In this session Bjarne Berg showed us how to identify the the goals for BI initiatives and how to translate tangible results into numbers that can justify the investment in Business Intelligence initiatives. He divided the session in 5 parts and a wrap-up.
Introduction : Where the reasoning behind this session is explained.
Return on Investments of a BI Project: why it should be better and what kinds of benefits a BI project delivers
ROI tool : Detailed explanation of an ROI tool from the TDWI
Key Benchmarks: Numbers from organizations for comparison
BI Project durations: number of weeks a typical BI project takes.
In this blog I will mainly tell about the introduction and the Return on investments. But I advise you to look up the presentation from Bjarne Berg as the last parts are very detailed about how to use the ROI tool and he delivers a lot of useful benchmark and duration numbers based on his experience and information gathering.
We started with the good news that BI spending is increasing and still gaining momentum. That is always nice to hear. Corporations are looking for a competitive edge with BI. If you want to be a large organization you need BI as a cornerstone in how you manage.
Second fact is that if you make BI and analytics available to operational line managers and store managers that this will increase sales. Retail Organizations that outperformed their peers had double the % of BI usage at line manager level compared to their peers who were outperformed.
Saturating BI on all levels of your organization creates focus and pushes decision making downwards making your company more agile as many more managers are able to make the right decision by having access to the necessary information.
But now the issue. Is BI really worth it? Does it deliver the return? Few were able to justify BI initiatives with Return on Investment numbers or tangible cost reductions. CFO’s and CIO’s want proof of benefits before investing more in these technologies. They are asking: “Where is my cost reduction your promised me last year?”.
BI Capabilities must have hard tangible benefits . to show this you must focus on the operational improvements and make them measurable.
An example was a company that sold farmaceutical products for cows. By knowing how many cows there were on each land across the United States they could better direct their sales force to the areas where there was room for improvement. By asking the VP of sales how much this increased focus would add value a tangible number was found to justify the BI spending.
Before going into calculating the ROI Bjarne defined the ‘sustainable competitive advantage’.
Basically if you have a way to do something better or cheaper than your competitor you have a competitive advantage for the time he is not able to catch up. When more competitors have the same BI investment, this investment is not a competitive advantage anymore but mere infrastructure.
An example was order picking. By basket case analysis a company knew what combination of products often were sold together in online sales. This information was used for the placing of the products in the warehouse shelves. Products that were often sold together would be placed near each other reducing the picking time for the orders, reducing the costs for delivery. Each season the warehouse stock would reviewed based on the season sales because in the winter other products were sold than in the summer.
There are four types of ROI
- Replacement costs – compare the BI costs with the previous
- Cost avoidance – reducing costs of doing business
- Option theory- If you discover issues or opportunities earlier you buy time to make faster and better decisions as you can look at more options delivering you a competitive advantage until the time that the competitor catches up.
- Must have, for example if you have to deliver numbers to the government
The ROI of BI projects is hampered by the fact that BI project generally are too slow. A slow delivery means that the gains are starting later hurting the ROI of the project
If we are able to reduce the time to market this would result in earlier gains and hitting the breakeven point at an earlier time. Also you take away a lot of insecurity as you are looking now at an estimation for 42 months. That is a long time in business to predict.
A lot of time can be reduced by using an agile or Rapid application development approach. Especially for report or dashboard development do not loose time by first writing an functional spec as users do not really know what they want until they see it.
This is also were Self service BI can be useful. As users do not know what they want and what they want changes often because of changed focus SAP BI Self Service for power users and authors is key to fast delivery and higher BI ROI.
Finally and this is important. Change the mindset that BI is a project to BI is a continuing process. An BI initiative starts with a project that delivers an initial result. Users will start working with it and if the project result is successful the users will want new features. If no one asks for new functionality it is a sure sign that this is a failing initiative.