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Posted by Rob Karel on March 29, 2011
I recently received a client inquiry that I see flavors of a few times per quarter. The client said that they are trying to explore ways to establish information value within their enterprise. Because people often frame data and information as an asset, then shouldn’t we be able to establish its value?
What I share with my clients is that trying to place a monetary value on data and information itself is a red herring, an effort that I highly recommend all avoid – unless you enjoy philosophical exercises that don’t translate to actual business value. (Apologies to those that fit in this camp — have fun!)
The “data is an asset” rhetoric doesn’t translate to putting a monetary value on a customer record, as an example, because data in and of itself has no value! The only value data/information has to offer — and the reason I do still consider it an “asset” at all — is in the context of the business processes, decisions, customer experiences, and competitive differentiators it can enable.
For example, a customer record doesn’t have value unless you can sell, market, or service that customer. So for each customer record, many customer intelligence analysts calculate lifetime value scores, the potential share of wallet available, the customer’s propensity to buy certain products and services, and even the cost of servicing the customer. But that doesn’t put a value on the customer record itself: It places the value based on the sales, marketing, and service processes the data supports. And that’s where the data value should live: in the consuming processes.
That’s why my process data management approach recommends that all data management, data governance, data quality, and MDM efforts be put into context of the most critical business processes that consume and depend upon trusted data. The alternative is attempting to boil the ocean and trying to solve Customer, Product, or Financial data for all processes and decisions across the whole organization — too big of an effort, destined to fail before it starts.
Some organizations of course do place an accounting value for things such as acquired customer lists under “intangible assets” on their balance sheets. But the value of those customer lists are most commonly defined based on the value of the projected cash flow and revenue based on complex models with plenty of caveats and assumptions that act as necessary filler in quarterly and annual securities filings. So of course the customer records on the list are not what is being valued — it’s the future anticipated revenue net the future anticipated account maintenance costs that define the value.
And that’s where we should all be focusing our energies: on the business-value-generating processes consuming the data, not the data itself.
Would love to hear any thoughts on use cases I may have missed where calculating a value on data itself is actually delivering value!