Benchmarking BI: How to Identify Critical Success Factors and Calculate ROI of Your BI Initiatives

1. Benchmarking BI: How to Identify Critical Success Factors and Calculate ROI of Your BI Initiatives Dr. Bjarne Berg COMERIT

2. In This Session … • Attend this session to gain insight into key benchmarks for BI project staffing levels, support requirements, BI project durations (upgrades or new implementations) • A tool to calculate ROI, NPV, IRR, and Payback for SAP BI • Estimate return on BI investments using three different metrics – replacement cost analysis, new capabilities analysis, and decision option analysis • Benchmark your BI performance against best-of-breed and industry averages for project timelines and execution, costs and staffing levels, and ongoing support

3. What We’ll Cover … • Introductions • Return on Investments (ROI) of a BI project • A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI • Key benchmarks — BI project staffing levels and support requirements • BI project durations (upgrades or new implementations) • Wrap-up

4. BI Spending is Increasing and Gaining Momentum • 39% of CIOs in a SnapLogic survey said that BI was the #1 priority • BI initiatives are also the #1 priority, ahead of cloud computing, in Gartner's survey of 2,335 IT managers and CIOs KEY FACTS • 50% of the 2,600 respondents in TechTarget’s annual survey said that they would increase their BI spending by at least 10% TechTarget.com, 2012 Bimeanalytics.com, “CIO Insights”, 2012 http://www.gartner.com/newsroom/id/1897514 Corporations are looking for a competitive edge with BI. For example, IDC estimated that BI spending increased by 6.9% to $1.8 trillion in 2012

5. Why Are Companies Investing in BI? • FACT: If you want to become a large organization, you need BI as a cornerstone in how you manage • Examples • 43% of retail companies with revenues under $250 million use Excel as the core BI tool • 13% of mid-sized retailers use Excel as their core BI tool • 5% of retail companies with revenues over $1 billion use Excel as the core BI tool Source: RSR 2011. Sponsored by SAP Key Question: How is SAP BI enabling large organizations to grow and manage better than smaller companies?

6. The Relationship Between Sales and Use of BI • FACT: Pushing BI and analytics to operational line managers and store managers increases sales • Examples • Retail organizations who outperformed their peers in sales growth had 53% usage of BI at line manager levels • Retail organizations who outperformed their peers in sales growth had 52% usage of BI for store managers Source: RSR 2011. Sponsored by SAP Saturating BI at all levels of the organization creates focus and pushes decision making downwards; it makes the company more agile!

7. But, Is Business Intelligence Really Worth the Cost? • In the annual BI survey by the Business Application Research Center (BARC), it was found that most BI investments are relying on soft justifications • Faster BI • More accurate reporting • Improvements in business decision making • Improvements in customer satisfaction rates • Few were able to justify BI initiatives with hard Return on Investment (ROI) calculations, i.e., tangible cost reductions BARC, Bi-survey.com, 2012 After 20 years of BI and Data Warehousing, CFOs and CEOs are now demanding proof of benefits before investing more in these technologies

8. But, Is Business Intelligence Really Worth the Cost? (cont.) • BI capabilities have to have hard tangible benefits in order to sustain the current level of enthusiasm and funding • The trick to do this is to not align benefits to reporting, dashboarding, and tools. Instead, focus on operational improvements and make the benefits measureable CEOs and CFOs are increasingly asking for real evidence that BI and Analytics helps reduce costs, increases profits, and actually contributes to the enterprise and is not merely a non-value cost area.

9. BI — ROI Calculators • There are many BI ROI calculators and tools available on the Internet • Some are vendor and tool specific, while others are focused on BI and Analytics in general • Some calculators are very complex and comprehensive, while others are simplistic and easier to use Depending on the size of your initiative, a more comprehensive calculator may be more appropriate.

10. What We’ll Cover … • Introductions • Return on Investments (ROI) of a BI project • A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI • Key benchmarks — BI project staffing levels and support requirements • BI project durations (upgrades or new implementations) • Wrap-up

11. The Current BI Time-to-Market is Too Slow… A key complaint is that BI development is simply too slow Currently BI time-to-market is measured in months instead of the time scale businesses operate (days/week) Source: SAP AG For costs to go down, and ROI to increase, we have to get better at delivering BI solutions faster BI Self Service is a key component to reduce time-to-market Source: B. Oosterhof, Informatica SAP BI Self-Service for power users and authors is key to fast delivery and higher BI ROI

12. Time to Market — We Are Simply Too Slow … • It has been estimated that 66% of development costs can be reduced by using an Agile or a Rapid Application Development approach for BI • Furthermore, up to 500% of the time-to-market can be reduced through rapid prototyping instead of writing functional specs Source: B. Oosterhof, “Agile and Operational BI,” Informatica, 2011 For data warehousing, ASAP and JAD may be appropriate methodologies, but for business intelligence Agile, Scrum, RAD, and interactive prototyping are almost always the most cost effective answers I.e. Scrum, Agile Source: Dr. Berg, Data Management Review Magazine

13. BI Time to Market — Realizing Benefits Earlier • Benefits (i.e., sales) should be measured both in terms of the time when benefits emerge and the magnitude of benefits • Don’t just write the estimated benefits, track the benefits of previous BI initiatives • Most business sponsors believe IT projects are full of rework and missing features • You have to change their mentality from building systems to doing BI: New features are always added Source: Michael Krigsman, "75% believe IT projects are 'doomed'. 2011 The Business Case for BI should require some tangible way to quantify what these are and when you should be seeing them in a way that can be measured

14. ROI on BI Projects — Replacement Cost Analysis • The easiest form for ROI Analysis is to take the cost of a BI investment and simply compare it with the costs of the existing one After this project analysis, we can now estimate the ROI based on a 3-year payback period

15. ROI on BI Operations — Replacement Cost Analysis • In this case, we are replacing the current RDBMS with HANA, so the past costs and future benefits are easier to quantify To account for the cost of capital, we discount all future savings by 10% compounded annually. This is known as the Net Present Value (NPV). We divide the NPV with the investment to get the simple ROI.

16. Option Theory — The Inherent ROI of BI • There is an intrinsic value of increasing the time from discovery to time-when-action-is-required • This value is created by simply having more time to evaluate more options before action is required Issue or Opportunity Discovery Action Required Option found Decision made No BI Time Time to Implement Time to Evaluate Time to analyze Issue or Opportunity Discovery Action Required Option found Option found Option found Decision made With BI Time Time to analyze Time to Implement Time to Evaluate Option Theory: With BI, we discover opportunities earlier, get more time to make decisions, can evaluate more options, and have more time to implement them

17. What We’ll Cover … • Introductions • Return on Investments (ROI) of a BI project • A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI • Key benchmarks — BI project staffing levels and support requirements • BI project durations (upgrades or new implementations) • Wrap-up

18. A Step-by Step Example of ROI Calculator • In this example, we are using the BI ROI calculator from Hall Consulting and Research • It is one of the most comprehensive BI calculators available and relies on a 6-step approach: • Profile • BI Initiative Selection • BI Maturity Assessment • Initiative costs • Initiative Benefits • Analysis and Report Source: Hall Consulting and research In this demo example we will look at the major activities of this tool, but there is also an enterprise edition with even more capabilities

19. A Step 1a – The Profile – Organization • In this ROI tool we first enter the organizational profile. This include: • Industry • Location • PC users • BI users • Financial Information and cost structure

20. A Step 1b – The Profile – Financial Information • From HR we enter the key labor cost numbers including: • Salaries • Overhead • Standard hours per year These Labor Costs are used throughout the tool for estimates of ROI, Net Present values (NPV), Internal Rate of Return (IRR) and benefits graphs

21. A Step 1c – The Profile – Preliminary capabilities assessment Using simple scores or investments and importance, we quickly build a capability as-is and to-be BI Capability Profile that we guide us in the BI ROI benefits case Having a basic understanding of the current environment will help us focus our BI initiatives later.

22. A Step 1d – The Profile – Preliminary BI maturity assessment • Using basic scores and answering a few questions, the maturity profile is generated Building, or enhancing, systems in a mature BI organization is substantially less costly than in emerging organizations.

23. A Step 1e – The Profile – Results • The profile generates a preliminary cost per user, a cost for the organization and the overall benefits. • This will automatically be updated by the next steps where we refine hardware, software and implementation costs • Throughout the tool, the system updates key numbers from other Excel tabs and change graphs accordingly KPIs per users are key to benchmarking

24. A Step 2a – BI Initiative and Application Selection • The next major step is to determine the BI applications in scope for our initiative. • Business cases and BI strategies should not be focused on a single project, but instead look at major initiatives over 24-48 months. Strategy is long-term (1-5 years); Tactics is short-term (1-12 months)

25. A Step 2b – BI Source System Selection • It is estimated that as much as 40-70% of a BI and DW initiative is spent on Extracting, Transforming & Loading data (ETL). • In this screen we are adding data sources from a high-level and making an assessment of the type, volume, complexity and integration to the DW. This helps drive a more accurate cost picture of what is required to integrate into the BI solution using key benchmarks

26. A Step 2c – Enhancements to Data Warehouse • In this section we are looking at changes required to the data warehouse to accommodate our BI initiatives. • It also include process improvement, metadata management and enhancements required to data marts and data structures. The tool also has help and explanations included in each tab to guide a users to the tasks required in these input sheets.

27. A Step 2d – Enhancements to BI and Analytics • In the last initiatives input tab, we enter the changes required to BI and Analytics. This include: • Reporting • Scorecard/Dashbaords • Analytical Tools • Workflow and collaboration We are now ready to view the output from the exercise so-far

28. A Step 2e – BI Initiatives Profile • The system then generates a BI capability profile of what the current state of the BI environment is and what capabilities the initiative will focus on. These profiles can help communicate with the sponsor the focus of your initiative

29. A Step 3 – BI Maturity Assessment By filling out a survey based on objective questions, a BI maturity profile is automatically generated.

30. A Step 4 – BI Initiative Labor Costs • Default values workload by week are selected based on scope, scale and complexity of initiatives. However, these can be changed by planners. • Detailed Graphs are also created based on labor estimates.

31. A Step 4 –Software and Hardware Costs for BI • By filling out a detailed guided spreadsheet with cost numbers for storage, application servers, database, software, utilities, support, desktop software, training and more, these graphs are generated for user costs.

32. A Step 5a – BI Initiative Benefits Input - Revenue • A key to justifying BI spending is to identify tangible and credible revenues generated by the investments. • Work with your finance and sales groups to get numbers you can justify to your management team.

33. A Step 5a – BI Initiative Cost Savings and Productivity • In addition to revenues,benefits can also be expressed as: • Cost avoidance (easy to quantify) • Cost savings (harder to quantify) • Increased productivity (hard to quantify) also known as new capabilities ROI

34. A Step 6 – Final Step – ROI Analysis and Report • The last step is to review the final report. Key measures required in a business case include: • ROI • NPV • Bayback period • IRR • Costs • Benefits • Total Cost of Ownership (TCO)

35. Calculating ROI with a Spreadsheet Tool

36. What We’ll Cover … • Introductions • Return on Investments (ROI) of a BI project • A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI • Key benchmarks — BI project staffing levels and support requirements • BI project durations (upgrades or new implementations) • Wrap-up

37. Benchmark Your Organization Against Eight Companies • In this example we are looking at key benchmarks from eight companies that are using Business Intelligence and Analytics instead of a traditional list reporting and Excel • The organizations range from 1,200 employees to over 80,000

38. Savings for Knowledge Worker by using BI While the hours saved per knowledge worker ranged from 1.0 to 3.0 hours in our sample, best of class knowledge workers spend 1.3 fewer hours per week looking for pertinent information compared to knowledge workers in all other organizations Source: The Aberdeen Group, Aug. 2012

39. KPI — BI Cost Per Knowledge Worker • This included helpdesk, training, desktop licensing, software maintenance, change requests, print costs, and estimated additional developer support • It did not include hardware, new development, data center operations, backup, recovery, network costs, and upgrades to software components by IT staff • A key measure of costs of ownership is the cost per knowledge worker. In our sample, that ranged from $4,271 to $908 per employee. From a Total Cost of Ownership, you should also include the cost of executive and casual users (tends to be lower per user but you will have more casual users). You can find the number of users in your SAP EarlyWatch report.

40. ROI for BI Investment by Knowledge Worker Labor Savings • This ROI is for Knowledge workers alone and does not include additional benefits from better access to cleaned data, ability to do collaborative decision making, or more timely decisions and better agility of the organization • Using the expected ratios of the knowledge workers relative to other workers, as well as their average salaries, labor savings per week, and the overall cost per knowledge worker, we found an overall ROI Plan for a comprehensive business case for SAP BI, but labor hours are the easiest to quantify

41. KPI Benchmarks of ROI by BI Platform Type • ROI of BI depends largely on the number of BI systems and data warehouses you maintain • “Best-of-breed” BI and data warehouses use whatever tool is best in its class. This includes ETL, reporting, management, database, scheduling, admin, etc. • Integrated BI and DW systems use a single platform • Integrated BI has significantly less costs and higher long-term ROI (on average) Source: SAP AG, Enterprise Business Intelligence ROI white paper Using a single BI and DW platform instead of Federated Data Warehouses can significantly increase the ROI of BI

42. The Various Costs of BI by Platform Type • Direct Costs • Acquisition costs • Infrastructure costs • Implementation and Deployment costs • Support and Lifetime costs • Uptime, Reliability, and Performance costs • Indirect Costs • Shadow IT costs • Compatibility costs • Lost Opportunity costs Source: SAP AG Improve ROI: The trend for most organizations is to simplify the BI landscape, reduce the number of tools, and go to a single DW and BI platform

43. A Health Check: Is Anyone Using your System? Real Examples Named Users: 14,503 Real Users: 7,509 (52%) Active Users: 1,309 (9%) Named Users: 1,672 Real Users: 783 (47%) Active Users: 191 (11%) Named Users: 2,330 Real Users: 762 (33%) Active Users: 129 ( 6%) Named Users: 67,534 Real Users: 50,912 (75%) Active Users: 6,279 (9%) Named Users: 549 Real Users: 127 (23%) Active Users: 24 ( 4%) Source: SAP AG User trend reports are found in the SAP EarlyWatch report – It is a Health Check to see if your initiative is failing or succeeding

44. What We’ll Cover … • Introductions • Return on Investments (ROI) of a BI project • A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI • Key benchmarks — BI project staffing levels and support requirements • BI project durations (upgrades or new implementations) • Wrap-up

45. BI Project Durations for ROI Planning • While there are many considerations for various BI projects including skillsets, budget constraints, available resources, scope and number users, there are some basic rule-of-thumbs you can use in your ROI calculations Each BI project requires its own milestone plan and detailed project plan. However, for high-level budgeting these durations may help your business case.

46. BI Project Durations for ROI Planning (cont.) • For reporting and analytics, the data scope and the availability of existing skilled staff and existing infrastructure will drive much of the timelines Each BI project requires its own milestone plan and detailed project plan. However, for high-level budgeting these durations may help your business case.

47. What We’ll Cover … • Introductions • Return on Investments (ROI) of a BI project • A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI • Key benchmarks — BI project staffing levels and support requirements • BI project durations (upgrades or new implementations) • Wrap-up

48. Where to Find More Information • Asim Abdel Rahman El Sheikh and MouhibAlnoukari, Business Intelligence and Agile Methodologies for Knowledge-Based Organizations: Cross-Disciplinary Applications, IGI Global; 1 edition (September 30, 2011) • Thomas H. Davenport and Jeanne G Harris, Competing on Analytics: The New Science of Winning, Harvard Business School Press; 1 edition (March 6, 2007) • http://iteconcorp.com/ROICalc.html • Computing The ROI for IT Projects and Other Investments • http://hallcr.com/BI.aspx • Another calculator for ROI calculator on BI projects

49. 7 Key Points to Take Home • ROIs on BI projects must be based on tangible and measurable benefits • ROI should be calculated at a program level and tracked over time • There are many tools available to help you do this – Don’t reinvent the wheel • Benchmark your BI initiatives in terms of project duration, cost per employee, labor savings, ROI, payback periods, and BI platform type • Be prepared to back up your business case with hard facts from the business users and avoid a technology focus • Replacement projects and cost avoidance efforts are easiest to quantify • Some projects are done out of operational necessities and ROI may not be required (audits, SOX, compliance, financial SEC reporting, etc).

50. Your Turn! How to contact me: Dr. Bjarne Berg bberg@comerit.com Please remember to complete your session evaluation