Many companies are attempting to calculate the business value or return on investment from creating analytics and driving them through initiatives. While some are thinking of analytics as something discrete in the organization, I’m not so sure that’s the best way to think about analytics.
I see it as culture. Analytics needs to be considered and maximized for each initiative as part of company direction. Analytics is not a single application that would have a cash flow analysis technique (i.e., cumulative ROI, discounted ROI, average ROI, internal rate of return, net present value) for it.
From a data-use perspective, the definition of analytics is in how they are formed. They are formed from more complex uses of information than reporting. Analytics are formed from summaries of information.
Addressing the propensity of a customer to make a purchase, for example, requires an in-depth look at her spending profile -- perhaps by time slice, geography, and other dimensions. It requires a look at those with similar demographics and how they responded. It requires a look at ad effectiveness. And it may require a recursive look at all of these and more. Analytics should also be tied to business action. A business should have actions to take as a result of analytics -- for example, with customer-touch or customer-retention programs.
Return on investment is about cash flow. In order to do return on investment calculations, you must take the investment and the returns down to cash flow. The return part is difficult and requires rigorous boundaries around the events being measured. However, once you have the cash flow (in and out) over time, as well as your cost of money, it is a relatively straightforward step to place them into formulas for the major ways of measuring return on investment.
Analytics must be measured as the cumulative net increase in project ROI as a result of using analytics.
Don’t stop innovating even if you’re doing ROI. Sometimes ROI can be long-term in nature or you’ll be able to pass some interim ROI hurdles on the way to something with innovative, long-term game-changing potential. An organization asking for ROI is being prudent, not short-sighted. So, don’t gear up for the big ROI calculation and forget about the follow through of making the ROI better or the application more strategic.
Enterprise analytics is like “Intel Inside”. They’re inside everything. Some will be developed local to an application since they’re so specific. Others need the enterprise gravity that centralization provides. Regardless, everything is better with analytics.
Bio: William McKnight has advised many of the world's best-known organizations. His strategies form the information management plan for leading companies in various industries. He is a prolific author and a popular keynote speaker and trainer. He has performed dozens of benchmarks on leading database, data lake, streaming and data integration products. William is a leading global influencer in data warehousing and master data management and he leads McKnight Consulting Group, which has twice placed on the Inc. 5000 list. He can be reached at [email protected].