By: Tim Calkins

If your organization is evaluating the feasibility of a GIS solution or already has a mature Location Analytics platform, calculating the derived benefit to the bottom line is powerful and constructive exercise. The goal of this post is to help build the business justification with ROI (Return on Investment) as the quantitative yardstick for measuring the cost/benefit and value achieved from a GIS solution.

There are many tangible and intangible benefits derived from the problems a GIS solution will solve. Qualifying and quantifying the results of the ROI exercise and then documenting them is a common practice and many tools are available to assist with the calculation.

Building the business case

A business case is best described as a financial story based on facts, structured assumptions, and logic. It provides a vehicle by which the financial impact of the options can be examined and conclusions drawn.

Example:

A bank wants to analyze its customers and loans by location, product, industry, risk and risk exposure. The bank would like to assist a manager’s ability to visualize their accounts in an easy to use dashboard. After review of their capabilities, a spider chart was produced with current and desired functionality.

gis-roi-graph

Visualize Customers Current Desired
By Geography

3

6

By Topography

1

5

By Risk Rating

2

7

By Product

4

8

By Collateral Class

4

6

By Catastrophic Scenario

1

6

By Industry

4

7

By DPD (Days Past Due)

5

8

The bank had considerable gaps between where they were and where they desired to be as an organization. They wanted the ability to overlay a map of customers along with a hurricane’s path or see what customers or facilities are within 25 miles of the San Andreas Fault or below 25 feet above sea level along coastal areas. Working with senior management, gaps were prioritized and then assigned a value. Results were tabulated and reported back to senior management using a standard ROI template.

The above use case has been oversimplified but building justification can be boiled down to a few basic steps. The outline below uses a five-step process derived from standard practices around calculating ROI. These steps were adapted from “The Business Benefits of GIS: An ROI Approach” but summarized for a more agile approach.

The 5 steps are:

  1. Determine the need and benefits of a GIS solution
  2. Outline and prioritize business requirements and opportunities
  3. Assess budget and project timelines
  4. Estimate benefits
  5. Document and present results

Step 1 - Determine the needs and benefits of a GIS solution

Does your GIS solution align with your organization’s strategic objectives?

The first step in calculating your ROI will involve looking at what’s driving the need of a GIS solution. You’ll need to assess your organizational pain points and weigh them against your goals and objectives. During this step you must consult crucial stakeholders and identify the improvements and benefits of a GIS solution. Key decision makers must be identified and should be made aware of the ROI study. Their involvement and approval is crucial to the ROI process

Step 2 - Outline and prioritize business requirements and opportunities

Defining the scope of the project is next. Getting agreement on what problems the GIS solution will solve and the functionality needed, along with knowing what is nice to have versus what you need to have, should be documented. The pain points should be objectively laid out and prioritized with the end users and business partners. Also you should outline the opportunity costs and what the risks are of not having a GIS solution. The intangibles are much harder to quantify but a value should still be placed on them. Critical objectives should be benchmarked for a before and after appraisal.

Step 3 – Assess budget requirements

After the scope of the solution is agreed upon, the cost of the project should be estimated. The steps are the same if the GIS solution is already in place and you are just adding features or functionality.

The ROI model allows you to break out the elements associated with the specific projects in your portfolio to allow comparison between the benefit value of a calculated base case without GIS and a calculated case with GIS. To complete the template, it is necessary to revisit the original opportunity list.

Step 4 - Estimate benefits

In order to estimate a type of return on an investment in location analytics, a value must be assigned to derived dividends of the solution. Mapping out capabilities at the start (current) of the project and what’s expected to be achieved (desired) allows you to see the “gap” and assign that gap a value. Working with senior executives and your organizational goals, you should be able to team up and assess the value of reaching your desired capabilities. It’s a great exercise to get buy-in and prioritize which capabilities add the most value.

There are many different ROI templates available for free on the web and you can dive as deep in the financial weeds as you want. How deep is dependent on what level of detail your management requires. Using these templates and mapping capabilities you should be able to use the estimated benefits to assign a quantitative value with the templates. Based on the results of the analysis, it may be necessary to adjust the budget or seek additional examples of quantitative benefits that can be modeled in order to make a strong argument for GIS.

Step 5 - Document and present results

The final step will have you compiling your templates and creating reports with the purpose of demonstrating to senior management the value of funding a GIS solution for location analytics. There are many different styles you could use to format your report but I suggest you start with an outline containing the following key components:

Executive summary - It should be a high-level overview of your findings and a proposal for moving forward. It should be written with your senior team leadership in mind.

Background and history - Describe the need or shortfall that started this project and why your organization decided to look at this type of solution.

Purpose and scope - Next you need to provide an outline of the justification for this project and a review of processes and capabilities.

Proposed project - The next step is to describeas the solutions to the problems outlined above. It should be detailed enough to accurately describe what features and functionalities will be included.

Cost and time frame - The almighty budget and dollars will receive the most scrutiny. Time frame and internal and external resources should be included in this section. This is the most challenging section of the report and should receive the most attention. If this part is not deemed accurate then it will put the entire solution in jeopardy.

Recommended action - The purpose of the final section is to summarize the results and make a recommendation to senior management that the program should be funded as proposed in the report. This final sec­tion should be very focused on your key arguments and should be no more than a few paragraphs.

Glossary of terms – The last section should content an appendix with a glossary of the terms used in your report. Your glossary should include both GIS terms and ROI financial terms. Most likely the report will be presented to both audience and there is a good chance that only readers will only know either financial or GIS terms, not both. So it will be useful to keep everyone on the same page.

Summary

A positive ROI tells a compelling story, especially if the advantages line up with your organization’s mission and strategic direction. Both tangible and intangible benefits can be achieved along with better access to data and improved quality of a data for decision-making. Without ROI estimation, senior leadership can only focus on how much a GIS solution costs and not the organizational advantages. Estimating the value of your GIS solutions provides an effective framework and roadmap for the location analytics solution.

If your organization is about to evaluate a GIS solution, our team can provide help in calculating its ROI. We offer a few free hours to help guide you on your project and get started in the right direction. If you would like more information, feel free to fill out the form below and we will be in contact with you shortly.

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