Sunday, August 18, 2013

Justifying Your Data Warehouse

Justifying Your Data Warehouse
Even if your company. is a medium-sized company, when everything is accounted for, the total investment in your data warehouse could run to a few million dollars. A. rough hi breakdown of the costs is as follows: hardware – 31%; software including the DBMS— 24% staff and system integrators-35%; administration-10%. How do you justify the total cost by balancing the risks against the benefits, both tangible and intangible? llow can you calculate the ROI and ROA? How can you make a business case?

It is not easy. Real benefits may not be known until alter your data warehouse is built and put to use fully. Your data warehouse will allow users to run queries and analyze the variables in so many different ways. Your users can run what-if analysis by moving into several hypothetical scenarios and make strategic decisions. They will not be limited in the ways in which they can query and analyze. Who can predict what queries and analysis they might run, what significant decisions they will be able to make, and how beneficially these decisions will impact the bottom line?

Many companies are able to introduce data warehousing without a full cost justification analysis. Here the justification is based mainly on intuition and potential competitive pressures. In these companies, the top management is able to readily recognize the benefits of data integration, improved data quality, user autonomy in running queries and analyses, and the ease of information accessibility. If your company is such a company, good luck to you. Do some basic justification and jump into the project with both feet in.

Not every company's top management is so easy to please. In many companies, some type of formal justification is required. We want to present the typical approaches taken for justifying the data warehouse project. Review these examples and pick the approach that is closest to what will work in your organization. Here are Milne sample approaches for preparing the justification:

  1. Calculate the current technology costs to produce the applications and reports sup-porting strategic decision making. Compare this with the  ' mated costs for the data warehouse and find the ratio between the current costs and proposed costs. See if this ratio is acceptable to senior management.
  2. Calculate the business value of the proposed data Warehouse with time estimated dollar values for profits. Dividends, earnings growth, revenue growth, and market share growth. Review this business value expressed in dollars against the data warehouse costs and come up with the justification.
  3.  Do the full-fledged exorcise. Identify all the components that will be affected by the proposed data warehouse and those that will affect the data warehouse. Start with the cost. Items, one by one, including hardware purchase or lease, vendor software in-house software, installation and conversion, ongoing support, and maintenance cost. Then put a dollar value on each of the tangible and intangible benefits including cost reduction, revenue enhancement, and effectiveness in the business community. Go further to do it cash flow analysis and calculate the ROI.

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