 Part 1: New Ideas on the ROI of Data & Business Rules
By Ronald G. Ross
Cost-justifying IT initiatives relating to
data
quality or business rules have always been
problematic. Management is right to want analysis of
the ROI in advance, especially in companies without
prior experience. Now there is a new way to think
about the ROI of data quality and business rules.
Ironically, it comes from not looking at the data or
at the rules at all.
In their new book, Smart (Enough) Systems, Neil Raden and James Taylor argue convincingly that it’s
some decision that data and rules can be used to
make that provides the actual value-add for the
business – not the data or rules per se.
The authors look at data and rules simply as the
means to some important business end, some
operational decision(s) to be made. So the
Enterprise Data Management (EDM) message is that you
shouldn’t talk to business executives about the
means (data and rules) when it’s the ends
(decisions) that really matter. They’re simply the
wrong artifacts. Extrapolating, it’s the ROI from
the decision that should be examined if you want to
do cost-benefit analysis, not from the data or rules
per se.
Cost-benefit analysis under EDM is therefore based
on the question, “What is the economic value to your
company of its front-line operational decisions?”
These front-line decisions are everywhere – so
numerous, in fact, they are easy to miss. Here are
some examples:
• How do we price our product for this transaction?
• What credit do we give to this customer at
this
point in time?
• What resource do we assign to this task right now?
• Do we suspect fraud on this particular
transaction?
• What product configuration do we recommend for
this request?
• Can we confirm this reservation?
• What’s the best cross-sell or up-sell offering for
this sale?
• Do we anticipate any delay on this shipment?
To examine ROI, consider the following simple
example: You send promotional letters to 10,000
prospects. Decision?
Of course, but as Raden and Taylor point out, not
just one decision, but 10,000 decisions – sending
the letter to each individual prospect is in itself
a decision. Although the value to the company of
each individual decision may be relatively low,
here’s the kicker – they add up big-time! Consider
that you might also make the 10,000-prospect
decision not once, but many times during a year.
Moreover, you might also make it through multiple
channels. The value of a particular kind of
front-line decision is therefore generally as
follows:
Value of a kind of front-line decision =
Value of each individual decision x Total number of
decisions made
How do you measure the potential value of improving
a front-line decision? In traditional thinking about
cost-benefit, there are three broad approaches (in
order from easiest to hardest): Doing things
cheaper, doing things faster, and doing things
smarter. Potential evaluation criteria for each of
these approaches under EDM are given below.
Approach: Doing Things Cheaper
Evaluation Criteria: Determine savings from
reduction or elimination of costs for:
• Staff time to make decisions manually
• Exception handling and associated research time
• Iterative acquisition of missing or incorrect data
• Fraud
• Fines and penalties for non-compliance
• Unnecessary inspections
• Settlement disputes
• Do-overs
Approach: Doing Things Faster
Evaluation Criteria: Determine the value of
sales or deals potentially lost due to delays from:
• Manual intervention, review, oversight, etc.
• Queuing of work
• Inability to make on-the-spot decisions
Approach: Doing Things Smarter
Evaluation Criteria: Determine the value to
the company of its being able to:
• Cross-sell or up-sell more effectively
• Counteract a competitor's operational move quickly
(e.g., to offer a new product, introduce new pricing
incentives, etc.)
• Exploit a new operational market opportunity
quickly
• Identify micro-market segments
• Offer more personalized service
• Provide a consistent cross-channel customer
experience
• Upsize or downsize more quickly
• Remedy a shortfall in product or service delivery
deftly so as to retain customers
• Diagnose equipment or other failures at a very
high rate of accuracy
• Demonstrate compliance with little or no
additional effort
• Avoid litigation by ensuring compliant
transactions in real time
• Retail know-how when in-house experts are lost
To fully analyze ROI, you must consider not only
potential value, but also cost. How should costs be
viewed under EDM?
Raden and Taylor make the crucial observation that a
focus on EDM permits an organization to “decouple
its expense growth from its revenue growth.” Here’s
what I take them to mean. In traditional IT
development, almost every corporate initiative,
large or small, requires a concomitant and more or
less proportional investment in systems development.
EDM liberates the organization from this lock-step
paradigm. By externalizing as much of the decision
logic as possible to business people, and providing
a persistent, generalized infrastructure for making
changes to that decision logic, investment is spread
across an ever growing number of realized business
opportunities. To say that differently, you move
business people away from competing for IT resources
and toward managing data and rules.
In short, “decouple expense growth from revenue
growth” simply means turning a liability into an
asset. That’s exactly how Raden and Taylor describe
operational decision making under EDM, which is very
good news for people who believe it is possible for
organizations to act cheaper, faster and smarter
Source: The Data Administration July 2008 newsletter (http://www.tdan.com/view-special-features/7840). .
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