How to Calculate the Total Cost

of Business Intelligence

Overview:
If you’re looking for a concrete way to calculate the total cost of ownership of a business
intelligence and analytics solution, you've come to the right place. This guide helps you
understand the costs surrounding a BI solution that go beyond the licensing - from
additional technical infrastructure, to implementation and maintenance. You'll see
why it's important for businesses to figure in the value a BI solution gives by calculating
the cost of new analytics.

Going Beyond the Price of a License

It’s what everyone is wondering: how much is BI going to cost me? The total cost of
ownership (TCO) of a business intelligence and analytics solution is a hotly debated
topic. Behind this loaded question is also the common misconception that the license
cost of a BI solution will give you a basic idea of the solution’s TCO.

Yet, people who mistakenly calculate the TCO through license pricing are unpleasantly
surprised by a much higher cost of ownership immediately upon purchase - due to
the cost of supporting technical infrastructure required, additional manpower needed
to implement and manage the BI project, and added costs such as customer support
and training.

So how can you accurately calculate TCO of business intelligence? Since we have already
established that upfront costs is just one, small aspect of a bigger equation,

Businesses are now taking a newer, more clever approach

to measuring the cost of a BI solution - one that
incorporates the full value potential -
and that is by calculating the cost of new analytics.

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That is, businesses are taking into account how much and how often their teams will
benefit from new reports and analytics.

What is the cost of new analytics for my team? This is precisely how you need to
approach your value assessment of a BI platform because the cost of new analytics
essentially calculates how quickly your team can churn out (and benefit from)
new analytics and reports, which actually measures how much value for how much
investment you are getting from your BI tool.

By incorporating the notion of speed, you must try to quantify how agile a BI tool is,
which depends on quickness of operations. Read on to learn exactly how you can
do that.

A New Consideration: The Cost of New Analytics

The equation looks something like this: Add all costs of owning BI - licensing, additional
technology, manpower, cost of training, operation, and implementation - and divide
that by the number of new reports you are able to create. You’ll get the speed you can
deliver new analytics and reports.

Capturing that information in a single metric will give you a notion of the cost of your
new analytics. Let’s dive into why this is an important figure and a step by step guide
to how you can arrive at the total cost of ownership:

Supporting Technology and Effort

How powerful and easy-to-use the BI tool directly impacts the cost of it and here is why:
depending on the amount of of data you have and the number of data sources you need
to mash up, if the BI solution you are looking at is not powerful enough or intuitive enough,
you are looking at additional costs in:

Technical Infrastructure - Think additional databases or data warehouses to ensure

performance and capability of the BI tool - a cost that increases with data size, users,
and usage.

Additional Manpower - Think: Does this BI tool require more or less effort?
Will you need to hire additional IT staff or data engineers to man it, or is it intuitive,
powerful, and easy enough to use that your manpower can handle the BI project
independently?

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The Cost of New Analytics
There is a new question that BI can answer, but what kind of changes will be required to
the BI solution in order to quickly get this answer? Depending on where you start, this
could mean integrating two additional data sources (sales performance data from
Salesforce.com, HR data), transforming the data to a consistent structure,
building relationships between fields, defining the logic and scope of the metric, and
finally building the visualization itself, all of which may be managed by a technical expert.

If the process to create new analytics takes weeks or months, it's entirely possible the
CEO is distracted by another important question and the VP has already decided to
halt hiring from a lack of clarity of how it would affect the bottom line. If you can quickly
get the answer, and at a low cost, BI has just added that much more value to your company.

Why Time to Insight Matters Most

BI platforms vary wildly in the time it takes you to submit a new data query, generate
results, and present them in a format that makes sense - for example,
an easy-to-process dashboard showing progress on your KPIs.

Once you factor in the turnaround time for a data analysis project, though, and
divide your number by the maximum amount of data projects you can process
in a year, this could quickly start to look very different.

That’s because if you are looking for true value of BI, as in data-driven teams,
insights for decisions in an actionable timeframe - BI tools aren’t best measured
by TCO per annum, but by the cost of running each individual analysis.

How to Calculate the Total Cost of BI

Step One:
Figure Out Your Total Annual Outlay

Of course, before you get that far, you do need to work out your TCO in
the first place.

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While there are a whole bunch of factors at play, the most important ones are typically:

1 How much you need to pay the employees who deploy and manage the solution.

2 How many employees you need working on the BI solution (implementation,

deployment, maintenance) and for what share of their total workday.

3 How much you need to spend on additional data warehousing, if the BI platform
demands it to accommodate your data.

4 How much you need to spend on external ETL (Extract-Transform-Load) costs, if

the BI platform cannot quickly prepare data for analysis.

5 How many people are using BI and will have ongoing questions (which a good
BI solution’s customer support team can answer quickly, so employees can be
more efficient).

Let’s take a look at each of these in more detail.

Full Time Equivalent (FTE) Salary

Okay, let’s start with the easiest one. What would be the yearly salary for a full time
IT engineer or BI specialist responsible for handling the technology and making sure
you can generate the insights you need? Let’s be conservative and say: $100,000.

This number will presumably be the same for whichever solution you select, for example:

FTE Salary

Vendor A Vendor B
$100,000 $100,000

Number of FTE Using It

The next consideration is how many people you will need to employ / assign to the
project to get what you need out of the BI solution.

This does vary from platform to platform, because a system that demands a high
level of technical expertise to use it (here, Vendor A) means you also need a big
enough IT team to handle all requests from business users, while a product that is
largely self-service (Vendor B) requires fewer IT personnel looking after the back-end.

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 Number of FTE Required

Vendor A Vendor B
5 2

Share of Time Spent Using It

It’s unlikely that managing your BI platform will take up 100% of any one employee’s time,
but with a very heavy tool it can happen. For the sake of argument, let’s say that BI
activities will take up roughly half of the relevant IT team’s time in both cases.

Vendor A Vendor B
50% 50%

To recap, in this TCO comparison, you’ve now worked out that Vendor A requires five
FTE on a salary of $100,000 to spend 50% of their time on BI-related activities, while
Vendor B requires two FTE on $100,000 per year to dedicate 50% of their time, too.
This brings your total staffing costs for the year to:

IT staffing costs:

Vendor A Vendor A
5 x $100,000 x 50% 2 x $100,000 x 50%
= $250,000 = $100,000

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External Data Warehouse Costs
Most BI tools do not provide a comprehensive solution for storing your data, or a
means of accessing any item of information in a vast, sprawling data store without a)
enormous hardware requirements or b) grinding to a halt. This means you often need
to spend on data warehousing and/or data marts, too.

Even where the vendor has figured out a smart way to handle data (for example,
Sisense’s Elasticube uses a combination of Columnar Database technology and
In-Memory Database DM technology so that you only load data relating to your query,
and use memory instead of disk space to store this while in use), you may prefer to
integrate this with an existing data warehouse you have or even add additional to make
room for your 10 year plan of data. Again, some companies use Sisense as a standalone
product. Others use Sisense to compliment a data warehouse.

For our example, we’re assuming that Vendor A does not have a solution in place that
would bypass use of a data warehouse, whereas Vendor B has an Elasticube-like
innovation that provides a solid technical infrastructure, so while you may still want to
incorporate some data warehousing into the mix, it will be far from extensive and save
you money.

Cost of external data warehousing per year

Vendor A Vendor B
$25,000 $5,000

External ETL Costs

Likewise, if you’re relying heavily on extensive data warehousing, you’re also likely to
run up substantial costs on an external tool that performs the ETL functions that
prepare and harmonize data for analysis.

Cost of External ETL per year

Vendor A Vendor B
$25,000 $5,000

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Total Annual TCO
Using this method, your total annual TCO for the two vendors would be:

Vendor A Vendor B

IT Staffing Costs $250,000 $100,000

External Data Warehousing $25,000 $5,000
External ETL $25,000 $5,000
Total Annual TCO $300,000 $110,000

(P.S.. This doesn’t include your license, deployment or other up-front costs).

Step 2:
Divide by Time it Takes to Perform New Analytics

From this comparison, it looks like using Vendor A racks up a yearly bill that’s nearly
three times that of Vendor B.

But what if I now told you that, because Vendor B offers a vastly more self-service
solution, you can process a new query and produce a new set of analytics in
two days - while Vendor A means waiting two weeks?

Once you take this into account, the gap between the two vendors widens substantially.

A two-week rate of new analytics means that you can process an absolute maximum
of 26 new analytics projects per year. A rate of two days means you can produce
a maximum of 182.

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Divide the TCO by the maximum rate of new analytics, you get this:

Minimum Cost of New Analytics

Vendor A Vendor B
$13,462 $714

Wow. Now that’s a big difference.

TCO Summary: Implicit Cost of New Analytics

Average Vendor A Vendor B

FTE Salary (per year) $100,000 $100,000

Number of FTE Associated 5 2

Share of time Spent 50% 50%

Subtotal $250,000 $100,000

Rate of New Analytics 2 Weeks (26 per year) 2 days (182 per year)

Cost of New Analytics $9,615 $550

Yes, your yearly TCO for Vendor A was already three times that of Vendor B, but
when it comes to working out how much you are really spending on each analytics
project, you’re actually paying about 18 times as much for the service.

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The Bottom Line
Change Will Happen Often - Consider Its Cost
Now, if you’re thinking, “Is a low cost of new analytics so critical?”, take a step back
and look at a snapshot of a day in the life of a typical business: Business conditions
change - usually quite quickly. This results in new business questions being asked,
which in turn makes BI an iterative process. Because it takes time, effort, and expertise
to make changes in BI, there is cost associated with it - time, manpower, data. Though
currently you may only be thinking about the explicit costs of BI, you should factor the
"cost of change" into your evaluation.

In order to truly enable a smart, data-driven company you

need that “cost of change” to be as low as possible.

For example, let's take a scenario where a VP Sales is deciding whether to hire
more salespeople. She/he needs to give the CEO an indication of how much more
salespeople will grow revenue by end of year. To do so, she needs to check how
long it takes sales reps to ramp up to full quota attainment.

To Get a Perfect World, Speed Is the Key

Imagine if in your organization you can reduce the cost of churning out new
analytics to your team members, imagine what you will be able to achieve -
the amounts of people from different departments capable of making
data-driven decisions.

Today, incorporating the notion of speed, like how quickly your

team can churn out new analytics, how agile they are,
depends on quickness of operations. If you just look at TCO
you are not incorporating the full value potential.

Figuring out how much value you’ll get out of your chosen technology is always
going to be tricky, and there are, of course, many other factors at play than
straightforward economics.

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Take Aways
You need to know that the platform fits your needs. You need to know that it’s
easy to use and scalable enough to grow with you. You need to know that the
vendor’s support team will always be on hand to help you get the most out of
the system.

These are the primary factors that will dictate how much you’re really paying
to generate each business-critical insight. While you can get a sense of how well
a vendor ticks the boxes from talking through the product’s capabilities, it makes
more sense to try it out for yourself.

Before you commit, always insist on testing the BI platform with a free trial or
proof of concept, using your own data. That way, you’ll know whether it’s a
genuinely self-service solution, you’ll have a good idea of how fast you can
turn around results, and you can use this alongside your TCO calculations to
get a reliable, accurate picture of how much value the technology will really
bring to your business.

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