The ROI of Business Analytics

Transcription

1 The ROI of Business Analytics Calculating Financial Return Othniel Denis Principal Excellent Ones Consulting LLC.

2 Agenda This session will focus on teaching participants the science and art of Return on Investment (ROI) calculations. Return on Investment, What is it? The Science of ROI Investment Calculations & Formulas The Art of ROI Case Studies Quantifying the Intangibles Common Pitfalls Best Practices 2

3 The Business Analytics Landscape 85% of Fortune 500 companies unable to exploit big data 10x more data savvy managers (1.5m) needed than data scientist. $41.5B market value by 2018 for big data technology and services. Source: Gartner, Big data: The next frontier for innovation, competition, and productivity. Mckinsey Global Institute, May 2011, Paull Mugge. The World Needs Data-Savvy Managers. Bloomberg Business. Joshua Steimie, Drowning in Big Data Finding Insight in a Digital Sea of Information.

4 Business Analytic Company Moves $40 billion by 2018 analytics, cloud, mobile etc. Brist raise $65 million in private funding Looker raised $30 million in private funding Source: Wall Street Journal, Birst Banks $65 million for Business Intelligence and Analytics. Mar. 17, 2015 Tech Crunch, Looker Raise Another $30M For its New Approach to Business Intelligence. Mar. 11, 2015 Reuters,, IBM targets $40 billion in cloud, other growth areas by Feb. 26, 2015

5 The Business Analytic Project Dilemma Cost Benefit

6 What is Return on Investment? Price is what you pay. Value is what you get. - Warren Buffett Investor, Philanthropist 6

7 The Science

8 8 What is Return on Investment? Investment Devotion of resources to project Expectation of more in return Return Benefits realized from investment

9 What is Return on Investment? Loss, expenses greater then revenue Profit, revenue greater then expenses $ Break Even Point

10 Simple Return on Investment Formula

11 Net Present Value (NPV) The value of future money in today s terms Difference between present value cash in and outflow

12 Time Valued Return on Investment Formula

13 Net Present Value (NPV) - Excel NPV (Annual discount rate, Value1,Value2.) Annual discount rate Cost of capital Value inflow or outflow of cash or value Investment or outflow of cash\value should be a negative Inflow or value derived from investment should be positive

14 Cost of Capital The price paid to borrow capital to start a project. Many use Weighted Average Cost of Capital (WACC) Used as preliminary measure on project feasibility

15 Basic Return 15

16 ROI with 3% Cost of Capital

17 ROI with 10% Cost of Capital

18 18 ROI Calculation Life Cycle Investment Budget Return Estimate Mid Project Post Project Software Labor hrs., fringe Other resources, overhead costs Decide measure of success upfront Update Investment Update return Compare to preliminary estimates Update Investment Update return Compare to preliminary and mid estimates

19 1 Budget Development Approach Top Down Estimates total cost Break total cost down to sub level Benchmark similar internal projects Research industry norms (i.e. Trade Associations, business libraries, network etc.) Bottom Up Start from lowest detail level Determine each area of need and determine cost for each one Examples include number of people, salary etc.

20 The Art

21 VIDEO Smarter Analytics

22 22 University of California The Art of ROI Key Words Budget constraints No time to look at every area Potential Return Drivers Insurance premiums Ability to borrow improved IT Redundancy Police labor savings Real-time data: crime decrease Centralized data: time savings

23 VIDEO Cleaner Future

24 2 Recology The Art of ROI Key Words Compost Field Collect same trash less time Potential Return Drivers Trash sent to landfill decrease by 50% Economic impact (i.e. jobs, spending, quality of life etc.)

25 VIDEO Better Decisions

26 2 Westfield The Art of ROI Key Words Change people Change process Change technology Potential Return Drivers Risk selection Targeted product selections Training (classrooms, distance learning) Better decisions

27 What makes BA ROI Different?

28 Information 28

29 29 ROI by Information Type Prescriptive Predictive Diagnostic Descriptive

30 Economic Impact 30

31 31 Brand Awareness Measure traditional media occurrences Measure web & social media outcomes (i.e. web traffic, social engagement & content consumption) Convert measurements into quantitative values

32 Brand Awareness Calculation

33 Summary of The Art Economic Impact New Products offered Improved customer satisfaction More engagement Improved finances Upgraded bond rating Additional employee benefits Better Decisions

34 The Art Idea Generation Search for similar internal projects Hold brainstorming sessions Pinpoint the appealing nature of project

35 Best Practices Always include fringe and overhead costs Always over estimate labor in your investment Compare to similar projects over similar period Track periodically against initial investment budget Be prepared to defend value propositions Establish acceptable return before project begins Establish committee to review and provide feedback

36 Q & A

37 Contact us Othniel Denis, Principal Excellent Ones Consulting LLC Website: Facebook: ExcellentOnesConsulting Linkedin: OthnielDenis