What is the ROI of Business Intelligence?

BI & Data Science Analyst at 10 Senses

Over the last few years, along with the enhanced promotion of data culture, the significance of Business Intelligence (BI) has significantly risen and the question what is the ROI of Business Intelligence tools has come to the forefront.

As companies continue to invest in BI technology to gain insights into their operations, customers, and markets, it’s becoming increasingly important to measure the return on investment (ROI) of these solutions.

Determining the ROI of BI tools can assist businesses in determining whether their investment is paying off and making educated decisions about future investments.

Nevertheless, calculating ROI on Business Intelligence software can be challenging. It requires a thorough understanding of the costs and benefits, but not all of them may be obvious at first.

In this article, we will:

  • explain the importance of calculating the ROI of BI,
  • provide a step-by-step guide to calculating the ROI of BI solutions, including some of the key metrics and considerations,
  • highlight some of the best practices for measuring the ROI of BI and discuss how to use this information to make educated decisions.

Let’s dive in then and check what is the ROI of Business Intelligence.

Why, after all, calculate the ROI of Business Intelligence solutions?

The importance of calculating the ROI of IT projects

Generally, measuring the return on investments in technology is important for effective IT management. Unfortunately, not all deployments are easily quantifiable.

Businesses all over the world are faced with an accelerating rate of technological change. As a result, they need to make new investments constantly to upgrade their information technology (IT) assets.

We live in a data-driven culture where data is a company’s most valuable asset. In view of this fact, the stakes for technology investments in reporting and data management tools have never been higher.

Truth be told, cost-effective investments in IT assets can provide companies with a crucial competitive advantage. If businesses were to invest a lot of money in failed projects resulting in huge cost overruns, performance problems, and failure to live up to expectations, they would seriously wound an IT organization’s credibility and effectiveness in the long run.

The basic formula for ROI is simple: sum up every dollar spent on specific IT projects and compare with how much a company saves, how much revenue it generates or other advantages it produces over a specific period. Nevertheless, determining unanimously the direct and indirect costs of technology projects can be challenging to measure.

The importance of calculating the ROI of BI projects

Although the complexity of conducting ROI has discouraged many businesses, defining specific, and hopefully positive, ROI of a BI tool comes with important business advantages, such as:

  • enablement to invest more in BI and better support an improved decision-making process and corporate performance,
  • better justification for purchasing additional hardware and BI software,
  • more accurate forecasts about technology needs.

In fact, according to the report of the Business Intelligence Market Study by Dresner Advisory Services, the return on investment is the third most important measure of success when it comes to Business Intelligence tools.

What is the ROI of Business Intelligence - Measures of Success with Business Intelligence

Source: Wisdom of Crowds Research (zoho.com)

Although most business users recognize the value of modern BI platforms, you need a solid, justifiable metric to support their continued existence and future investments. Clichés about the intangible benefits of Business Intelligence software, like:

  • “gaining actionable insights”,
  • “better organizational efficiency”,
  • “greater visibility of processes and procedures”

are all true and needed, but they may not be sufficient to convince the management board, shareholders, or other employees in your company that BI software translates into value for money for the company.

How to calculate ROI of Business Intelligence solutions?

To determine return on investment on Business Intelligence solutions, we will use a step-by-step guide on how to do this most effectively and won’t end up on a goose chase:

Step 1: Identify the costs.

Implementing BI solution involves three types of costs:

  • direct, such as:
    • BI software licenses and support,
    • hardware,
    • supporting infrastructure (i.e., new servers required for deployment),
    • labor for initial implementation,
    • consulting services,
    • testing,
    • labor for maintenance,
    • data and security policies and processes.
  • indirect, such as:
    • upgrading existing business software and servers,
    • change management.
  • training end users and staff.

All the above should be taken into consideration when determining the costs of an implemented BI solution.

Nonetheless, costs are only one part of the BI ROI equation…

Step 2: Define the benefits.

Benefits definition is equally important as cost calculation. Nevertheless, it is worth mentioning that different stakeholders can derive different advantages from the same BI software. As a result, you may observe a serious overlap between senior executives, business staff, and BI or IT staff.

As for executives and business staff, the accessibility of data for the decision-making process will be a key benefit that needs to be measured. Nonetheless, for BI staff or IT staff, the top benefit will be shorter time to create a report.

What is the ROI of Business Intelligence - Top Benefits of BI Implementations

Source:  The Business Benefits of Measuring Return on Investment for Business Intelligence Implementations

What is more, for executives, the reduced time spent on analysis will be a more important benefit than for business staff that will care more about the increased number of reports employees can generate or for BI staff that will like the reduced time needed to respond to user requests.

Tangible and intangible benefits of BI

Therefore, the benefits included in the ROI calculation will be either direct benefits or cost savings. These should include:

  • reducing or avoiding labor costs:
    • reduced labor cost due to creating centralized report distribution,
    • time savings on report creation,
    • shorter time to respond to user requests,
  • adoption success:
    • better transparency and accessibility of data (i.e., thanks to cloud-based BI technology),
    • better data management strategy,
    • more freedom and autonomy for employees to develop business reports,
    • minimizing the risk of human error by reducing the amount of manual work,
    • discovering new opportunities in the organization,
    • increasing employee engagement and satisfaction,
  • introducing new analytics capabilities:
    • benefits and potential cost savings obtained by BI tools implementation,
    • more effective decision-making process,
    • better functionalities of software,
    • improved internal communication,
    • more effective marketing campaigns,
  • delivering reliable reports:
    • increasing customer satisfaction,
    • avoiding delayed or incorrect reports,
    • quick error detection and risk mitigation,
    • faster and more educated decisions,
    • meeting legal requirements,
  • enabling processes:
    • more efficient and transparent business processes,
    • supporting new and evolving processes through automatic report distribution,
    • improved data security.

The above approach takes into consideration all types of benefits that can be obtained by BI software. Nonetheless, if you need a more condensed approach, the key benefits are:

  • increased sales,
  • better competitive advantage,
  • better decision-making process,
  • more automation,
  • staff cost savings,
  • better internal communication,
  • better inefficiency detection,
  • enabling new processes,
  • quality improvement information.

The qualities that you will assign to your BI solution investment should come together with the goal of implementing it in the first place. If the Power BI service was implemented in the company, think about the primary reason behind investment in a BI solution, which of the above benefits were fulfilled, and how you can measure them.

Step 3: Assign values to the benefits.

Once you define the benefits you need to include in a Business Intelligence tool ROI calculation, you need to assign monetary values to each of them. It may require some sort of estimation or assumptions based on historical data or industry benchmarks, but it is doable. Even for intangible benefits. For example:

  • cost savings can be easily quantified in monetary terms (i.e., cost savings resulting from reduced staff hours),
  • revenue growth due to BI tool implementation (i.e., additional revenue that is a result of increased customer satisfaction or more timely reports for customers),
  • time savings (i.e., reduced time to generate reports can be assigned a value based on the hourly rate of the employees involved),
  • better decision-making process (i.e., value of more educated decisions, discovering cost-saving opportunities, or avoiding costly mistakes),
  • improved marketing analytics and marketing efforts (i.e., the value of new customers or a new market due to customer segments analysis and better targeting).

Step 4: Determine the timeframe.

The next step in determining the return on investment for Business Intelligence tools is determining the timeframe for the calculation.

It can be a year, two years, or even longer. It depends on the nature of the BI solution taken into consideration and the business’ goals that were aimed to be achieved. 

Step 5: Calculate the net benefit.

Once you have defined costs and benefits, translated the latter into monetary terms, and determined the timeframe, you are all set to get the net benefits resulting from implementing a BI solution.

To do so, you need to subtract the total costs of the BI investment identified in step 1 from the total benefits in monetary terms from step 3. As a result, you will get the net benefits of the BI over the timeframe you have defined in step 4.

Net benefits = Total benefits – Total costs

Step 6: Calculate the ROI of the BI solution.

Finally, you need to divide the net benefits by the total costs and multiply the result by 100 to get the ROI percentage.

ROI = Net benefits / Total Costs * 100

For example, if your benefits are $60,000 and the total costs are $20,000, the ROI would be (60,000-20,000)/20,000 * 100 = 200%

Nevertheless, it is important to keep in mind that calculating the ROI of a Business Intelligence solution is an ongoing process. As a result, the benefits and costs are likely to change over time. Consequently, it is important to regularly review and update the ROI calculation to ensure that the BI solution is still delivering value to the business.

What are the best practices to check what is the ROI of Business Intelligence solutions?

Now that you know how to get ROI of Business Intelligence solutions, let’s finish off with the best practices you should follow:

  • Clearly define the scope and goals of the BI software. It will help ensure that all costs and benefits are appropriately captured in the calculation.
  • Involve stakeholders from across the organization, including IT, finance, and business users. It will ensure that you have identified and quantified all costs and benefits.
  • Use a standardized approach to ensure consistency, transparency, and comparability across different BI tools.
  • Identify both quantitative and qualitative benefits. While some benefits, such as cost savings or revenue growth, can be quantified, other benefits, such as improved decision-making or supply chain analytics, may be qualitative. Be sure to capture both types of benefits in the ROI calculation of a BI solution.
  • Use realistic assumptions based on historical data or industry benchmarks. Avoid making overly optimistic or unrealistic assumptions, as this can lead to an inaccurate ROI calculation.
  • Monitor and review the ROI on BI calculation regularly, as it may change over time as the costs and benefits evolve. Therefore, it’s important to regularly monitor and review the ROI calculation to ensure that it remains accurate and up-to-date.

By following these best practices, companies can effectively calculate the ROI of their BI solutions and make informed decisions about future BI software investments.

Business Intelligence (BI) ROI should not be ignored

Summing up, conducting meaningful ROI calculations of BI is not a trivial task. Especially if you are faced with the day-to-day pressures of operational pain points, ignoring the ROI process can presumably speed up the process of delivering a potentially beneficial solution.

Nonetheless, businesses that conduct a thorough BI ROI study can achieve significant business benefits. Those that can gear their investments toward those technologies that will have the biggest positive impact on their operations and, as a result, on corporate performance.

Truth be told, a certain level of analysis is always better than none, especially if it assists in directing valuable investment resources and avoiding suboptimized expenditures. In our data-driven culture, more data that can be used by companies to improve their actions is a true game-changer.

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