January 5, 2015

Analytics ROI

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.
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:
  1. 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).
  2. Flawed Insights: Users are not identifying and validating cross-functionally the correct insights and associated actions suggested.
  3. 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.
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!
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!