This is the first in a series of four blog posts about the best practices in business intelligence and what questions CEOS should ask before investing in BI. A shortened version of this post appeared in KMWorld.
No single organizational initiative which warrants preparation, planning and strategy more than its decision to invest in a Business Intelligence (BI) Program. Many organizations make BI one of their priorities because of the organization’s leadership direction. From a strategic perspective, information remains as one of the most valuable assets to an organization.
True organizational responsiveness begins with an alignment of organizational strategy to a BI program. Information must be factual, timely and relevant, thus ultimately solving a business problem or allow an action to be taken. A holistic view of the organization is critical. The promise of gaining valuable business insight thru Business Intelligence Programs remains one of the last frontiers for organizations to gain a competitive advantage.
While it is quite viable for an organization to achieve its ultimate goal of competitive advantage, why isn’t every organization investing in BI successful? The better question is “How can an organization achieve measurable success by investing in a BI Program”? Before proceeding, it is a good idea to provide a clear definition of what the term Business Intelligence is.
We define BI as:
People, process, and technology required to turn data into information and information into knowledge and plans that drive effective business activity, gain business insight and achieve competitive advantage.
Understanding the quantifiable and strategic benefits is a must to the process of prioritizing and selecting candidate BI projects.
From a governance perspective, there must be processes in place to assess, define and monitor success when determining cost savings or ROI realized from projects.
BI platform support must therefore be a closed-loop process as depicted by the image below.
Figure 1 - Actionable BI is a Close-Looped Process
While there is little debate with regard to the soundness of BI’s core fundamentals discussed in this section, many tactical questions remain. This blog provides a “how to” strategy to ensure an evaluation of a BI platform that is truly performance driven with demonstrable quantifiable results. For the remainder of the blog, we provide a set of simple, yet highly effective questions that can be used by the organizations key decision-makers in evaluating the BI Programs.
Question 1) What are typical budgets for a BI Program?
The organizational BI funding is allocated to Capital and Maintenance Budgets. According to a 2013 TDWI Benchmark Report, median capital budget in 2013 is $335,000, with 62% of organizations having capital budget funding of $500,000 or less. 81% reported capital BI budget compared to < 20% of the overall IT capital budget (Table 1).
Table 1 - 2013 Capital Budgets
Median maintenance budget in 2013 is $400,000, with 63% having a budget of $500,000 or less. 83% reported maintenance BI budget <20% of the overall IT maintenance budget (Table 2).
Table 2 - 2013 Maintenance Budgets
Question 2) How will our organization be able to justify our investment in BI?
Business Justification is a process within an organization to evaluate the likelihood and magnitude of quantifiable and strategic benefits of the Business Intelligence Programs.
The process when evaluating candidate BI projects is a critical step within Project Portfolio Management. Candidate projects which are selected for implementation must be monitored for success and compared back to the original benefits in order to validate project selections.
Figure 2 – Quantifiable Benefits
The process of monitoring for project success in itself promotes effective user adoption and continuous improvements within the BI platform.
Surprisingly, many organizations that have invested in BI have no formalized process in place to monitor quantitative ROI or cost savings as a consequence of adopting a BI strategy. A TDWI study of 1,600 companies showed only 13% of respondents tracked ROI across the value-chain. About 37% mentioned they are planning to, while 27% had no plans to do so.
The challenges to the process of business justification may explain this trend, and are listed as follows:
- Calculating ROI for information management platforms is a complicated and a perplexing task;
- “If you build it, they will come” mantra is no longer acceptable with today’s decision-makers;
- Soft statements such as “critical for the businesses to remain competitive” without quantification yield intangible benefits;
- ROI is difficult because of the many intangible or qualitative benefits provided;
- Dependency on BI adoption within the organization;
The challenges should not deter the critical need to justify BI programs. A summary of steps:
- Use facilitated sessions to gather information requirements;
- Understand information flow to determine cause-and-effect analytics;
- Identify and quantify the benefits as tangible, strategic or intangible;
- Establish a measurement baseline;
- Calculate Total Cost of Ownership (TCO), Return on Investment (ROI) and the Payback Period;
- Measure the investment, planned benefits and actual benefits;
- Determine how to retain benefits as the organization objectives change.