brooks all agreed that while hard metrics are important, organizations should sell their executives on BI's soft benefits.
"The main benefits you get from BI are intangible benefits of strategic value, such as faster reporting, better management information, better decision making and more productive users," Brown said.
And even without hard metrics, there are often soft benefits that executives can appreciate, Brooks said. For example, a recent corporate performance management project at BCBST enabled the company to get rid of a manual, spreadsheet-based planning process -- improving visibility and accountability.
5. Executive sponsorship really helps.
When Brooks was first trying to sell his management on the concept of an enterprise data warehouse, he wrote a white paper explaining the potential benefits and circulated it widely. This document made its way to an executive who promised to help Brooks make the project a reality.
Executive sponsorship makes it much easier to sell these kinds of soft, intangible benefits, according to Howard Tripp, a BI infrastructure consultant on Brooks' team.
"It helps to find somebody with credibility and a lot of political capital and attach yourself to them if you're trying to get buy-off for the first time," Tripp said.