Financials of Business Intelligence

Quiz

Financials of business intelligence refers to the total cost of ownership (TCO) for a Business Intelligence solution, highlighting that these costs go well beyond just the visible tools like dashboards and data visualization platforms.

As noted by Harel Sagiv, the technical reviewer estimating BI costs is particularly complex because they are often deeply integrated with overall IT expenditures and shared resources across different departments.

The total cost of ownership includes both capital and operational expenses, and it accounts for the complete BI ecosystem, including critical components like data integration tools, data warehousing, and security measures.

The purpose is to provide a full understanding of the real costs associated with BI, allowing businesses to set realistic expectations and make educated decisions that are consistent with their financial restrictions and strategic goals. This chapter will look at the expenses of both the technology and the expertise required to develop and maintain an efficient BI solution.

We aim to capture the majority of the costs. Like any other IT solution, a BI solution includes costs related to both people and systems (hardware and software).

People Cost

In the financials of Business Intelligence (BI), people cost refers to all expenses associated with hiring, managing, and retaining the BI team. This includes salaries, benefits, training, and any other costs related to employees directly or indirectly involved in BI activities.

Example

Imagine a company is setting up a BI team with 5 members in Berlin. The annual salary for each member is $70,000. In addition to salaries, there are costs for benefits ($12,000 per person), training ($3,000 per person), and equipment ($2,000 per person). So, the people cost for one year would be −

Salaries − $350,000 (5 x $70,000)
Benefits − $60,000 (5 x $12,000)
Training − $15,000 (5 x $3,000)
Equipment − $10,000 (5 x $2,000)
Total People Cost − $435,000 for one year.

This gives a rough estimate of what it costs to maintain the BI team for a year.

System Cost

When determining investments in BI software and hardware, many factors, both functional and non-functional, come into play. These include the number of data sources or applications, current and forecasted data volume, number of expected users, performance requirements, availability needs, local or global usage, response time expectations, the number of environments, data layers, and data retention policies.

Additionally, various options are available, such as on-premises or cloud solutions, proprietary or open-source software, different levels of vendor support, pricing models, licensing options (like named user or enterprise), and the number of tools deployed (e.g., multiple data visualization tools in the same department).

System cost in BI refers to the expenses associated with the technology infrastructure required to support BI activities. These include both hardware and software components necessary for data storage, processing, analysis, and reporting.

The Key components of system cost are as follows −

Software Licenses − Costs for purchasing or subscribing to BI tools, data analytics platforms, databases, and other necessary software.
Hardware − Expenses for servers, data storage systems, networking equipment, and other physical infrastructure needed to run BI applications.
Cloud Services − Costs associated with using cloud-based BI solutions, including data storage, processing, and software as a service (SaaS) fees.
Data Integration Tools − Costs for tools and platforms used to integrate data from various sources into a unified BI system.
Maintenance and Support − Ongoing costs for maintaining the BI system, including software updates, hardware repairs, and technical support services.
Security − Expenses related to ensuring data security, such as firewalls, encryption, and cybersecurity tools.

These factors and components ensure that the BI infrastructure is robust, scalable, and secure, allowing the BI team to analyze data effectively. Properly understanding and managing system costs is crucial in making informed investment decisions for the BI infrastructure.

ROI of Business Intelligence

Return on Investment (ROI) for business intelligence measures the financial benefits gained from BI initiatives compared to the costs involved. In simple terms, ROI helps you understand whether the money spent on BI tools, technology, and teams is delivering value back to the business.

How to calculate ROI for BI?

ROI = ((Total Benefits Total Costs)/ Total Costs) 100

Here,

Identify Benefits − Determine the financial gains from BI, such as improved decision-making, cost savings, increased revenue, or operational efficiencies.
Calculate Costs − Add up all the costs involved in implementing and maintaining BI, including software, hardware, people, and training.
Use the ROI Formula − This formula gives you the percentage of return you get on the money invested in BI.
For example, if implementing a BI system cost 200,000 and the financial benefits are estimated to be 300,000, the ROI would be −

Example

ROI = ((300,000 200,000) / 200,000) 100 = 50%

This means for every euro spent on BI the company gains 50 cents in return.

Side Benefits of BI

Calculating ROI for Business Intelligence (BI) often focuses on direct benefits like time saved or cost reductions but BI also brings significant benefits. For example, saved time can boost productivity and improved employee motivation can enhance job satisfaction and potentially increase revenue.

BI can also facilitate better upselling and cross-selling, offering a competitive edge. Quantifying these benefits is tricky, but a simple method is to double the direct ROI for a rough estimate.

For instance, a direct ROI of 300% could suggest an overall ROI of 600%. Despite the benefits, some leaders resist BI investments claiming busyness. BI professionals should document and review ROI annually to showcase BIs true value.

Print Page