I’m blogging today from Long Beach, CA, where KScope11 is taking place. arcplan is in booth #309 showing attendees why we’re the #1 third-party front-end to Oracle Essbase. We’re also demonstrating arcplan Mobile on an iPad and giving attendees the chance to win an iPad2 for themselves. Reception has been great so far! Stop by and see us if you’re at the show!
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.
Pareto charts are often used to represent which customer segments or product lines are most profitable or contribute most to a company’s revenue. The Pareto principle is also known as the 80-20 rule, which tells us that for many events, 80% of effects come from 20% of the causes. In other words, 20% of your customers likely produce 80% of your revenue.
A Pareto chart is a combination of a bar chart and a line chart, whereby individual units are represented by bars in descending order and the cumulative total is represented by the line. The threshold (70% or 80% for example) is represented by a horizontal line. The segment contribution is determined at the intersection of the cumulative line and the horizontal threshold.
Learn more about Pareto charts and contribution analysis in this brief video. The example you’ll see is from the arcplan Enterprise Free Trial Edition, which you can download here and test with your own corporate data.
Part 1 of our BI ROI series examined key questions to consider when evaluating the potential ROI of a new business intelligence project. As a company that’s implemented our solutions thousands of times and gone through just as many ROI justifications, we’ve come to think of ourselves as experts in this area…and not just with regard to what pays off, but also what doesn’t. And never will. Below are the top 5 BI projects that never actually produce a tangible financial return on investment. That doesn’t mean you shouldn’t tackle them ever – in fact, you may be forced to at some point. Read on:
- ‘Rip and replace’ your business intelligence platform.
Replacing your existing platform as quickly as the wind changes poses a tremendous strain on resources to get to the exact place to where you are today. Don’t switch platforms just for the sake of switching. Your new BI project or platform should address a pressing issue or solve a problem. You may hear complaints like “the interface is too difficult” or “it takes too long to run reports” and think that a platform switch is the answer, but there are other investments you can make – like implementing a different front-end, or trying overnight batch processing – that will relieve your pains without costing a fortune (and taking years off your life).
- Regulatory/ legal requirements for reporting.
Reporting standards, such as Sarbanes-Oxley (SOX), International Financial Reporting Standards (IFRS) and HIPPA for example, are mandatory regulatory requirements. A solution that helps make compliance more convenient is nice to have, but in reality these regulatory reports can be summed up as the cost of doing business. If you’re forced to implement BI to meet reporting requirements, you’re unfortunately just going to have to suck it up – this rarely pays off financially.
On June 2nd, more than 200 participants came together for arc|planet Korea 2011. I was lucky enough to attend the event, our second in South Korea, and see terrific presentations from our customers in the finance, manufacturing, and retail industries. We were kindly hosted by our partner, Zalesia, who showed off arcplan Mobile on 5 different mobile phones and tablet PCs, which were never out of attendees’ hands.
Like arc|planet Germany, this event gathered arcplan users together for a day of best practice sharing, networking, and learning about arcplan’s vision and product strategy. There was a lot of excitement about our newest product, arcplan Engage, our BI search and collaboration tool, which gathers data, reports, and dashboards wherever they reside (whether they’re in SharePoint, Salesforce.com, email, arcplan, SAP, or other BI systems) and makes them available for rating and commenting so the best data rises to the top. Our Korean customers are early adopters of new technologies, so naturally arcplan Engage was a hot topic.
Also a hot topic – self-service analytics. There was a lot of interest around web pivoting and drag-and-drop functionality, both available in arcplan Enterprise 7.