The value of business intelligence applications

How can BI help your business? This tip points out the BI benefits, risks and costs.

Companies have spent millions on transactional systems to help automate key business processes. While these systems

generate enormous amounts of valuable information, they often have poor reporting capabilities, inhibiting the sharing of key information -- like demand forecasting, inventory levels, error rates, finances and budgets.

The most common way for organizations to analyze and report on valuable business data is through spreadsheets. Businesses often have thousands of these analytical spreadsheets and reports, managed by individual owners. These spreadsheets remain difficult and costly to maintain, introduce data and analytical errors, and lock key information within the hands of too few employees.

Business intelligence (BI) software offerings, such as that offered by Hyperion and SAS, hold great promise to automate consolidation, analysis, presentation, reporting and compliance capabilities necessary to free enterprise data for actionable insight. According to 2005 research by Accenture, 15% of companies are at the proof-of-concept stage with BI, 22% are engaged in a pilot, and 36% have committed to one or more solutions. One in 10 isn't doing anything and 12% are monitoring the situation. In 2004, while most IT spending was flat, the BI market grew 11% to reach $4.3 billion in worldwide software revenues.

As a result of implementing BI applications, organizations are gaining key business value advantages ranging from simple cost avoidance, such as saving on the labor, printing and distributing reports, to competitive advantage, such as recognizing hot selling items quickly enough to respond to customer demands and avoid "out-of-stock" conditions.

Common benefits of BI include:

  1. Consolidated query, reporting, analysis, and analytic applications, such as eliminating custom development and manual maintenance of Excel spreadsheets and reducing data consolidation efforts.
  2. Better leveraging important and valuable data currently being captured by ERP, CRM, SCM and other systems, that previously has been locked in these systems due to inadequate and difficult mining and reporting tools.
  3. Improved integrity of analytics by assuring source data validity and calculation integrity, reducing or eliminating the cost of business decisions based on incorrect data.
  4. Eliminating stove-piped analysis across departments and divisions, reducing the time people spend arguing about numbers or making conflicting decisions.
  5. Creating powerful dashboard applications for various user groups to help gain visibility into overall performance and specific key performance indicators. Dashboards can help the business act faster on important insights, like quickly recognizing a hot product in order to meet growing demand and eliminate "out of stock" conditions, or more competitively establish price points.
  6. Empower users to create, manage and distribute their own standard, ad-hoc and multi-dimensional reports and content, saving time on current report development and maintenance labor.
  7. Reduce report printing and distribution costs including saving on printers, toner and mailing costs.
  8. Improve velocity of reporting and visibility, reducing report-time from weeks to minutes, gaining real-time visibility into the impact of pricing and promotional strategies on corporate profitability, or creating compliance reports quickly in order to meet audit demands.
  9. Uncover business issues, mistakes or fraud more easily, such as recognizing unusual business purchases or sales bookings.
  10. Reduce the impact of employee turnover and need for training by unlocking islands of information and analytics in proprietary Excel spreadsheets and standardizing on a BI platform.
  11. Better meet financial reporting and regulatory compliance by assuring consistency of information and automating analysis, validation and distribution of reports by policy.

Making the business case
Once the organization has reached consensus on the potential impact and value of BI initiatives, the team must make a sound business case for the investment, taking into account all possible costs and risks.

Costs
As a first step, it's important to take into account all costs considered over the lifetime of the solution. These likely include:

  • Purchase price of the software licenses, maintenance or support fees, application customization, implementation labor costs, consulting and professional services, additional hardware and software needed to support the BI application, and user training
  • Necessary upgrades of client machines or network communication
  • After the implementation is complete, the cost of ongoing management and support of systems, further customization and integration, and user training

System pricing, features and functions vary wildly, making it difficult to pinpoint what an organization might expect. Total expenditures can range from $100 per employee to $1,000 per employee in lifetime total cost of ownership.

The most critical component of the business case is to analyze up-front and on-going costs to select the solution that promises the lowest TCO, and will meet the most pressing needs of the business today and in future.

Risks
A second critical component of the business case is to evaluate possible risk. Too often, individual departments implement BI solutions best suited to that department or application. As a result, it's common for organizations to have five or more BI analysis and reporting tools, escalating the ongoing costs of supporting multiple solutions and vendors. Consolidated and standardized solutions with the right vendor and solution across multiple departments dramatically lowers costs – both for IT and the business -- by as much as 80%. On the same token, vendors in this space will also continue to consolidate.

User training is often overlooked when implementing a BI solution, but empowering users to understand analytics and customize their own reports is a critical key to business value success. Organizational skills must be cultivated to develop and use BI reporting tools and analytics in order to achieve the full benefit of new solutions.

Implementation and roll-out timing is the third critical piece. While it's tempting to try to automate all key metrics, reporting and analytics off the bat, there's a risk that the organization may not be culturally ready, IT resources spread too thin, and users fail to get as involved as they need to be.

The last common source of risk is found in the integrity of the data feeding the system. Much attention and evaluation needs to be paid to enterprise data quality, and may require an additional investment.

Realizing ROI from BI
When implemented correctly, BI initiatives can generate immediate cost savings over current analytics and reporting, enough to usually justify the investment. More importantly, these solutions can fundamentally transform the business by unlocking the power of the enterprise information and shared knowledge. Such a transformation is possible, but not always guaranteed as it requires setting up a proper and reliable BI platform, user training and cultural change.

The most powerful impetus to proceed, however, may be found in the numbers: For companies that Alinean has evaluated, 1000+% returns on investment were not unusual, because the tools made such a significant impact on supply chain optimization, inventory management or revenue.

Tom Pisello is the CEO of Orlando-based Alinean, the ROI consultancy helping CIOs, consultants and vendors assess and articulate the business value of IT investments. He can be reached at tpisello@alinean.com.


 

This was first published in September 2005

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