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The Data Warehouse Development Life Cycle

Economic Feasibility


To illustrate how costs and benefits are quantified and discounted for a data warehouse project, let’s consider the data warehouse project estimates for Project alpha. Table 2.1 shows Project alpha’s costs, and Table 2.2 shows Project alpha’s tangible and intangible benefits.

Cost                                                         Amount                              Time Frame

Ongoing Costs

Cost of analysis and design team        $40,000/month                             Immediate

Costs of programming team                $60,000/month                              6 Months

One-Time Costs

Cost of CPU and DASD                       $15,000,000                               10 months

Costs for data extraction and loading   $10,000,000                               12 months

Costs for client hardware/software      $10,000,000                               15 months

Table 2.1
  Project alpha’s costs.

Benefits                                                          Amount                    Time Frame


Reduced direct mail costs                        $3,000,000/year                     24 months

Reduced inventory costs                         $2,000,000/year                     24 months


Improved quality of information                  unknown                            24 months

Improved response time to market changes  unknown                          24 months

Table 2.2  Project alpha’s benefits.

The first thing to note is that Project alpha’s costs and benefits do not occur within the same spans of time. In order to compare apples with apples, both the costs and the benefits in the project need to be expressed in net present value dollars. This involves discounting the cashflows according to the opportunity cost that the company possesses. Not all opportunity costs are the same. A securities investment firm that commonly realizes a 24 percent return on investments will have a much higher opportunity costs than a conservative organization that realizes an average 12 percent return on investment.

This is an excerpt from "High Performance Data Warehousing", copyright 1997.

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