Showing ROI for Your Analytic Project

Copyright © 2021 McKnight Consulting Group, LLC All Rights Reserved Slide 1
Unlock Potential
William McKnight
President
McKnight Consulting Group
Showing ROI for Your Analytic Project
@williammcknight

Proprietary + Confidential
Powering Data
Experiences
to Drive Growth
Joel McKelvey,
Looker Product Management
Google Cloud

1 https://www.forrester.com/report/InsightsDriven+Businesses+Set+The+Pace+For+Global+Growth/-/E-RES130848
“Insights-driven businesses
harness and implement digital
insights strategically and at scale
to drive growth and create
differentiating experiences,
products, and services.”
7x
Faster growth than
global GDP
30%
Growth or more using
advanced analytics in a
transformational way
2.3x
More likely to succeed
during disruption

*Source: https://emtemp.gcom.cloud/ngw/globalassets/en/information-technology/documents/trends/gartner-2019-cio-agenda-key-takeaways.pdf
Rebalance Your Technology Portfolio Toward
Digital Transformation
Gartner: Digital-fueled growth is the top investment priority for technology leaders.*
Percent of respondents
increasing investment
Percent of respondents
decreasing investment
Cyber/information security 40%
1%
Cloud services or solutions (Saas, Paa5, etc.) 33%
2%
Core system improvements/transformation 31%
10%
How to implement product-centric delivery (by percentage of respondents)
Business Intelligence or data analytics solution 45%
1%
Digital
Transformation

Governed metrics | Best-in-class APIs | In-database | Git version-control | Security | Cloud
Integrated Insights
Sales reps enter discussions
equipped with more context
and usage data embedded
within Salesforce.
Data-driven Workflows
Reduce customer churn
with automated email
campaigns if customer
health drops
Custom Applications
Maintain optimal inventory
levels and pricing with
merchandising and supply chain
management application
Modern BI & Analytics
Self-service analytics for
install operations, sales
pipeline management,
and customer operations
SQL In Results Back

‘API-first’ extensibility
A Modern Approach
Semantic modeling layer
In-database architecture
Built on the cloud
strategy of your choice

1 in 2
customers integrate
insights/experiences beyond
Looker
2000+
Customers
5000+
Developers
Empower People with the Smarter Use of Data

Thank you

Presentation Objectives
At the end of this hour, you should be able to
Navigate an analytic project justification
Distinguish between tangible and intangible benefits
Present an itemized ROI
Articulate the value of an information program
Adapt a methodology in your program that includes
ROI attainment and measurement

ARCHITECTURE BUSINESS
Sample Analytic Projects Justified
Healthcare
• Claims Routing
• $25M
Financial
• Loan Origination
• $22M
Pharmaceutical:
• Offer Analysis
• $35M
Telecommunications:
• Full CDR Analysis
• $22M
Retail:
• Offer Optimization
• $35M

Measuring is Important to Business
“The essence of a corporate culture is the firm’s
measurement system. It is the lens through
which reality is perceived and acted on.”
Paul A. Strassman, “The Business Value of Computers, 1990”

Acknowledging the Strategic
A Place for Learning and Innovation
The Unknown Upside
The intuitive thinking employed by HiPPOs
(highest-paid person’s opinions)

Workloads

Prioritizing Efforts
Ease to Do
Prerequisites First
ROI

Ordered Benefits: What Makes it
Difficult
Benefits can be direct or indirect
First order benefits have a direct relationship to the
bottom line
Second order benefits have an indirect relationship
The system will enable an activity that in turn provides the
benefit
Third order benefits have a transitive relationship
The system enables an activity that allows performance of
another activity which actually provides the benefit

Historical Justification
What we're good at
Tasks and activities
What we're bad at
Realistic returns (overconfidence)
Risk
Costs
Timelines

Unlock Potential
Types of Justification:
Program vs. Project

Analytics Programs and Projects
Justifying an Analytics Project
Analytics seen as a stand alone project
Built for one application
Justifying an Analytics Program
Analytics store enterprise data
Inclusion of data is based on governance
The goal of the program is to enable the component of
the applications it supports

What is being justified?
An information management program which will
store data for several projects
Why use a data warehouse architecture versus
independent data marts?
A project which will use a data store to store
data
Why do this project?
The inclusion of new projects into an existing
data store program
Why architect this project into the data store instead of
building an independent data store?

Return on Investment
(Returns - Investment)/Investment
ROI should always be supported with a time
period (i.e. 401% return in 3 years)
ROI should be presented with assumptions and
risks and be itemized
By source system, subject area, business problem
solved, users, levels of summary, and/or amount of
history data
Add the possibilities! But don’t oversell
Used for Predicting and Measuring

Information Management Program
Justifications (TCO)
Operational System Impact
One way of doing things
Tools competence
Consolidating Expense Streams
Enterprise Subject Areas

Typical Approach by Domain
Domain Approach
Data Warehouse ROI or TCO
Big Data ROI
Master Data Management TCO foremost
Analytics ROI
Customer Relationship Management ROI or TCO
Stream Processing ROI

Variations on the ROI Theme
Payback Period Analysis
Return on Investment
Net Present Value
Internal Rate of Return

Presenting the ROI Possibilities
For each suggested business project, present at
least 3 possible scenarios along with the odds of
that scenario happening, forming a probability
distribution
Best Case
Little Goes Wrong
Worst Case
Most everything goes
wrong
Planned Case

Unlock Potential
Tangible vs. Intangible Metrics

Tangible versus Intangible Returns
Tangible Returns - Returns you decide to
measure
More activities have a measurable return than you
may think
Usually 1-2 returns are reasonable to measure for
each phase
Intangible Returns - Returns you decide not to
measure
These will not justify data warehouse efforts

Tangible Returns
Increase in sales
Efficiencies in processes
Reduction in inventory carrying costs and returns
increases cash position
Automated processing reduces mailing, copying,
telephone, car phone, printer, and distribution
costs
Reduction in returns
Reduction in fraud

Tangible Returns
Procurement savings
Savings in material costs for processing
Savings from volume discounts on materials
purchases
Savings in inventory holding costs
Operational savings
Savings in capital improvement projects due to
predictive replacement and predictive improvement to
facilities
Savings by avoiding regulatory fines
Savings from incurring maintenance expenses based
on actual usage instead of scheduled, unnecessary
intervals

Intangible Returns
Speed to solutions
Clean data
“Single version of the
truth”
Improved customer
satisfaction
Improved internal
morale and ability to
attract staff
Enhanced corporate
image
Improved overall
quality
More time for
management to
mentor staff
Faster response to
customers

Unlock Potential
Return on Investment Examples

Need to Know
Discount Rate
Ask CFO office
Duration
2-4 Years
Time Blocks
Minimum: Quarter
Suggestion: Half-Year

Worksheet: Sample
Total Year 1 Year 2 Year 3
Cost savings $140,000.00 $0.00 $60,000.00 $80,000.00
Financial Return $140,000.00 $0.00 $60,000.00 $80,000.00
Hardware $120,000.00 $100,000.00 $10,000.00 $10,000.00
Investment $120,000.00 $100,000.00 $10,000.00 $10,000.00
ROI -100.00% -45.45% 16.67%

Worksheet: Results
ROI -100.00% -45.45% 16.67%
Cash Flow -$100,000.00 $50,000.00 $70,000.00
Cumulative Cash Flow (Break Even) -$100,000.00 -$50,000.00 $20,000.00
IRR 0% -50% 12%
NPV @ 4% COM ($96,153.85) ($49,926.04) $12,303.71

Worksheet: Probability Distribution
Probability of ROI 1 40%
Cost savings $140,000.00 $0.00 $60,000.00 $80,000.00
ROI -100.00% -45.45% 16.67%
Cost savings $80,000.00 $0.00 $30,000.00 $50,000.00
ROI -100.00% -72.73% -33.33%
Cost savings $260,000.00 $10,000.00 $100,000.00 $150,000.00
ROI -90.00% 0.00% 116.67%
Weighted ROIs: -97.00% -40.00% 31.67%

To Use a Worksheet
Get the discount rate
Know the Revenue Generation
and Cost Reduction dollars by
year for the next 3 years
Break out Labor Reduction by
Resource Persondays and Rate
Know the Costs to Implement

To Use a Worksheet
Estimate the costs and benefits for 3 scenarios
Expected
Low
High
Estimate the probabilities of each scenario
Total adds to 100%

Costs
Hardware/Cloud People Software

Cost Reduction – Fraud Reduction
Fraud Reduced $1,250,000.00 $0.00 $500,000.00 $750,000.00
Financial Return $1,250,000.00 $0.00 $500,000.00 $750,000.00
Hardware $105,000.00 $75,000.00 $15,000.00 $15,000.00
Software $144,000.00 $100,000.00 $22,000.00 $22,000.00
Consulting $50,000.00 $50,000.00 $0.00 $0.00
Investment $299,000.00 $225,000.00 $37,000.00 $37,000.00
ROI -100.00% 90.84% 318.06%

Healthcare Example
COSTS REDUCTION Year 1 Year 2 Year 3
Claims Saved 0 100 150
Avg Cost/Claim $25,000 $25,000 $25,000
Total Claim Cost Savings - $2,500,000 $3,750,000
Total Impact - $3,125,000 $4,500,000
REVENUE GENERATING Year 1 Year 2 Year 3
# Customers added or retained 0 25 30
Average Customer Premium $125,000 $125,000 $125,000
% Gross Profit 20% 20% 20%
Total Customer Benefits - $625,000 $750,000

Results
Customer Benefits $1,375,000.00 $0.00 $625,000.00 $750,000.00
Claim Cost Savings $6,250,000.00 $0.00 $2,500,000.00 $3,750,000.00
Financial Return $7,625,000.00 $0.00 $3,125,000.00 $4,500,000.00
Hardware $230,000.00 $200,000.00 $15,000.00 $15,000.00
Software $294,000.00 $250,000.00 $22,000.00 $22,000.00
Consulting $550,000.00 $350,000.00 $200,000.00 $0.00
Investment $1,074,000.00 $800,000.00 $237,000.00 $37,000.00
ROI -100.00% 201.35% 609.96%

Other Examples
Increased revenue per customer
Increased customer acquisition
Savings due to reduced cost of marketing campaigns
Cost benefits of decrease in customer attrition
Improved marketing employee productivity
Reduced IT spend in supporting databases
Reduced likelihood of regulatory fines
Reduced cost to recover from a breach
Improved efficiency in fraud management
Reduced cost of infrastructure

Unlock Potential
Abstracted ROI

Large Group Impact Level
Impossibly measurable at the individual level
Must measure at large group impact level
Like Customer Lifetime Value/Spend Decile
Use indirect measure like customer satisfaction
index (CSI)
Projects target this level

TCO Examples
Data Warehouse or Data Marts?
What should I use for Storage Layer/Platform?
HDD, SSD, Memory, Tape, Hybrid
Is the Cloud Worth It?
Should I use a Big Data (Hadoop, NoSQL)
solution or RDBMS?
Is Master Data Management Worth It?

Unlock Potential
Summary

ROI Methodology Summary
Cost Analysis
Tangible Benefits Analysis
Cash Flow Analysis
Probability Distribution
Intangible Benefits Analysis
Prioritization and Planning Decisions

Presentation Summary
Target the business deliverable of the project
Use a repeatable, consistent process using
governance for project justification
ROI is an important component of justification,
but not the only one
Use lower TCO for Program Justification

Presentation Summary
Isolate project benefits and costs
If it’s important, you can measure it and you can
improve it, the project will almost always pay for
itself
Judgment is essential

Showing ROI for Your Analytic
Project
Presented by:
William McKnight
President
McKnight Consulting Group
(214) 514-1444
wmcknight@mcknightcg.com
www.mcknightcg.com

Showing ROI for Your Analytic Project

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

Similaire à Showing ROI for Your Analytic Project

Similaire à Showing ROI for Your Analytic Project (20)

Plus de DATAVERSITY

Plus de DATAVERSITY (20)

Dernier

Dernier (20)

Showing ROI for Your Analytic Project