Benefits of Business Intelligence

Benefits of Business Intelligence

R.F.Braams

BMI Thesis

December 2004

Vrije Universiteit, Amsterdam

Faculty of Sciences

Business Mathematics and Informatics

De Boelelaan 1081a

1081 HV Amsterdam

The Netherlands

Preface

The report that lies before you is the final report of a field exploration. This exploration is an important and compulsory element of Business Mathematics & Informatics, an education that aims to combine the fields of Economics, Mathematics and Computer Science. The goal is to take a topic related to at least two of these three fields, and investigate the existing literature on this topic.

As Business Intelligence is clearly a topic related to Computer Science and Economics, these two fields are dealt with here.

This report is meant as a reference work for the staff members of the Department of Computer Science at the Vrije Universiteit (VU) and for future students who are in the process of writing their literature study.

In order to run a business effectively a manager needs insights in all kinds of aspects of the business. After recording, it is generally less simple getting these data available for taking strategic and tactical decisions. Business Intelligence (BI) can offer a solution by making this information available. The largest appreciation of this lies in the integration of data from several sources. When the correct resources are deployed, a complete picture of the own organization, the customer and the competition arises.

This paper focuses on the functional aspects of BI from a business point of view. It is not too much about how BI works but rather on why one should implement BI.

The core question during this paper will be:

“What is the business value of BI?”

The stepping stones to answering this question are:

  • What are the Critical Success Factors for a successful BI initiative?
  • What are potential benefits of BI for an organization?
  • (How) can BI improve (strategic and tactical) management decision-making processes?
  • How does BI relate to existing methodologies?
  • (How) can BI improve internal business processes?
  • (How) can BI improve internal and external communication?
  • What impact does BI have on the value chain?
  • (How) can BI improve competitive advantage?
  • What are the benefits of BI from a financial point of view? Can BI help reduce costs and maximize profits?
  • How to evaluate BI initiatives?
  • How to evaluate any IT investment?

The core question of this thesis will be specified for the VU with the help of a case study. The core question for the VU will be:

“What is the business value of BI for the Department of Computer Science at the VU?”

The stepping stones to answering this question are:

  • What is the information need of the academic staff and the department management?
  • Is this information provided by the current information systems?
  • Can BI fill the gap between the information needed and the information provided?
  • What is the current situation at the department considering BI?
  • What will the efforts for the department be in order to implement a BI solution?

I would like to express my thanks to professor Eiben (VU) who supervised me in my research and writing. Without naming persons I would also like to thank members of the staff of the Faculty of Science at the VU for the time and effort they spent helping me getting information for the case study.

Randy Braams

Amsterdam, December 2004

Executive Summary

In order to run a business effectively managers need insights in all kinds of aspects, such as inventory, costs, profits and return, staffing or performance. Organizations have been gathering a lot of data, but after recording it is generally less simple getting these data available for taking strategic and tactical decisions. Business Intelligence (BI) can offer a solution by making this information available. According to [19]

BI is a broad category of applications and technologies for gathering, storing, analyzing, and providing access to data to help enterprise users make better business decisions.

The main objective of this thesis is to let the reader understand what the potential benefits of BI are. It focuses on the functional aspects of Business Intelligence from a business point of view. In the literature study Querying and Reporting is left out of the scope of this report.

The core question of the literature study is:

“What is the business value of BI?”

The core question of this thesis will be specified for the VU with the help of a case study. The core question for the VU will be:

“What is the business value of BI for the Department of Computer Science at the VU?”

Following is a short list of some advantages of BI:

•“Unique truth”

•Easy access to data

•Easy analysis

•Culture change

The case study showed the following benefits for the department that was subject of investigation:

  • More and better information (dissemination)
  • Culture change (performance measurement and monitoring)
  • Optimal time spending of employees
  • Improved image
  • Customers (students) who are more satisfied

A rather more detailed list of the advantages of BI is:

  • “Unique truth”
  • Easy access to data
  • Extended knowledge management and management of information systems. Improved information dissemination, improved information access and propagation of knowledge about the organization;
  • Monitoring the external business environment ;
  • Extremely fast monitoring;
  • Better insightsin markets, suppliers, competitors and technology;
  • Complete end-to-end information on the supplies and logistical data from the whole supply chain;
  • Easy analysis
  • Analyses and reports on virtually all thinkable aspects of the underlying business;
  • A 360 degree customer view;
  • Tracing opportunities and threats;
  • Instant view on which products, customers and markets are most profitable;
  • Culture change/ more efficient and effective business processes (measuring/monitoring performance)
  • A more collaborative work environment;
  • Improved strategic, tactical and operational decision-making processes;
  • Improved business processes;
  • Improved short- and middle long term planning;
  • Increased revenues. Total grip on cash flow. Reduced costs;
  • Improved customer satisfaction.
  • Anticipating the behaviour, wishes and possibilities of the customer in the use of different communication channels. Improved websites;
  • A more transparent and calmsupply chain;
  • Inventory reduction on every point at the supply chain;

Following is a rather more detailed list of the benefits mentioned in the case study:

  1. More and better information
  2. Consistent view (one single source of data)
  3. 360o view of the customer (student)
  4. Culture change
  5. Mirror for the organization which improves measurable and measured performance
  6. Performance Indicators could eventually be produced, leading to benchmarks with which one could evaluate oneself more effectively and compare oneself to other departments, faculties or even universities
  7. Optimal time spending of employees
  8. Less pressure on the Educational Office
  9. Greater satisfaction for employees over their work
  10. Improvement of the image of the department, the faculty and the university as a whole;
  11. Customers (students) who are more satisfied
  12. More effective PR policy and more effective and efficient marketing activities;
  13. Improving the filtering effect of the first study year and selection criteria of students
  14. Improving the quality of the product the VU offers (education and guidance) the students;
  15. Higher output and success rates of students. Lower drop-out rates

I could go on and on…

The largest appreciation of BI lies in the integration of data from several sources.

Before one rushes into developing and implementing a BI solution one has to make sure that the following requirements are met:

  • high-quality (transaction) data should be in place
  • there should be commitment of the (senior) executives

Other Critical Success Factors include:

  • alignment of the information requirements with the strategic and operational focus of the business.
  • highly skilled employees with analytical capabilities
  • the organization should have a data-oriented culture
  • those who need to perform should have a clear reason for new behaviours
  • ACTION!! Without it one can’t gain advantage.

When all the requirements are met and a BI solution is implemented, a complete picture of the own organization, the customer, technology and the competition arises. With this (actionable) knowledge better decisions can be made with more confidence leading to more efficient policies, improved (decision-making) processes, better planning, more profits, reduced costs, competitive advantage and a greater market share or market value.

So, I would really recommend data-intensive organizations to consider BI. As we saw it can have a great business value.

I would really recommend the department to seriously take a look at the possibility to implement BI considering the magnitude of advantages this will have for (the image of) the department (and the VU as a whole), the students and the employees.

I estimate the costs for the project at between €20.000 and €40.000 if external consultants and developers are involved. One thing that should be remembered is that BI doesn’t only consist of techniques and technology: the human factor is also very important and should not be underestimated. As an Afrikan proverb tells us: “It takes a village to raise a child”.

Table of contents

Preface

Table of contents

Introduction

Part I: Literature study

Chapter 1 Business Intelligence – the Umbrella term

1.1Introduction

1.2The BI pyramid

1.3BI vs. other Information Access Tools

1.4Application areas

Chapter 2 Critical Success Factors for BI Initiatives

2.1Introduction

2.2Go/no-go factors for a BI project

2.3A model for building an analytical capability

2.3.1 Context

2.3.2 Transformation and outcome

2.4Conclusions

Chapter 3 Business value of BI

3.1Introduction

3.2Benefits of a DW

3.3Benefits of OLAP

3.3.1 Application areas

3.3.2OLAP and three commonly used methodologies

3.3.3Comments of managers and directors.

3.3.4Conclusions

3.4Benefits of DM

3.4.1Application areas

3.4.2Applying DM to the Internet – BI and e-commerce (Web Mining)

3.4.3Conclusions

3.5Conclusions

Chapter 4 Evaluating BI solutions

4.1Introduction

4.2How to evaluate any IT-investment?

4.2.1Business Case approach

4.3Quantitative analysis of BI solutions

4.4Qualitative analysis of BI solutions

4.5Conclusions

Chapter 5 Summary and Conclusions

Part II: Case Study

Chapter 6 BI at the Vrije Universiteit

6.1Introduction

6.2Scope and approach

6.3Current situation

6.3.1BI Tools

6.3.2Operational Systems: Student Tracking System

6.3.3Operational Systems: Allocation of Tasks Program

6.3.4Financial Input

6.4Advantages of BI

6.4.1Information

6.4.2Analysis

6.5Efforts

6.5.1Roles

6.5.2Skills

6.5.3Costs

6.6Summary and conclusions

Appendix ALinks to the World Wide Web

Appendix BList of abbreviations

References

Additional Literature

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© Randy BraamsDecember 2004

Benefits of Business Intelligence

Introduction

In this report I aim to show that Business Intelligence (BI) is more than a buzzword by showing what its business value is. I will start from the assumption that the reader has heard of Business Intelligence, knows of or isn’t interested in how to create a DW or what the DM process is about, for instance, but rather whatBusiness Intelligence is and what the benefits will be for his organization.

In order to run a business effectively managers need insights in all kinds of aspects, such as inventory, costs, profits and return, staffing or performance. Organizations have been gathering a lot of data, but after recording it is generally less simple getting these data available for taking strategic and tactical decisions. Business Intelligence can offer a solution by making this information available.

Structure of this report

This report is divided in two parts: the first part is a literature study on BI and contains 5 chapters.

The first chapter gives an introduction on Business Intelligence: what it is, its relation to other information access tool and its application areas. Chapter 2 is about the Critical Success Factors for successful BI initiatives. First go/no-go criteria will be discussed and then other requirements that have to be fulfilled in order for BI solutions to be a success in an organization. The following chapter, Chapter 3, is where the core question will be answered. This chapter gives per BI tool and for BI as a whole its business value. Chapter 4 addresses ways to evaluate BI initiatives. Finally, Chapter 5 gives an overall view of what has been discussed in the previous chapters.

The second part of this report contains a case study where, for a department at the VU, the potential business value of BI will be addressed.

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© Randy BraamsDecember 2004

Benefits of Business Intelligence

Part I: Literature study

1

Benefits of Business Intelligence

Chapter 1Business Intelligence – the Umbrella term

1.1 Introduction

With this chapter I aim to give a brief overview of the concept Business Intelligence(BI).

According to [19]

BI is a broad category of applications and technologies for gathering, storing, analyzing, and providing access to data to help enterprise users make better business decisions.

1.2The BI pyramid

BI can be seen as an umbrella[1] that covers a whole range of concepts. BI can be approached roughly as being a Data Warehouse (DW), with three layers on top of it: Queries & Reports (Q&R), OnLine Analytical Processing (OLAP) and Data Mining (DM). Authors and companies adopt this ordering widely. However, other orderings exist as well, with the result that some contradict each other. This is simply because the boundaries between the different components are very vague. The following figure

(figure 1) shows the BI pyramid consisting of the concepts described above:

Figure 1: The BI pyramid

A DW consists of one or more copies of transaction and/or non-transaction data that have been transformed in such a way that they are suitable for querying, reporting and other data analysis. It forms the basis “on top of which” further analyses can be carried out.

The first level of analysis is Querying & Reporting. Querying means using a computer language to obtain immediate, online answers to user questions. Reporting refers to creating standard, point-in-time reports or generating reports by describing specific report components and features.

A level higher we have OLAP. This technology allows users to carry out complex data analyses with the help of a quick and interactive access to the information in DWs from different viewpoints. These different viewpoints are an important characteristic of OLAP, also called multidimensionality. The dimensions within the OLAP application usually reflect the different dimensions of an organization.

A definition of OLAP that is adopted across the whole world is the one by [12]:

Fast Analysis of Shared Multidimensional Information (FASMI).

Another definition comes from [4]:

OLAP is a category of software technology that enables analysts, managers and executives to gain insight into data through fast, consistent, interactive access to a wide variety of possible views of information that has been transformed from raw data to reflect the real dimensionality of the enterprise as understood by the users.

An advanced tool that uses the OLAP-methodology is the Balanced Scorecard (BSC).

The top layer is DM. A simple definition is: analyzing and finding patterns in large amounts of data in order to support decision making and predict future behaviour. Because DM is such an advance technique, the process not only involves applying tools to a collection of data, but it starts with business understanding, data understanding and preparation, and selecting the right modelling techniques, and ends with evaluation and deployment.

The information and knowledge that is “dug up” by DM can also be used to provide information about a web site and its visitors: Web Mining. When engaged in e-commerce activities it is the ‘invisible’ and ‘not-straightforward’ information that is most valuable, information hidden in the gigabytes of data generated each day that describe actions made by every visitor to the site.

With BI-tools it is possible to carry out analyses and reports on virtually all thinkable aspects of the underlying business, as long as the data about this business come in large amounts and are stored in a DW. Departments that are known to benefit most from BI are (Database) Marketing, Sales, Finance, Information Technology (especially the Web) and the Higher Management.

1.3BI vs. other Information Access Tools

Considering the whole of Information Access Tools you could split them in two, namely in [11]:

  1. Specific systems, Decision Support Systems (DSS) such as Executive Information Systems (EIS), Management Information Systems (MIS) etc.. and
  2. Generic systems (tools/techniques) such as OLAP, DM, etc…

What is the difference between DSSs and BI?

According to [19]

A decision support system (DSS) is a computer program application that analyzes business data and presents it so that users can make business decisions more easily.

and

BI is a broad category of applications and technologies for gathering, storing, analyzing, and providing access to data to help enterprise users make better business decisions.

So, the general characteristics of a DSS which we also find within BI are:

  • Support business decision making
  • Based on data (from operational systems and/or a DW)

So, one could raise the question whether BI replaces data-driven decision support.

Well, DW and DM have two precursors[2]: DSS and EIS. DSS is focused on the lower and middle management and makes it possible to look at and analyze data in different ways. EIS is the precursor focused on the higher management. Given the fact that Data Warehousing and DM form a large part of BI, you could indeed see DSS as the precursor of BI.

There are a lot of MISs to gather data, but most of them are rather focussed on efficiency of existing processes and retrieve none or less actionable knowledge out of the data. MISs only give a fragmented view of business data, in stead of one integral and consistent view. With BI accurate, relevant knowledge is available on every level which can instantly be put in action in order to gain actual competitive advantage.

One thing that should be kept in mind is that, as [11] puts it:

BI is the information gathering/providing activity, not the intelligence/knowledge itself

1.4Application areas

Industries that are known to use BI are data rich industries, such as:

  • Consumer goods
  • Retailing industry
  • Financial services
  • Transport

Departments that are known to benefit most from BI are:

  • (Database) Marketing
  • Sales
  • Finance
  • IT(especially the Web) and the
  • Higher Management

End-users:

  • All types of end-users can use BI tools.
  • End-users with different levels of expertise can apply BI applications to different levels of knowledge.
  • With BI-tools it is possible to carry out analyses and reports on virtually all thinkable aspects of the underlying business, as long as the data about this business come in large amounts and are stored in a DW.

In the next chapter the Critical Success Factors (CSFs) of BI initiatives are discussed.