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The value cascade
Making ROI dynamic—and keeping it that way.
by Keith Ferrell
ROI measurement requires ongoing commitment, and that commitment is bound to evolve as the beneficial effects of a successful IT initiatives cascade throughout an organization. As ROI grows, it is important to establish an active measuring process that focuses on continuous improvement.
But how do you capture a picture of organizational ROI that looks beyond the visible horizon? You have to view it from the right vantage point. That's what Teradata's Data Warehouse Value Lifecycle Management offers. It can be defined as the process for continuous value measurement, from the time technology is implemented throughout its life cycle.
Most companies require a business case for adopting a technology investment, but very few actually monitor the variances, both positive and negative, that are present in any technology implementation.
Teradata's Data Warehouse Value Lifecycle Management assists clients in establishing proper processes and measurement mechanisms to systematically track and monitor key implementation indicators. This is done to help quickly resolve potential problems (such as negative variance, in which campaign conversion rates come in lower than expected due to data quality issues), and to take advantage of unexpected opportunities (for example, positive variance, when a project delivers so much value that it should be deployed more quickly).
Learn to navigate
IT faces a unique set of challenges when it comes to tracking ROI, and it can be difficult to maintain momentum, especially if there is no clear-cut way to consistently and continuously measure results.
"The majority of organizations believe that measuring ROI is an important component of IT management," says Mark Shainman, Teradata senior program director, "but they don't know how to get there. They lack the methodology and measurements to put an effective system in place."
The challenge in times of tight money and relentless demand for business justification of IT expenditures is to differentiate clearly between the total cost of IT systems and the business value achievable in different IT environments.
At first glance—which all too often is the only glance some companies give IT initiatives—many existing distributed data mart environments can appear less expensive than conversion to an enterprise data warehouse and incremental consolidation of data in the new environment. "This is an illusion," says Cheik Daddah, Teradata's director of business value consulting. "Because data marts replicate information, they also replicate problems and create new problems."
Those problems and patterns can be very costly. "(As much as) 70% of a distributed environment's costs are tied to replication-to duplication of effort, data quality and reconciliation issues," explains Daddah.
Paying for the same effort twice—much less a dozen times or more—is not only costly, it's also unjustifiably wasteful, even in good economic times. Less quantifiable but even more costly are the business consequences of a distributed data mart environment. Slow decisions made with unreliable information are flawed decisions—and replication in turn causes those flawed decisions and their consequences to cascade throughout the organization.
Map the waters
The business value consultants in Teradata's Global Consulting Services group have conducted more than 100 corporate engagements on IT ROI measurement and, in most cases, have seen ROI estimates either met or vastly exceeded by clients. This experience has enabled Teradata to develop a unique methodology for continuously and consistently capturing, monitoring, analyzing and leveraging ROI gained from business solutions.
Teradata's industry-leading Data Warehouse Value Lifecycle Management initiative enables organizations to forecast business value, build a business case, and assist and monitor the realization of the projected value.
Daddah points out that such an analysis looks at both the ordered and fluid elements of a customer's operation to take a more customized approach to ROI measurement.
"Templates are, by definition, restrictive," he says. "They fail to address all of the factors that affect business outcomes." As a result, businesses can't see the larger flow of resources that represents the true return on their IT investments.
Teradata's Data Warehouse Value Lifecycle Management engagements go beyond templates. "We talk with both IT and business users," Daddah says. "We investigate technology costs, regulatory and compliance requirements, market opportunities, data quality—many factors which may not have been previously applied to technology in a business context."
Mapping those questions into a detailed business context is fundamental to the process, which usually involves the development of a customer-centered Business Impact Model (BIM). BIMs are mathematical models that are specific (in terms of detail and customer-centered data)
and offer sophisticated analyses of the technology portfolio, ongoing initiatives, potential projects and key factors that affect those projects, such as value, growth, risk and timing.
BIMs look—and look hard—at all
of these variables as well as the costs that affect a project's success. The process works outward from business-specific templates to create a customized model of the client's own business, not a restatement of standard industry measurement tools.
Look beneath the surface
Much like the value-based approach
to determining ROI, the BIM methodology is designed to be deployed against specific customer parameters, rather
than a one-size-fits-all tool seeking to
fit each company into an external mold.
Because Teradata's business value
consultants bring high-level financial skills, rigor and experience to the
engagement, one of the key early
benefitsis the identification of hidden costs and revenue opportunities, both in the existing infrastructure and in the planned initiative. That means all costs and opportunities. It can be an eye-opening exercise, one that reveals the hidden pitfalls in a too-simple or too-quick assessment of the benefits or risks
associated with a project.
"Look beyond the immediate
business unit," Daddah says. "A critical step toward enabling a global enterprise view is for companies not
to make decisions based on one divisional unit. Unless you're pursuing a
high degree of re-leveragability, you risk
implementing a solution against
application requirements rather than business requirements."
He notes that this requires vision, "Don't let the trees mask the
forest. You're building a foundation
from which you'll continue to build
outward, so you want to be able to adapt and extend the lessons you've learned." Daddah adds, "That requires honest reporting and forecasting. From the outset, you have to represent not only the cost of supporting and maintaining the environment but also the cost of growing it. You need to examine the costs of expansion, of adding new users, and to bring that level of cash flow perspective to running the data warehouse."
Keep it clean
Teradata's Data Warehouse Value Lifecycle Management goes beyond mere data mart consolidation and total cost of ownership exercises. It encourages data quality, manageable projects, business and IT alignment and a host of other elements that bring value to the entire enterprise.
For example, data quality is among the greatest challenges IT departments face—just as enhancing data quality is without question one of the largest value benefits
IT can bring to the organization. The
cost of replicating bad data is all but
incalculable.
"It's important to have a dialogue on data quality as early as possible," Daddah notes. "By solving quality issues you enable higher returns in multiple areas." Those areas extend throughout the organization, potentially affecting every internal operation and transaction the company undertakes.
The shift to an enterprise data warehouse (EDW) environment is an important step toward addressing and repairing data-quality issues. By centralizing the data, you can more easily focus efforts to eliminate flaws and change the way data is captured.
One drop at a time
Teradata's Data Warehouse Value Lifecycle Management begins by building a business case. Delineating a list of manageable, achievable projects in terms of ROI will help determine which projects should be undertaken first, which should be deferred and which should be canceled.
"We urge customers to undertake manageable, achievable projects with measurable ROI and expand their efforts from there," Daddah says. "In the current environment, driving toward a specific project payback is valid."
"You have to have a baseline against which to compare," notes Shainman. "And once you know where you're starting, you have to make sure that you design specific metrics to measure at specified times in the process, being careful to ensure that both the business goal and the metrics used to track progress toward that goal are manageable."
Metrics can't be appropriately targeted if they are deployed against too broad and general a business case. "For example, instead of setting out to increase sales by $2 million dollars, put into place a program designed to increase the number of products purchased from different divisions per customer," recommends Dan Merriman, president of Chapin Consulting Group, which encourages a lifecycle management ROI strategy built on three bases: metrics, accountability and commitment to follow-up.
Such a level of granularity has several advantages, among them a concrete demonstration to business of IT-enabled business results. "You get a number that goes into a financial model in a measurable way," Merriman says, "and it's a number that's trackable as customers grow."
A view from the top
While an ROI initiative will usually
require top-down executive sponsorship, Merriman emphasizes the importance of making senior managers accountable for expected results. "Each metric and its related targets must have a single person accountable," Merriman says. "Clear accountability produces both the incentive and authority to take action when the inevitable problems arise."
The appropriate accountable individual needs to sign off on the business justification. For revenue and business initiatives,
a business executive should take accountability. For IT cost-effectiveness and cost- reduction initiatives, a senior IT manager should be responsible.
As the process grows, it helps to have someone like a Teradata business value consultant who can help keep the company focused on basics. "Measure against the business case," Shainman says, "and you're able to ask if you're really getting a return from the investment. You can make an informed decision whether to continue the project, modify it or, if you're way off your projections, abandon it and move on to something else."
At the same time, Daddah, Shainman and Merriman emphasize that data warehouse lifecycle management is about more than just the data warehouse. It is about the lifecycle management of a business as well.
"Measurement is too often thought of as an end point," says Merriman. "The goal is to establish a thorough and disciplined effort to establish value—and continuously improve it over time."
Harness the power
Achieving sustainable ROI requires ongoing rigor. The process never stops, nor should it. Yet if one were to single
out the greatest missed opportunity in ROI-focused projects, it might well be sustainability. By some estimates, fewer than half of Fortune 1,000 companies followed through on IT projects by validating business value after completion.
Continuous value management—including post-implementation follow-up—is critical. Teradata's Data Warehouse Value Lifecycle Management strategy covers every step in the process, allowing each project to be subsequently adjusted and modified to further increase its value-generating properties, as well as extracting lessons that can be applied to new projects and the organization at large.
That is the essence of ROI. For all the granularity and specificity of detail in a properly deployed ROI-justified project, the higher value side of the engagement is aimed at the larger enterprise. Incremental implementations are also elements in what is ultimately an enterprise-wide endeavor.
"Think holistically and act tactically," says Daddah.T
Keith Ferrell, former editor of OMNI magazine, has written, spoken and consulted on governance and Web-enabled corporations.
© Teradata Magazine-Special Report November 2005
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