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Now that the pressure is growing to reduce costs on IT, can you explain that the spent on IT is worth it? You probably know the cost, but its equivalent value is something few organizations can present. If you can’t assign a value to a cost, you end up with all sorts of issues:

1.    Inability to apply cost reductions due to unknown business impact

2.    Vital business processes become vulnerable depending heavily on vendors

3.    Project and operations budgets are never analyzed after allocation

We identified six recommendations to start measuring your data’s value.

1)  Classify the IT budget

There is no such thing as one IT budget. Three activities justify spending money on IT from a business perspective.

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Three categories of IT spent

They are all managed from a cost perspective but should require different financial views. Understand the difference and apply the proper economic evaluations. The CIO can benchmark and own the utility; compliance is evaluated based on risk, whereas investments are measured by efficiency. These two budgets are organization-wide and require ownership from a CF(R)O or CEO level.

2) Translate the vision to boundaries

Investing is about making choices and the ability to execute them. Be clear about what you spend on budget, talent, and the unique differentiators you want to build as a company. Capture these differentiations into data assets, consisting of the total supply chain from data to an improvement leading to a monetary value. As an organization, you need to look for the combination of data and supporting services that make you stand out from other organizations—also validating if this is feasible from a talent and a financial point of view. If not? Consider copying a solution as an isolated process improvement.

Questions that can help identify and quantify data assets are:

  • Can we get the best understanding of a specific customer group or process having the best quality data? Leverage this data as much as possible and protect it;
  • Can we be the cheapest? Understand what costs drive the data supply chain and build an intellectual property that allows us to be less expensive or more flexible as competitive edges over others;

In some industries, the dependency on vendors is unavoidable due to the need for more expertise in the organization. The travel industry is an example where the PMS plays a crucial role. To read more on this topic, please review this article by Henri-Dick Rondhuis.

3) Enable finance to support

To align business and IT, we need someone to provide feedback on whether execution succeeds. As success is measured in financial results, finance is ideally positioned. They must maintain the connection between the business’s profit and IT loss. During the execution, alignment between the two is achieved by translating the created business value into a measurable result focusing on efficiency.

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Finance guiding for IT investments

4) Measure assumptions, risks, and opportunities

The industry still needs more data on IT Investments’ results to be comfortable predicting results. At the same time, costs can rapidly change through pay-per-use business models. Therefore you need to accept that forecasting future data volume and usage is a big part of the game. To manage this uncertainty, you need to keep track of the bandwidths of your estimation. As explained in the excellent book “How to measure anything,” ask for an estimation bandwidth given with at least 90% confidence. Or ask multiple opinions and take an average. From there, keep measuring and be transparent about the uncertainty. Don’t stop after the business case approval. Discuss metrics, measurements, risks, and outcomes and calibrate your investment. By evaluating, you get better at estimating or seeing who is good at it. Be practical and connect to existing processes from an agile and finance perspective. Keep the detail level of your measurements to a level it guides you.

5) Standardize registration and talk about improvements

Speaking a common language is essential to learn as an organization and gaining efficiency. This can be achieved by discussing improvements instead of implementing a tool or service. An increase in sales or customer loyalty is an example of a commercial gain. Lowering costs and risk are operational improvements. This improvement can be translated to an estimated target value. Standardizing the format allows you to compare, share and learn between proposals. But also create a language that can be understood and validated against financial business results. Finance must play a proactive role here to introduce the language and support using the format.

6) Align between investments and the outside world

Keep looking for opportunities and learnings between investments internally and externally. Some examples:

  • When a risk is activated, a learning made, or an estimation recalibrated, does it apply to other investments?
  • Collaborate with other organizations to share costs on compliance. Build a solution once and reuse it. Data-sharing initiatives can potentially help you with this, and the banking industry has some good examples.
  • Look for re-usage of your data assets. The quality of data increases with usage, and re-usage lead to efficiency as the cost is close to nothing.

The Four-St method

These recommendations are included in our Four-St method leading to an implemented data operating statement measuring the value of your data. If you’d like to know more, feel free to message me.

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Four-St approach

About the author:

Dennis Groot is the managing partner at Abykys. A startup advisory firm that combines data, agile, and finance expertise to enable organizations to enjoy the value of data.

This article is a follow-up to “Why the value of data is the critical driver leading IT investments.”


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