MDA Radar

Issue #18 [June 19-June 23]

Enterprise Architecture Economic Benefit Analysis: True Lies, More Art and Less Math

The term ‘financial performance analysis’ often crops up in the context of organizational economic quantification. With the help of management consulting experts, several organizations go through multi-million dollar economic transformation programs that span many years. However, before entering into the lucrative jargon trap, understanding the economic benefits of the proposed enterprise integration effort is a fundamental necessity for any enterprise. Since ancient times, people have been using numbers without understanding the mathematics behind them. To get better quantification, we require more art and less math. Therefore, the economic benefit analysis of an Enterprise Architecture Integration program is vital to the success of an Enterprise Architecture program. The Enterprise Integration program should be tightly aligned with business effectiveness through technology innovation.

What Do We Measure?

This is the first and foremost question that comes to our minds. However, it is not as simple an equation as we might think it to be. In this context, we measure the Enterprise Architecture (EA) lifecycle cost that is represented by this simplified equation:

EA Life Cycle Cost = Enterprise Integration Architecture Master Plan cost + Enterprise Integration Architecture Implementation cost + Enterprise Integration Architecture Maintenance cost + EA economic benefit analysis cost

That said, if we are only measuring the EA Lifecycle activity, we don’t need EA; so the equation will not be accurate for our purposes. The EA Lifecycle cost, therefore, is only one half of a full moon. In reality, we must measure enterprise payback with the cost of EA lifecycle cost.

Figure 1 explains the best opportunity functional cost analysis approach that justify improvement potentials:





Figure 1: Improvement Potential Opportunity Analysis [Adapted from [PERA]]

This matrix is a useful tool in justifying the EA cost in terms of opportunity analysis and improvement potential for any enterprise business entity.

How Do We Measure Economic Benefit?

The Purdue Enterprise Reference Architecture (PERA) Master Plan provides an excellent way of economic justification, classified into three important categories:

  • Economic: appropriate for projects with strictly economic benefits
  • Analytic: appropriate for projects with both economic and non-economic benefits
  • Strategic: appropriate for systems with strategic advantages

The diagram, shown in Figure 2, applies these categories to different refined analytical approaches:





Figure 2: Measure the Benefits: A List of Analytical Approaches. [Inspired by [PERA]]

This issue will not deal with descriptive discussions of these individual techniques. However, “a strategic justification accompanying an economic one may assure justification of a project that might well determine whether the company will become a competitive force in the market or disappear from it. It may be that a project that yields little return is justified from a strategic viewpoint because it is a prerequisite for other profitable follow on projects” [PERA]. Therefore, a strategic viewpoint alone should not drive any EA investment plan under any circumstance. Projects ought to be spawned based on the outcome of the economic benefit analysis process and by prioritizing the payback potential. These steps are depicted in Figure 3:





Figure 3: Economic Benefit Analysis Spawns the Project Thread

The Enterprise Integration team should take a fresh look at several potential sources of economic and technological benefits from the proposed enterprise integration program. The following planning guidelines will be useful when doing an economic benefit analysis:

  • Identify the competitive benchmarking for the candidate’s enterprise business entity
  • Compare the level of technological influence and justify potential opportunities through functional benchmarking
  • Perform potential opportunity analysis to render technology innovation towards business effectiveness
  • Identify scattered potential projects and prioritize them
  • Take the advantage of technical tools, processes, and standards to deliver those projects

Conclusion

In this issue, we have fed our neuron receptors the concept of economic benefit analytical approaches that work in conjunction with the enterprise integration architecture program. These concepts should help you successfully create and get the most out of your EA projects.

References