Justifying MDM beyond cost savings to enable big data and analytics (part nine)

Product Director, Master Data Governance

In the marketing segmentation scenario we discussed in my last blog post, cost savings from improved mailings did not provide enough savings to make an MDM project profitable. This is not unusual in that, in addition to cost savings, new revenue opportunities are required to justify the investment. Cost savings can be achieved though a reduction of resources involved in the problem domain or process. The top resources that can provide savings include:

  • Full time equivalents (FTEs): through a reduced administrative overhead, better process automation, organization and improved productivity
  • IT infrastructure (hardware) cost through a better architected data redundancy that that will replace the current state application silos where master data may reside in a chaotic state colloquial

The team responsible for the MDM business case should be prepared to answer a CFO’s questions, for example:

  • "OK, you say that we will be able to reduce the number of people engaged in the current process. Can you be more specific on how many employees, temporary workers and which roles the company will be able to terminate or move to fill other opening?"
  • "What infrastructure components will we not purchase if we purchase MDM?"

These questions can put the MDM business case team in a politically difficult situation, especially as it relates to the opportunity of FTE reduction. Indeed, let us estimate how many FTEs should be released from the process to make an MDM investment profitable. Assuming the annual FTE cost $50k per employee, in order to break even with the MDM investment defined above we will need to reduce the work force by 23 employees immediately in order to break even in four years! This perspective may put you at odds with many people in your organization and defeat the idea of MDM.

This emphasizes an important point: in many scenarios, cost savings may not be able to justify the investment. You should be prepared to inspire the organization with new revenue opportunities enabled by MDM to make the business case hold. The business should be willing to champion the ideas of new revenue opportunities enabled by MDM. This may bring a new business strategy that will help MDM business case justification.

It should be pointed out that in a number of projects a business case was originally defined in terms of savings achieved through a reduction of mailings. Later, when the project went into production, the enterprise chose to keep the number of mailings the same while benefiting from significantly improved quality of marketing campaigns that brought significant incremental revenues.

Some companies, after in-depth analysis of their processes, came up with the cost of a duplicate master record between $20 and $60 per record, which is two orders of magnitude higher than the cost of a duplicate mailing. This is another indication that those easy, quantifiable benefits provide only small fraction of the real value MDM can provide. The cost of $40 per duplicate can be used as a general rule for high level estimates if a detailed business processes analysis has not been performed by the enterprise. This estimate works well for the enterprises where the number of customers is high, greater than 15 to 20 million records.

As we can see, the complexity of a bottom-up built business case can range from a relatively easy scenario when one or a few specific and easily quantifiable problem domains justify an investment, to a variety of complex scenarios where only a long list of cost avoidance scenarios in combination with multiple revenue opportunities can validate the business case for MDM. 

Catch up on the entire series so far:

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