MDM & CDI ROI and Justification

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1 MDM & CDI ROI and Justification William McKnight SVP, Data Warehousing Conversion Services International

2 ETL Architecture What is MDM? MDM: The organization, management and Workflow Organization Modeling distribution of corporately adjudicated, high-quality information with widespread use in the organization for business gain MDM ROI Data Quality and 3 rd party data -2-

3 Tangible Deliverables of MDM/CDI Role-based workflow for business processes to develop master data Data Model Master data distribution and synchronization mechanisms; Options: Synchronize from existing operational masters Establish new operational master Improved data quality Industry focused jump starts provided with purchased MDM products -3-

4 MDM in Practice: Examples Industry Banking Churn Management, Cross-sell, Up-sell, Compliance Insurance Churn Management, Cross-sell, Up-sell, Compliance Healthcare Computerized Patient Record Pharmaceutical Drug Lineage, Physician Management, Targeted Marketing Retail Targeted Marketing Subject Areas Customer, Product Customer, Product Patient, Service Drug, Customer Customer, Product, Price, Calendar, Promotion -4-

5 Ordered Benefits TCO Benefits from MDM/CDI are direct Minimized Operational System Impact MDM deployment standardization across the enterprise Providing master data as a service ROI Benefits from MDM/CDI are indirect Second order benefits have an indirect relationship Third order benefits have a transitive relationship The system enables an activity that allows performance of another activity which actually provides the benefit Projects utilizing the TCO (eventually ) ) still needs ROI! -5-

6 ROI Worksheet Project Name: MDM Project "Discount Rate" by Half-Year: 2.0% Benefits Revenue Generating 1H2007 2H2007 1H2008 2H2008 # Sold Revenue Contribution Total New Profit $ - $ - $ - $ - Cost Reduction 1H2007 2H2007 1H2008 2H2008 Legacy System 1 Sunset $ - $135,000 $165,000 $200,000 Legacy System 2 Sunset $ 75,000 $ 75,000 $ 75,000 Total Savings $ - $210,000 $240,000 $275,000-6-

7 Expenses Costs to Implement Init Inv 1H2007 2H2007 1H2008 2H2008 Hardware $ 75,000 $ 75,000 $ 20,000 Software $ 25,000 $ 25,000 $ 5,500 Employees $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 Consulting $ 50,000 $ 50,000 $ 25,000 $ 25,000 $ 25,000 Total Costs to Implement $160,000 $160,000 $ 35,000 $ 60,500 $ 35,000 Net Cash Flow $(160,000) $(160,000) $175,000 $179,500 $240,000-7-

8 Worksheet: Results Init Inv 1H2007 2H2007 1H2008 2H2008 Net Present Value ($156,862.75) ($156,862.75) $11, $180, $402, ROI -100% 7% 115% 256% Payback Period $ (160,000) $ 15,000 $194,500 $ 434,500-8-

9 Worksheet: Probability Distribution Probability of ROI 1 40% Probability of ROI 2 30% Probability of ROI 3 30% HY 1 HY 2 HY 3 HY 4 ROI 1-100% 7% 115% 256% ROI 2-100% -80% -61% -42% ROI 3-100% 86% 317% 590% Probability Distribution Yield -100% 5% 123% 267% -9-

10 Key Outcomes in MDM Successes Reduced IT TCO for data management due to less overall processing Streamline processes due to elimination of manual reconciliation Dissemination of data integration responsibility beyond the data warehouse Increase understanding of corporate data through homogenous data distribution Improve ability to deal with compliance and data lineage by simplifying data infrastructure -10-

11 CDI Enabling Projects Customer Segmentation Attributing customers into different clusters of commonalities Customer Spend/Profitability Deciling Attributing customers by their decile over time Customer Lifetime Value Estimated customer profitability for the next n years Straight-line projection of the last n years of profits Average projected CLV of a representative customer segment -11-

12 CDI ROI Targeted Marketing Sales Costs Marketing Expense Reduction Without Sacrificing Revenue Churn Management -12-

13 Churn Management Spend/ Profit Decile Estimated churn (without project) Estimated Loss in CLV Revised Churn Targets Revised estimated loss Difference 1 10% $100,000 1% $10,000 $90, % $90,000 1% $9,000 $81, % $75,000 5% $37,500 $37, % $50,000 10% $50,000 $0 5 10% $25,000 10% $25,000 $0 6 10% 0 10% $0 $0 7 10% ($5,000) 15% ($7,500) $2, % ($10,000) 15% ($15,000) $5, % ($15,000) 25% ($37,500) $22, % ($15,000) 25% ($37,500) $22,

14 Business Role: Data Stewardship 1. Determining master data sources and sourcing methods 2. Arbitrating the transformation rules for master data 3. Verifying the data 4. Contribution of business metadata about the data 5. Supporting the data user community 6. Contribution to program governance 7. Data Quality Assignment should be made at the subject area -14-

15 Active Business Participation is Essential to the Success of MDM Plan the IT organization and process changes required for MDM Determine organizational readiness and remediation Define desired business processes Contribute data stewardship functions Support MDM at executive level Commitment to utilization of the MDM process for master data -15-

16 CxO Engagement ROI for MDM/CDI projects MDM/CDI is just the way the data integration will be handled TCO for the (central) MDM/CDI approach If the justification for the master data-using projects is complete Data integration nightmare experience Adopt MDM/CDI best practices Consequences of NOT doing MDM/CDI -16-

17 Initial MDM Steps to Success Corporate subject area evaluation and prioritization By subject area, determination of publish/subscribe strategy (Architecture) Comprehensive data stewardship establishment Data quality program establishment Technology evaluation Iterative development -17-

18 Analysis Master Data Assessment Less than 1 week to identify current state and opportunities for MDM value Data Quality Express Data profiling, data stewardship and DQ improvement planning Strategy MDM ClarityPath Development of a multi-iteration MDM rollout and tool selection How we engage for MDM Implementation Solution Implementation Implementation of MDM strategy: architecture, DQ, management, distribution, workflow Maintenance Solution Maintenance Iterative Rollout Production maintenance of the architecture, software and data, ensuring success -18-

19 William McKnight Senior VP, Data Warehousing Conversion Services International, Inc