Part one of this story described why it's time for CIOs to embrace infonomics, or the economics of information. Here in part two, learn how to measure the value of those information assets.
The debate over whether data is a true asset won't be settled anytime soon, at least in the minds of insurers and accountants. In the meantime, Doug Laney, research vice president for Gartner Inc., believes CIOs can move forward -- even without their blessing.
"There's a performance gap between the realized and the potential value of information," he said. CIOs can help to close that gap and generate more value out of their information assets by applying infonomics practices to corporate data.
Working with clients from sectors like retail, financial services and even software companies, Laney has developed six models designed to help businesses not only label data as an asset but also to treat it as one.
He divides the models into two categories. The first is the non-financial or non-economic model, which does not put an actual price tag on data. "Some of our clients … just want to prioritize or create an aggregate of data quality characteristics to get a sense of what its relative or intrinsic value is," Laney said. The second category is a set of financial models that borrow from established accounting practices.
The six models are briefly described here:
1. Intrinsic value of information. This model doesn't "take into account the business value at all," Laney said, but focuses instead on the data's intrinsic value. The model quantifies data quality by breaking it into characteristics such as accuracy, accessibility and completeness. Each characteristic is rated and then tallied for a final score. Laney, who teamed up with Gartner's Ted Friedman to quantify a dozen data quality characteristics, includes scarcity in the equation. "Data that's more unique to your organization and not available to your competitors or the larger marketplace, we believe, has the potential to provide more value to you," Laney said. As with any of the six models, this one can be tailored to the company, which could, for example, "assign weighting factors" to each characteristic, he said.
2. Business value of information. This model measures data characteristics in relation to one or more business processes. Accuracy and completeness, for example, are evaluated, as is timeliness "because even if data is relevant to a business process, if it's not timely, how valuable is it really?" Laney said. The model can be tailored to fit the organization's needs and even applied to specific data types such as unstructured data or third-party data.
Barriers to information asset management
- Lack of executive support
- Lack of responsibility and accountability
- CIO has technical focus
- Lack of measurement
- Resistance to change
- Compliance and risk are burdensome/costly
- Other priorities prevail
- Cost, value and benefits of information assets is unknown
- Technology shortcomings and poor IT reputation
- Accounting practices incapable of handling information assets
Source: Barriers to the Effective Deployment of Information Assets: An Executive Management Perspective by James Price and Nina Evans
3. Performance value of information. This model is "much more empirical in nature" because it measures the data's impact on one or more key performance indicators (KPIs) over time, Laney said. Take the sales department, for example. "If your salespeople had access to competitor pricing data, how much quicker could they close sales?" Laney said. Businesses can run an experiment by comparing how a control group with no access to competitor pricing data performs against an experimental group. Or, if businesses have neither the time nor the ability to run an experiment, they can substitute proxy data for control group data, he said.
4. Cost value of information. This model measures the cost of "acquiring or replacing lost information." After the Sept. 11, 2001 terrorist attacks, as clients began calling Laney to figure out how to recoup from, in some cases, a total loss of data, they developed a method to quantify information's value based on what accountants "refer to as 'replacement costs,'" Laney said. A value is assigned to the data by measuring lost revenue and how much it would cost to acquire the data. "This is the way valuation experts value most intangible assets that don't have a discernible market value or are generating a market stream," Laney said.
5. Economic value of information. This model measures how an information asset contributes to the revenue of an organization. "This is our KPI model again, but instead of any given KPI, we're looking at revenue," Laney said. To illustrate his point, he returned to his sales example. An experimental group is given access to competitor pricing data and a control group isn't. "Instead of looking at time-to-sale, we're looking at revenue generated by any given salesperson" over a given period of time, Laney said. "That will give us a good sense of the value of that data." CIOs should factor in the cost it takes to acquire, administer and "bake that data into the system the salespeople are using," he said. They should also consider the data's life span. Competitor pricing data, for example, has a shelf life, which should be factored into its value.
6. Market value of information. This model measures revenue generated by "selling, renting or bartering" corporate data, which Laney considers to be one of the best ways to value an information asset. The problem is, most information assets don't have what accountants call an "open arms-length market," or what the price of the data would be on the open market, according to Laney. A way around this is to figure out what similar data from syndicated data providers or competitors is going for. After determining the data's premium price, Laney suggests figuring out what he calls a "discount value." "When we sell data, we're not really selling it," he said. "We're licensing it." The discount rate will vary based on the number of times a company sells the information and other factors. "But, again, it's not the value that's important," Laney said. "It's tracking over time."