How to Calculate ROI on Your Business Intelligence Investment

Businesses use BI software to provide multiple business benefits. These benefits include:

• BI helps eliminate 'guess work' and speculation. Businesses can analyze their own historical data, identify business trends and patterns and perform what-if analysis to identify the correlation between different parameters in the business (ex: how adding one more warehouse effects delivery efficiency).
• BI eliminates the need for lengthy printed reports. With BI solutions management can quickly retrieve real-time, online reports.
• Most BI software allows users to access their key businesses metrics via reports and dashboards, providing the ability to access them on any device and platform (e.g. Android, Apple, or Blackberry devices).
• BI allows organizations can gain insight into customer behavior patterns to decide how their products and services can be enhanced to earn additional profits.
• BI helps organizations identify areas of wastage and redundancy in terms of material usage, resource utilization, and delivery times.

The business benefits of a BI solution are multifold. As per Gartner research published in Feb 2013, the global BI market reached $13.8 billion in revenue in 2013, which is an increase of 7% compared to last year and it is speculated that the market will surpass $17 billion in revenue, by 2016. This being said, there are cost and time requirements involved with implementing a BI and analytics solution. Therefore, management needs to use ROI as a measure to evaluate effectiveness of their investment. ROI provides business-value analysis assessment that quantifies the financial rewards of a BI project, allowing management to evaluate and prioritize their IT initiatives.

A large majority of the cost of implementing a BI solution involves the expenses of selecting and implementing the requisite infrastructure and software. Organizations can leverage the expertise of technology consulting companies for efficient BI solution design and development. A good BI solution comprises of a data warehouse that can store, recover and analyze the data needed. When the BI solution is providing expected results, the business may want to add more features to get further insight. Additionally, when more users start getting their hands on BI functionality, the capacity and performance of the solution needs to be upgraded, which may result in additional cost. As an alternative, there is the option of open-source BI solutions. Given the ongoing requirement to manage and upgrade BI solutions, most businesses outsource it to a technology vendor who can implement, manage and upgrade their BI solution, with sufficient accountability and responsibility.

In order to assess the amount of cost savings from implementing a BI solution, having an idea on the ROI is important. Additionally, businesses need to know when the benefits of BI and analysis impact the organization – in a measurable way. Below is a process through which organizations can calculate the ROI of an implemented BI solution.

1. Define the business problem addressed by the BI solution and establish business goals. This requires business analysts to understand the current situation and highlight any problems in business processes and performance. These business problems are then converted to business goals. Such goals should be SMART (Specific, Measurable, Achievable, Realistic and Timely) in nature.
2. Gather the business requirements after defining the business problem. The technology consulting firm or the internal IT team will gather the business requirements, which will eventually become the key functionalities of the BI solution.
3. Design the business blueprints, gather technical and infrastructure requirements and design a high-level logical data model, which will enable the identification of data sources and data flows.
4. Identify the anticipated strategic, tangible and intangible benefits and how BI will contribute to achieving these benefits. These benefits are elaborated in the ROI analysis below.

The project’s overall ROI calculation evaluates the Net Present Value (NPV) of projected cash flows derived from the savings generated by the business intelligence project, divided by the initial investment and the maintenance cost (source: TDAN).

NPV of Savings

ROI=

______________________________

X 100

Initial Investment + Maintenance Cost

Part of the ROI analysis is to estimate the time at which benefits and savings of the business surpass the total costs of the BI project - known as the payback period.

Payback period =

Initial Investment + Maintenance Cost

(NPV of Savings / Years/n)

n = The total number of years for which the NPV calculation was applied

Calculating the ROI of a BI solution is complex, but of great importance for a business planning to deploy a BI solution. When performed correctly, such analysis helps a business identify the quantitative and qualitative benefits of the business intelligence solution and obtain management buy-in and accountability for the quantifiable benefits. Performance management is at the core of Business Intelligence, therefore using a reliable ROI approach to data warehousing and BI projects offers management concrete evidence of an implementation’s success and provides a mechanism for managing and retaining its benefits throughout the software lifecycle.