How to Measure and Maximize Analytics Value
A few months ago, I called a
friend and former banking client, who is now the Chief Operating Officer, to
discuss his experiences as an Adjunct Professor at a Boston-area university
where I will soon begin teaching a Business Analytics Certification Program for
working professionals, and a new MS Business Analytics program for graduate
students. We reviewed my questions about
the university, and then he asked if I would meet with him and his CIO to
discuss how they wanted to get their Business Analytics program back on
track. In our meeting the following
week, I listened to them describe their reporting challenges and how they
wanted to update their reporting platform.
When I asked them how they planned to measure the business
value of the changes they desired, they looked at me like I had two heads. I
told them that an investment in an Analytics initiative that directly supported
strategic objectives and provided a measurable return on investment would
generate a high return on investment (ROI), which would strengthen their bank’s
growth and profitability. The following
is a summary of the information I shared with them about Analytics ROI.
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Analytics ROI is directly
related to how an organization perceives their Business Analytics program. Is
Analytics an Asset or an Expense? When
Analytics (i.e., reporting platform, tools and processes) are considered an
expense, reporting infrastructure, tools and training are minimized, there is
no Enterprise Analytics Roadmap, and each line of business and department is
left on their own to use application-specific reports and MS Excel for
operations reporting. The result: report
development and deployment time and expenses will be high, the information to action
cycle will be long and Analytics ROI will be low.
When Analytics is viewed as an
asset, organizations develop an Analytics Roadmap that serves as a guide to
optimize operations reporting and performance analytics by integrating data
sources, applying data governance to standardize terms, and training business
users to access information, answer questions and gain new insight into
organizational processes, markets and industries. The result: high Analytics ROI.
The following are summaries and
links to Analytics ROI white papers from independent research firms.
Boston-based NUCLEUS Research
conducted surveys in 2011 and 2014 on Analytics ROI. Their research revealed that in 2011, the
average return on every Analytics dollar invested was $10.66. The 2014 research project revealed that the
return has increased to $13.01 for every Analytics dollar invested.
A 2012
Analytics survey revealed that as Analytics mature over four stages, ROI
progressively increases:
Initial Stage 1 188%
Avg ROI Automating
Reports
Tactical Stage 2 389%
Avg ROI Leverage
Analytics to improve decision making
Strategic Phase 3 968%
Avg ROI Analytics
strategically aligned; fully deployed
Predictive Phase 4 1,209%
Avg ROI Analytics extended to partner and social media
Analytics in
Action: Breakthroughs and Barriers on the Journey to ROI is an excellent report based on
survey data from 600 director-level executives and managers of organizations
with more than 1,000 employees in the US and UK. Very readable – good information.
The report summarized
three most common reasons why Analytics project fail:
- Measuring the Wrong Metrics: Companies are measuring the wrong things or have gaps in the way they are measuring (e.g. around the customer experience).
- Flawed Insights: Users are not identifying and validating cross-functionally the correct insights and associated actions suggested.
- Faulty Execution: Companies fail to embed analytical insights in key decision processes across the enterprise so that analytics capabilities are linked to business outcomes.
The very good white paper, How
to calculate ROI when investing in a Business Intelligence / Data Analytics
Project by John Bostick, includes
several excellent points about maximizing Analytics ROI. First, it identifies five of the most common
reasons for Analytics project failure:
1.
Wrong Sponsorship
2.
Treating the initiative as
a discrete project
3.
Lack of education
4.
Change in Business or IT
Leadership
5.
Believing you are finished
There are good descriptions of each reason that you can read in
the report.
The other point in the report that I like addresses the
requirement for strategic initiatives to be defined with summary tasks and an
estimate of the calculated expense reduction and/or productivity/revenue gain
expected to be achieved. Here is the example:
Improve potency of commercial customer leads. Tradition field
marketing including canvassing, direct mail, telemarketing, and community
relations has seen a recent decrease in productivity for gaining new clients
for the bank. New methods are needed.
a.
Current “hit” rate is
approximately 2 out of 53 “cold” calls.
b.
Create profile of
prospective clients most likely to buy commercial services and use profile to
create more “receptive” cold call leads.
c.
Improving the appointment
rate from 2 to 2.3 (15% increase) would generate 125 new clients
company-wide which will result in
$324,000 in annual additional revenue.
In
addition to motivation to make more contacts, what employee knowledge and
skills development might be needed? A
focus on improving business activities generates desired business results.
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BI Analytics ROI Template
The BI Analytics Team has developed and refined an Analytics ROI
model over the years. Calculating
Analytics ROI aggregates the short-term resource time and expense reduction for
developing and deploying reports, and the longer-term revenue gains and expense
reductions from performance analytics being used to streamline business processes
and identify opportunities for growth. The
BI Analytics ROI template can be downloaded with this link.
When
all SBUs and LoBs are included, and when the actual revenue gains and expense
reductions are recorded, the Analytics ROI will be much greater…as the
independent surveys confirmed. Powerful!
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My client now understands the potential of Analytics to directly
and measurably strengthen performance. I
agreed to conduct a Performance Analytics Assessment for their bank, which
provides not only an Analytics ROI Calculation, but also a Performance
Analytics Roadmap to achieve their objectives.
2015 is going to be a very good year for my client.
Life is good!
