Business Intelligence: Improving the Cost:Benefit Ratio

William De Nio, 2013.

Business intelligence means so many things the number of definitions often resolves to the
number of people asked.
At the risk of being yet another person with another definition, I offer this:
Business intelligence is the exercise of the right data at the right place and time to
positively inform business decisions.
At its best, business intelligence serves a subtle, yet immensely powerful function: improving
decisions. Superficially, this may be anticlimactic, but consider how many decisions are made in
a business. By using data to inform decisions, results (the output of decisions) are more
consistently higher in quality, made and implemented faster, and reduce costs by reducing
repair of poorer decisions. Also, by pushing improved decision making deep into the
organization, efficiencies and productivity accumulate, build upon each other, and surge to drive
up revenues and push costs down.
Business decisionsdecisions that manage resources to impact costs and/or returnsare made
using varying combinations of skill, talent, experience, data, and luck. Without rigorous supply
of current data and information, most people are forced to rely on their memories (historical
abstracts), non-current and/or repurposed reports and anecdotal evidence to inform their
decision making. There is nothing wrong with these approaches. They are developed over
time to help us get the job done. Many great decisions are made this way.
Any given decision will result in a cost component and a return component. Better decision
makers skew the proportion of the two in better terms. The problem is that the proportion of
better decisions is offset by the proportion of less productive decisions. In an organization of
many decision makers (managers), these proportions probably follow a normal distribution,
modulated according to each person's skills and experience. How can the proportion of better
decisions be increased? Since the question is termed as a ratio, the answer must be either
increase the number of better decisions, decrease the number of less productive decisions, or
both. Hence, taken in aggregate, decisions ultimately express as a Cost:Benefit ratio directly
relating to profitability.
The charts above illustrate the productivity change of better decisions. Each chart plots a
thousand decisions against arbitrary scales of costs and returns. By increasing the meanthe
average quality, and decreasing the standard deviationthe variability of decision productivity,
the incidence of decisions and their impact on the business improve in returns and reduce
costs. Decisions trend better and more consistently to improved effectiveness.
The point is to raise the bar for decisions across the organization. Decision makers who trend
to better decisions will make more even better decisions, while decision makers who trend to a
more even distribution of decisions will also make more decisions of better quality (and fewer
decisions of less). As consistency improves, so will the proportions of cost and return.
Our challenge is that decision quality is not measured (or may even be measurable) for each of
the hundreds or thousands of decisions made across a company. However, their aggregated
measures are reported in financial statements! Yet, we can easily intuit the increasing
accumulation of better decisions will affect subsequent and other decisions. The cumulative
effect is to increase the momentum of the company by improving its constituent parts at the
most granular level.