Cost benefit curve
Oracle Tips by Burleson Consulting
The Data Warehouse Development Life Cycle
COMPUTING RETURN ON INVESTMENT (ROI)
Regardless of the discounting method, both future costs and future
benefits must be expressed in todayís dollars. Ten years ago,
President Reagan had a favorite joke about the Russian
million-dollar lottery which was paid at the rate of one dollar a
year for a million years, and this joke serves to illustrate that a
future amount of money can radically change in values depending upon
the rate that the money is received. Clearly, a fair economic
analysis must express all cashflows must be summed and expressed in
present value dollars. Graphically, this involves computing the
areas under the cost curve and the benefit curve over the useful
life of the data warehouse.
In most cases, a projectís costs and benefits reach a point when
cumulative benefits exceed the costs of the project. But this
doesnít mean that every project whose benefits outweigh the cost
should be undertaken. Most companies have limited capital resources
and can only afford to choose those projects that have the fastest
return on investment.
As such, a company will weigh their options and invest in the
projects that show the most promise for a fast payback, with an
ongoing revenue stream.
However, it is a very common mistake for an organization to rely too
heavily on quantitative methods for choosing projects, ignoring
intangible benefits which may accrue from investment in a data
warehouse. Many intangibles, such as the ability to remain
competitive in an aggressive market, are enormously important to a
company, even though they cannot be expressed in dollars. It is for
this very reason that many data warehouse projects are driven by top
management without regard for the costs, simply because it has
become a requirement for doing business. Whether the company is a
banking institution, a supermarket chain, or a manufacturer,
companies in a competitive marketplace are beginning to realize that
the proper use of information resources is imperative to the ongoing
success of a company.
This is an excerpt from "High Performance
Data Warehousing", copyright 1997.
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