Return on Investment for Information Projects
I had the opportunity to present my “Return on Investment for Information Projects” to the Data Warehousing Institute (www.tdwi.org) audience last week in Chicago. Through that, I helped the students navigate their information management project justifications, distinguish between tangible and intangible benefits, present an itemized ROI, articulate the value of an information program and adapt a methodology that includes ROI attainment and measurement. This is relevant information for midsize and large organizations.
These are vitally important skills for someone, usually a leader or two, in the group, to have. No matter how excited the students may be about all the technology learnings otherwise at the Institute, the projects formulated must make sense financially to the business. Whether formal ROI is required or not, the important thing is to take on an “ROI mentality” when formulating projects.
This mentality means understanding HOW the users will use the information to either increase profitable revenue of the company or decrease the expenses of the company. Or both. But I cautioned that the ROI process only accommodates a few (1-3) real, tangible benefits converted to cash flow. Otherwise, the justification is too extensive and diluted. You can list intangible benefits (benefits you decide not to measure), but ultimately I coached, and recommend, a process that showed financial payback.
Various forms of ROI were reviewed, such as ROI, break-even analysis and internal rate of return (IRR). It all may not be necessary for your information management justification. One key for everyone is to understand whether they are trying to justify a project (then do the ROI to show payback) or a program. Many students, and information management leaders in general, are actually trying to justify an information management program – an architected way to deal with the information aspects of multiple projects – such as a data warehouse instead of lots of data marts.
Justifying a program means showing a lower total cost of ownership (TCO) for the program. Every project needs data. The question is will the project teams get the data by developing it themselves, usually not to standards and extra-taxing on the organization leading to non-scalability of the solution, or have a more centralized “program” option? Investments in data warehouses, master data management hubs, and analytic data platforms stand firmer with multiple uses.
The temptation is to show the lowest program cost by showing the lowest cost of storing the data, rather than the cost of storing combined with delivering the additional capabilities/returns of a well-performing and scalable system. We don’t store active data on tape, which would be the cheapest! We need it to perform. It’s about cost of analysis, not cost of storage. Keep that in mind when proposing a program solution for information.
This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. I’ve been compensated to contribute to this program, but the opinions expressed in this post are my own and don’t necessarily represent IBM’s positions, strategies or opinions.