Calculating ‘Payback Period’ or ‘Return on Investment’ (ROI) on business intelligence projects requires information at every project stage. On a recent project expansion required my team to provide information about cost savings for the project. This process was important not just for project approval, but also for validation after the project was built. If business analysts are asked to provide this type of information, it will involve gathering and logging information from users starting at project initiation. Once the project is built, tested and in production there should be follow up with the users to validate the estimates.<\/p>\n
Project Initiation.<\/strong> Cost Savings<\/strong><\/p>\n Cost savings or user efficiency savings are the easiest to track. When you or the Business Analysts (BA’s) gather requirements be sure your interview form has these simple questions about each report: This series of questions will build a ‘value chain’ for the information in the company. Added Business Value<\/strong><\/p>\n To evaluate the ‘report value’, there are several important questions to ask: After my first project was in production, I followed up on a healthcare CFO who was making just such a contract decision. He said he had a ‘gut instinct’ not to renew a certain contract, but by using the data warehouse and BI tools he was able to get a specific dollar answer about that contract performance over the past three years. He repeated ‘he was able<\/em>‘, not his assistant, not accounting and not IT. He had information at his fingertips to make better informed decisions. I had to ask the value saved? “about $400,000”.<\/p>\n Discussion of Managerial Accounting<\/strong><\/p>\n I know my graduate Accounting professor, Dr. Spann would chastise me for confusing ‘sunk costs’ in what should be a straightforward managerial accounting decision. In terms of accounting, ‘sunk costs’ are those costs which you would not change regardless of the decision being made.\u00a0\u00a0 For example, the employee salaries may be considered a ‘sunk cost’ because whether or not you do the BI project you don’t plan to fire the employee whose time was saved. \u00a0 While that may be true, when I meet with CFO’s and heads of accounting departments they point out that by freeing up that .5 accountant and .25 IT staff, they can postpone hiring more staff for the department. Several managers have pointed out they would gladly free up their people for more ‘value added’ tasks.<\/p>\n \u00a0Deployment Phase<\/strong><\/p>\n Once a BI project is deployed to the users, follow up by the business analysts will help validate several things:\u00a0 did the project meet their needs? how much time does it save them?\u00a0 how much value does it add to their analysis and decision making?\u00a0 Going back to ask these questions helps confirm what was gathered in the project initiation phase.\u00a0\u00a0 Building a feedback loop into the project will also ensure that there were no missed requirements or ‘late arriving’ requirements.<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Calculating ‘Payback Period’ or ‘Return on Investment’ (ROI) on business intelligence projects requires information at every project stage. On a recent project expansion required my team to provide information about cost savings for the project. This process was important not just for project approval, but also for validation after the project was built. If business […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-208","post","type-post","status-publish","format-standard","hentry","category-bidw-projects"],"_links":{"self":[{"href":"https:\/\/cognitiveinfo.com\/index.php?rest_route=\/wp\/v2\/posts\/208","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/cognitiveinfo.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cognitiveinfo.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cognitiveinfo.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/cognitiveinfo.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=208"}],"version-history":[{"count":0,"href":"https:\/\/cognitiveinfo.com\/index.php?rest_route=\/wp\/v2\/posts\/208\/revisions"}],"wp:attachment":[{"href":"https:\/\/cognitiveinfo.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=208"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cognitiveinfo.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=208"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cognitiveinfo.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=208"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nDuring the initiation phase it is important to capture time\/efficiency savings as well as what I call a ‘report value’. Each of these will be used for a final ROI or Payback Period calculation.<\/p>\n
\nA. How long does it take you to gather the raw data for this report?
\nOften the raw data has to be requested from IT or someone with access to a source system. Go to them and get details about the process.
\nB. How long does it take you to put the raw data into the final report format?
\nOnce the data is gathered, someone has to total it, group data, filter data and format the report. Measure that time.
\nC. To whom do you send the report?
\nThe bigger the distribution of a report or analysis, the bigger that report’s impact in terms of ‘report value’ addressed below.
\nD. What do they do with it?
\nSo often clerical or department people spend hours and hours gathering and formatting reports to send up the management chain where someone else has to recompile all the reports into management summaries. Through multiple levels of management this process gets repeated. Each time data is ‘massaged’ it introduces chances for errors, typos or incorrect calculations.<\/p>\n
\nFor a sample report: IT spends 1 hour pulling data, an accountant spends 3 hours and forwards it to 3 managers.
\nEach Manager takes part of the report and spends 1 hours summarizing it for their department.
\nThis results in a value chain of: 1 hr + 3 hr + (3*1 hr) = 7 hours for a report.
\nIf the report is run weekly, then that is 7 hrs * 52 weeks = 364 hours per year.
\nYou can then go to HR department and find out an average cost per employee hour to determine the savings. With salary, benefits and overhead we could use an average of $50.00 per hour and get a $16,200.00 time savings value.<\/p>\n
\nWhat is the value of the decisions being made from the reports or analysis?
\nWhat is the frequency of the decisions?
\nWhat is the improvement can be made with better access to information?
\nThese three questions work together towards a ‘value of better decisions’. If a healthcare manager evaluates contracts which range from $1 to $20 million dollars once a year and a better decision could yield 5% better income, then we can calculate: $10m (avg.) X 1 time per year X .05 = $500,000.00 difference. If three managers are making similar decisions, then multiply the value times the number of managers. This methodology is based on an IBM whitepaper which regretfully is no longer found on their website.<\/p>\n