The Gartner MDM Summit 2011 is in its second day. It’s off to a great start, with over 500 attendees. Right now, I’m attending a session on “How to Measure the Benefits of and Build the Business Case for MDM” by Michael Smith, a Gartner Research VP. I’ve attended this session several times in previous summits, and have always found it to be very helpful.
His best practices for building an MDM business case include:
- MDM leading indicators of financial results drive positive change
- less is more – fewer key performance indicators are better
- standards-based metrics and benchmarking in your industry is important
- avoid optimizing just within a local area
Michael talked about how to select leading indicators that affect revenue, costs, and profitability, and he discussed the Gartner Business Value Model, which includes metrics from a variety of areas such as Demand Management, Supply Management, and Support Services.
Using Customer Retention as an example, Michael talked about how a 10% improvement in data quality can lead to a 1% improvement in Customer Retention. Getting everyone on the same page involves getting everyone to focus on the same benefits from your project.
The next step is to map the MDM benefit categories to business metrics. And all of the metrics improve business intelligence.
The next step is to negotiate the targeted improvements between the IT enablers, the business process owners and the financial process owners.
The next step is to develop the total cost of ownership, including the direct and indirect costs. And that will allow you to calculate the hard-dollar return on investment: benefits – cost = ROI. Usually the finance people will take the estimates you have come up with and plug them into the organization’s ROI models, using three set sets of assumptions to bracket the risk (best-case, worst-case and expected).
Finally, Michael Smith talked about using the business case to manage the initiative over its entire life cycle. Typically Gartner would estimate that developing a business case should take about 3 months (15 weeks), for a project that might cost more than $1 million.
Here are the eight steps in the process, with the amount of time and the stakeholder leading each step:
1. Identify Strategy and Stakeholders – 2 weeks – Business
2. Select Metrics – 1 week – Business
3. Baseline Performance – 2 weeks – Finance
4. Describe Capabilities – 4 weeks – IT
5. Negotiate Improvements – 2 weeks – Business
6. Convert to Financial Results – 1 week – Finance
7. Develop Total Cost of Ownership – 2 weeks – IT
8. Calculate Hard-Dollar ROI – 1 week – Finance
The “Hawthorne Effect” means that people focus on the metrics and there can be improvements, even before the solution is implemented.
According to Gartner, developing a business case can raise the success rate from less than 50% to more than 70% . That final statement is why I find Michael Smith’s session so valuable each year, and I learn something new each time.
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