When companies are looking to make an investment in new technology or process improvement, there is a need to justify such investment. In rare cases it is possible that the approval happens without rigorous cost-benefit analysis. However, for most projects an attempt is made to quantify the benefits and compare them to the investment. A return on investment (ROI) is calculated and reported using language that is popular with financial departments.
A demand planning project is no different. Occasionally, one runs into an executive who is completely sold on the idea because of past experiences and has no need for an ROI analysis. But, in most cases departments want to know:
- What direct results can one expect?
- For example, how do I know for sure my forecast accuracy is going to improve?
- What business benefits will these direct results cause?
- Are these ongoing or one-time benefits?
- When will one see said benefits?
- Can one monetize these business benefits? Or are these qualitative benefits?
- How to present this to (an often skeptical) management?
There is general confusion out there about the direct results. Different sources who study this data (analysts, researchers) present different outputs with not enough clarity. For example, which formula to use when calculating the direct result? Are the benefits based on accuracy one period out? Or two? Or three?
Converting the direct results to business benefits can be a mixed bag. Some business benefits are obvious. Others are a bit more hidden and indirect. However, with a good subject matter expert, one can bring these out.
The monetization, though structured, is not always straightforward. It is an exercise in averages and most-likely percentages. It is not a straight math equation. There can be strong disagreements on how to go about monetization.
And finally, we have skeptical management to deal with. Perhaps some of them have tried these types of projects and not seen the benefits. Perhaps they are simply not a believer in planning. Perhaps they want to promote some other project that they themselves proposed. Money is always in short supply, and one needs to prioritize where it gets spent.
There is a ton of information on these topics out there. I will be presenting what I have learned over the years in a webinar titled “Building the ROI Case for Demand Planning“. Please join us Wednesday April 6 at 11 am ET.