Thanks for keeping track of our series on Business Intelligence ROI! So far we've evaluated the potential ROI of a new BI project and we've explored the top 5 BI projects that never pay off. Finally, today we'll outline the methodology for calculating the actual ROI of your BI project. We can accomplish this by addressing specific phases in our Cost-Benefit Analysis.
- Choose a targeted return goal and state your definition of success. One of Steven Covey's habits in his book entitled "The 7 Habits of Highly Effective People" is to begin with the end in mind. Are you trying to reduce costs, avoid costs, or enhance profitability? State your goal so that you know what you're working towards.
- List assumptions. Clearly state the specific assumptions being made in the Cost-Benefit Analysis. Provide documentation for the rationale or logic used in making this assumption and include any implications or risks involved. Yes, it's a way of covering your bases, but more importantly it gives the project transparency.
- Resources. In this step, we are calculating costs from specific business units. We need to examine the current process and look at the resources that are currently involved. What is the hourly cost of your external consultants and analysts and how many working hours do they accumulate per week? The hourly rate and hours worked per work week will tell you what the project is costing you in terms of human resource allocation.
- Define the benefits in timeline format. How much time do your analysts or members of the management team spend loading data from a financial system, dealing with data load issues or generating reports? How often do you require external consultants or get visits from external auditors? Additionally, we must note the periodicity of these exercises. How often are these people in place? Monthly, quarterly or twice a year? And do you have daily reconciliations? If some of these tasks can be replaced, automated or accelerated by your BI solution, then you can calculate monthly savings and even a cumulative extended benefit in the future.
- Costs. Calculate implementation costs, consulting costs, software total and maintenance. This number gives you a bigger picture of total project expenses.
- Intangible benefits. Describe the benefit and when the benefit will be realized. Do not write "better reporting" here! Try something like "Eliminates a manually intensive and error-prone process,", "Eliminates costly errors in financial reporting," or "Faster reporting and better transparency."
- Cash flow and payback. Calculate the returns based on benefit period and investment period. Of course, we want the project to be cash flow positive within a reasonable amount of time. Your cash flow will determine whether the project is good idea or not for your executive sponsor and for the company.
Ready to calculate the ROI of your BI project? Click here to request a copy of a Cost-Benefit Analysis spreadsheet which provides step-by-step guidance for calculating the return on investment for your business intelligence solution.
So before you jump head-first into your next BI project, evaluate its worth and payback. You may be surprised at which ones provide true value to your company versus others that do not. For more information about calculating your BI ROI, check out this recording from our popular webinar and be sure to leave your feedback in the comments!