Question

ROI model for a 3rd party BI vendor integration

  • 2 December 2021
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Hello!

I'm dealing with a situation that is blocking the 2022 budget submission process.

Context: no BI tool - building in-house defeats our purpose + no knowledge on how to do it - integrating with a 3rd party seems the most logical way to go. Currently any data is delivered upon request to dev team, in raw format. 

ROI difficulties - cannot reach an agreement within the product team about the following:

> does reducing the hours on dev to deliver this kind of data (about 15 hours/month) can be considered as cost opportunity and contribute as money saving to our general profit? taking in consideration that this effort will shift in Y1 to operations teams until their dashboards get set up and they learn the tool etc (more than 15 hours/month for sure)

> the model recommended is selling the tool further to our customers, as extra cost per subscription plan or create a premium plan with BI reporting. model out a revenue projection on how many customers will need to be upgraded Y1 and Y2 to become profitable (break even)

 

Which of the 2 options do you consider optimal to pitch for a straightforward budget approval? Both?

 


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Userlevel 7
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My two cents 🤔

This is a tough one to answer without knowing a lot more details. My initial gut on this is that you need to calculate the cost of delay versus the cost of moving forward to effectively make a choice.

You can certainly think of the time shift from one project to another as an opportunity cost, but then you’d need to also evaluate the same tradeoffs for the other team’s work (operations team) and compare the cost of delay of your project with the cost of moving forward with the other.

To calculate the cost of delay you can for each scenario:

  1. Calculate the expected profit/value (as best you can)
  2. Calculate approximately how much time it would take to implement (some folks use “effort” here as well rather than time)
  3. Divide the profit/value by the estimate time

This will give you what’s called the CD3 value. The higher that value is, the more important the project is from an economical point of view since the return on investment will be quicker.

I’d suspect your budget process would want to know the inputs behind these both to make a decision, but that shouldn’t stop you from submitting both approaches if they are fairly close, and letting the business make the decision.

Userlevel 5
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I’d suspect your budget process would want to know the inputs behind these both to make a decision, but that shouldn’t stop you from submitting both approaches if they are fairly close, and letting the business make the decision.

This is pretty much on the ball, in my experiences. 
Finding the CD3 value is pertinent to understanding the cost of time. You may end up losing more money by delaying the feature than you would by simply working towards releasing it. When budgeting, both cost of delay and return on investment are going to be valuable information (or, at least, it should be :smile:).  

> does reducing the hours on dev to deliver this kind of data (about 15 hours/month) can be considered as cost opportunity and contribute as money saving to our general profit? taking in consideration that this effort will shift in Y1 to operations teams until their dashboards get set up and they learn the tool etc (more than 15 hours/month for sure)

 

I’m going to say that the learning curve will play a bit more info BI tools than most initial assume. When it comes to BI tools, specifically, another scenario that will take some time is learning how you want to present the data (and what data to present). Good data visualization is at the heart of a good implementation of an integration with a third-party tool (because they, generally, will not have the understanding and insight into your data as much as you do). (this is just a general heads-up, from someone who’s implemented integrations with several BI tools to date)

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 I’m going to say that the learning curve will play a bit more info BI tools than most initial assume. When it comes to BI tools, specifically, another scenario that will take some time is learning how you want to present the data (and what data to present). Good data visualization is at the heart of a good implementation of an integration with a third-party tool (because they, generally, will not have the understanding and insight into your data as much as you do). (this is just a general heads-up, from someone who’s implemented integrations with several BI tools to date)

This is indeed something else I've outlined in the business case. Helpful to see someone with experience saying the same thing! 

Thank you!