A “tale from the field” on finding return on investment and building your MDM business case.
Although building the business case for master data management (MDM) may seem daunting at times, it’s not as challenging as you might think. At one client recently, after we created a strategic roadmap for the first two to three years of their MDM program, we built on that foundation and developed a high level business case, focusing on expected benefits, estimated total cost of ownership and a return on investment (ROI) analysis model built in Excel.
In creating the business case, we started by identifying all the relevant stakeholders, from the business, from IT and from Finance. We met with people from Sales, Customer Care, Credit & Risk Management, Logistics / Warehouse, Marketing, Commercial Financing, Credit Scoring, Dealer Network, Finance, and with senior people in IT. All told, we met with about 35 people over a ten day period.
In each meeting, we brought them up to speed on where we were since their previous involvement in the strategic roadmap process. We shared the MDM vision with them, which they had helped to develop in a few “To Be” workshops. Then we led into the reason for that day’s meeting, which was to gather information for the business case.
In particular, we were interested in selecting metrics relevant to their area of the business. So we shared with them some potential metrics, broken out into categories such as:
- Growth (Increase Revenue / CRM Effectiveness)
- Efficiency (Reduce Costs / Increase Productivity)
- Compliance & Risk Management
- Agility & Decision-Making
In each area, we had three or four goals to prompt their thinking about metrics that might be relevant to that particular area in their part of the business.
We also wanted them to think about potential use cases, places where a Single View of the Customer would streamline their processes or help them to increase revenue or in some other way improve the business.
With each group, we took careful notes. We were up front with them that we wanted them to speak freely, and that we wanted their permission to use their names in the business case. They were so enthusiastic that they agreed readily. In many cases, the improvements they saw coming from the Customer Hub were things they had been working towards for several years. Because of that “pent up demand” factor, they had no problems putting their names next to the improvements they saw the MDM hub bringing.
We also told them that we would come back to them several times to confirm that they were still happy using their names with the use cases and metrics, and we followed up with them over the next week after the meetings via e-mail to make sure they were still comfortable with that.
We ended up with seven use cases, and in one case a Sales group stepped up to increasing their sales targets by 3% once they had the Single View of the Customer in place.
The total estimated value of the benefits, over a five year period, was over $36 million dollars, but that of course was before we looked at the cost side of the equation.
After we estimated the Total Cost of Ownership over the same five year period at about $10.3 million, we plugged the benefits and the costs into our ROI Analysis model, in order to discount the cash flows properly. Without getting into the technical definitions of the terms too much, the basics are that a dollar in the future is worth less than a dollar in the present (that’s referred to as “discounting”).
You also have a “hurdle rate” (or minimum acceptable rate of return) that the company expects to earn on all of its investments.
We ended up with a Net Present Value of more than $14 million, and a Return on Investment of more than 150%.
The methodology we follow isn’t rocket science: work closely with the business to identify metrics and use cases; negotiate improvements that they were comfortable with and would put their names on; estimate the Total Cost of Ownership; then plug those figures into an ROI Analysis model.
We found that most of the business groups needed to be guided through it in a facilitated workshop. Breaking it down for them, asking them questions using the “Five Why’s” approach – a question-asking method used to explore the cause/effect relationships underlying a particular problem and to determine the root cause – can help.
We would ask questions like: how long does it take you to gather the data you need to do your jobs? Does it help if you know who the “expert” is in a given area? What happens after you get the data? Is there a lot of manual data cleansing required? Do you have to correct the data and then re-correct it next month?
Through these types of questions, one group volunteered that 80% of their time was spent finding, downloading, formatting, scrubbing, and reconciling data. With five people in the group, we estimated that 40% of that time could be freed up, saving the company almost $100,000 per year in that one case alone.
That may not sound like a lot, but you can multiply that by a lot of similar groups around the company, and pretty soon it starts to add up to serious money. Another group we talked to employed a full-time person just to perform that same task of finding, downloading, formatting, scrubbing, and reconciling data.
Having a central repository of customer data that is accurate, complete, timely, and consistently unlocks potential revenue gains, is a huge productivity boost, and makes compliance and risk management much easier. We could have gone on further, talking to more groups within the company, but we stopped because we had enough use cases and metrics to meet our ROI target, and because we didn’t have any more time to spend on the business case.
Hopefully this “tale from the field” will give you some ideas on how to approach finding ROI and building an MDM business case.
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