Showing ROI for Your Analytic Project

Copyright © 2023 McKnight Consulting Group, LLC All Rights Reserved Slide 1
Unlock Potential
William McKnight
President
McKnight Consulting Group
(214) 514-1444
wmcknight@mcknightcg.com
www.mcknightcg.com
linkedin.com/in/wmcknight
Showing ROI for Your Analytic Project

Presentation Objectives
At the end of this hour, you should be able to
Navigate an analytic project justification
Distinguish between tangible and intangible benefits
Present an itemized ROI
Articulate the value of an information program
Adapt a methodology in your program that includes
ROI attainment and measurement

ARCHITECTURE BUSINESS
Sample Analytic Projects Justified
Healthcare
• Claims Routing
• $25M
Financial
• Loan Origination
• $22M
Pharmaceutical:
• Offer Analysis
• $35M
Telecommunications:
• Full CDR Analysis
• $22M
Retail:
• Offer Optimization
• $35M

Acknowledging the Strategic
To gain a competitive advantage
To increase market share
To develop new products or services
To enter new markets
To increase brand recognition
To increase customer loyalty
To increase efficiency
To improve customer service
To develop new technologies

Workloads

Prioritizing Efforts
Ease to Do
Current Technology Set
Prerequisites First
ROI

Ordered Benefits: What Makes it
Difficult
Benefits can be direct or indirect
First order benefits have a direct relationship to the
bottom line
Second order benefits have an indirect relationship
The system will enable an activity that in turn provides the
benefit
Third order benefits have a transitive relationship
The system enables an activity that allows performance of
another activity which actually provides the benefit

The Current State of Project
Justification
We're good at
Tasks and activities
We're not so good at
Realistic returns (overconfidence)
Risk
Costs
Timelines

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Types of Justification:
Program vs. Project

Analytics Programs and Projects
Justifying an Analytics Project
Analytics seen as a stand alone project
Built for one application
Justifying an Analytics Program
Analytics store enterprise data
Inclusion based on governance
The goal of the program is to enable the component of
the applications it supports

What is being justified?
An information management program which will
provide analytics for several projects
A project which will use analytics
The inclusion of new projects into an existing
analytics program

Return on Investment (ROI)
(Returns - Investment)/Investment
ROI should always be supported with a time
period (i.e. 132% return in 3 years)
ROI should be presented with assumptions and
risks and be itemized
By source system, subject area, users, history data,
technology used, use of AI/ML
Add the possibilities! But don’t oversell
Used for Predicting and Measuring

Analytics Program Justifications (TCO)
Analysis of the impact of operational systems on
business processes
A single approach to achieving desired outcomes
Demonstrated proficiency in the use of relevant tools and
technologies
Consolidation of expense streams to maximize efficiency
Identification of key enterprise subject areas for further
investigation

Variations on the ROI Theme
Payback Period Analysis
Return on Investment
Net Present Value
Internal Rate of Return

Presenting the ROI Possibilities
For each suggested business project, present
multiple possible scenarios along with the odds
of that scenario happening, forming a probability
distribution
Best Case
Little Goes Wrong
Worst Case
Most everything goes
wrong
Planned Case

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Tangible vs. Intangible Metrics

Tangible versus Intangible Returns
Tangible Returns - Returns you decide to
measure
More activities have a measurable return than you
may think
Usually 1-2 returns are reasonable to measure for
each phase
Intangible Returns - Returns you decide not to
measure
These will not justify data warehouse efforts

Tangible Returns
Increase in sales
Efficiencies in processes
Reduction in inventory
Automated processing
Reduction in returns
Reduction in fraud
Procurement Savings
Operational Savings

Intangible Returns
Improved customer experience and satisfaction
Increased customer loyalty
Enhanced decision-making capabilities
Improved operational efficiency
Increased revenue and profitability
Improved marketing effectiveness
Improved risk management
Improved customer segmentation
Improved customer retention
Improved competitive advantage

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Return on Investment Examples

Need to Know
Discount Rate
Duration
2-4 Years
Time Blocks
Minimum: Quarter
Suggestion: Half-Year

ROI Sample
Total Year 1 Year 2 Year 3
Cost savings $140,000.00 $0.00 $60,000.00 $80,000.00
Financial Return $140,000.00 $0.00 $60,000.00 $80,000.00
Hardware $120,000.00 $100,000.00 $10,000.00 $10,000.00
Investment $120,000.00 $100,000.00 $10,000.00 $10,000.00
ROI -100.00% -45.45% 16.67%

Break Even, IRR and NPV
ROI -100.00% -45.45% 16.67%
Cash Flow $100,000.00 $50,000.00 $70,000.00
Cumulative Cash Flow (Break Even) $100,000.00 -$50,000.00 $20,000.00
IRR 0% -50% 12%
NPV @ 4% Discount Rate ($96,153.85) ($49,926.04) $12,303.71

Worksheet: Probability Distribution
Probability of ROI 1 40%
Cost savings $140,000.00 $0.00 $60,000.00 $80,000.00
ROI -100.00% -45.45% 16.67%
Cost savings $80,000.00 $0.00 $30,000.00 $50,000.00
ROI -100.00% -72.73% -33.33%
Cost savings $260,000.00 $10,000.00 $100,000.00 $150,000.00
ROI -90.00% 0.00% 116.67%
Weighted ROIs: -97.00% -40.00% 31.67%

To Use a Worksheet
Get the Discount Rate
Know the Revenue Generation and
Cost Reduction dollars by year for the
next n years
Know the Costs to Implement
Estimate the costs and benefits for
multiple scenarios
Estimate the probabilities of each
scenario
Plot the results

Examples
Walmart used analytics to identify customer buying patterns and optimize product placement
resulting in an increase in sales
Amazon used analytics to identify customer preferences and optimize product recommendations
Netflix used analytics to identify customer viewing habits and optimize content recommendations
resulting in an increase in viewership
Apple used analytics to identify customer preferences and optimize product design resulting in an
increase in sales
Google used analytics to identify customer search patterns and optimize search results resulting in
an increase in search traffic
Starbucks used analytics to identify customer preferences and optimize product offerings resulting
in an increase in sales
McDonald’s used analytics to identify customer preferences and optimize menu items resulting in
an increase in sales
Target used analytics to identify customer buying patterns and optimize product placement
UPS used analytics to identify customer shipping patterns and optimize delivery routes resulting in
a reduction in delivery times

Abstracted ROI
Impossibly measurable at the detail level
Must measure at large group impact level
Like Customer Lifetime Value/Spend Decile
Use indirect measure like customer satisfaction
index (CSI)
Projects target this level

TCO Examples
Data Warehouse or Data Lake
Storage Medium to Use
The Cloud to Use
Cloud Instance
Master Data Management
Upgrade or Replace
Outsourcing

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Summary

Analytic ROI Methodology Summary
Cost Analysis
Tangible Benefits Analysis
Cash Flow Analysis
Probability Distribution
ROI Calculation
Intangible Benefits Analysis
Prioritization and Planning Decisions
Continuous Learning

Presentation Summary
Target the business deliverable of the project
Use a repeatable, consistent process using governance
for project justification
Use lower TCO for Program Justification
Isolate project benefits and costs
If it’s important, you can measure it and you can improve
it, the project will almost always pay for itself
Judgment is essential

Presentation Summary
Isolate project benefits and costs
If it’s important, you can measure it and you can
improve it, the project will almost always pay for
itself
Judgment is essential

Unlock Potential
William McKnight
President
McKnight Consulting Group
(214) 514-1444
wmcknight@mcknightcg.com
www.mcknightcg.com
linkedin.com/in/wmcknight
Showing ROI for Your Analytic Project

Showing ROI for Your Analytic Project

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