RESEARCH & RESOURCES

Q&A: Return on Investment for Information Projects

When it comes to calculating ROI for BI projects, what’s hampering your colleagues and what are they doing right. Consultant, author, and speaker William McKnight explains what you need to know about BI ROI.

[Editor’s Note: William McKnight will be conducting a session at the TDWI World Conference in Boston (October 20-25, 2013) that will help IT professionals research, measure, and present the economic value of an information initiative. His presentation, Return on Investment for Information Projects, will offer practical advice for calculating ROI, including how to select the right formula. More information is available here.]

BI This Week: In Chicago, you taught "Return on Investment for Information Management Projects" and "Organizational Change Management" and they received outstanding ratings from attendees. We're extremely pleased you’ll be leading both sessions again in Boston. Can you tell us about them?

William McKnight: Sure. Return on investment for information management projects is about what is frequently the ultimate question for a data warehouse or other information management effort -- what it’s doing, bottom-line, for our business. This is not only for initial justification, but often comes up during annual budget considerations.

Of course, we all like to be working on transformative organizational change, myself included, for which the ROI is there, but the specificity we could put around it would be minimal. Realistically, most of us work on projects that do actually have to deliver pretty quick and lasting value to the business. I go into ROI calculations that are appropriate for projects and I dig into TCO (total cost of ownership) measures for programs.

Data warehouses and master data management hubs frequently support multiple projects, so the question becomes: Do these semi-centralized and multi-purpose structures cost-justify themselves over time? The answer is clearly yes, but the information management professional needs to be empowered with how to structure the conversation and the calculations.

Being able to justify appropriate information management efforts is a hallmark of effective leadership.

How do you put ROI to some of the squishy values that we deliver with information management projects?

Make them un-squishy. The fact is, in order to calculate ROI, you have to translate activity to cash flow. This is seldom easy, as it involves predicting, or anticipating, business results. This must come from business personnel, which often need the prompting of those who understand ROI -- like my students.

Even if the data warehouse team only supports a good project, it may be incumbent on that team to help justify the overall project. Why not? That’s what leaders do.

Leaders also guide the organization to efficient infrastructure, picking the right tools for the job, as well as tools that can be leveraged into future jobs. Obviously, we’re not comparing platforms or vendors in this class, but I’ll share a TCO way to look at platforms.

What are organizations that do ROI well doing right?

First, they define work efforts well. Work efforts have discrete, desired outcomes. They also understand if those outcomes are meant to deliver ROI to the organization and in what form(s) -- increased profitable revenue or decreased expenses. Infrastructure outcomes, as previously mentioned, are TCO-based, but it’s educated and long-term TCO.

They don’t have a crystal ball, but they’re not discouraged from thinking.

What hampers organizations from doing ROI the correct way?

Everyone wants to be working on transformative change, but realistically, not many are. Then one day, cash gets tight and upper management wonders which projects are really driving the bottom line. Without any thought given to the matter, these organizations sputter. IT organizations that don't mindfully bring anything to the table except people to carry out very detailed -- including platform -- wishes of the business organizations will find themselves extinct.

How do we improve on the ROI we're delivering with our projects?

Start with the end of cash flow and work backwards to your efforts. I don’t believe anyone who says a project with a projected ROI will stop once that projection is reached. Organizations are more than happy to blast through ROI projections and ride it out.

How does organizational change management (OCM) differ from ROI?

OCM addresses the “people” risks associated with programs to promote successful implementations. As the responsible people for the ultimate success of our projects, we need to give the right people the right tasks to contribute to in order to get them "on board." OCM is a series of tasks that get the stakeholders on board, focusing on people risks, implementation issues, and the realization of benefits and forging collaborative processes for success.

There is a science to it, it’s not just gut feel. My course will take anyone unfamiliar with OCM and make them very effective at it and may be the difference between success or failure of the project. These include tasks like a stakeholder management plan, mapping future state job roles and training activity.

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