“If I say data assets to my CFO, his first question is going to be ‘how do I put them on the balance sheet?’”
Said one CDO of a very large bank we spoke to recently. It’s a real challenge for the data industry and one that isn’t going to be solved anytime soon. Doing so needs globally agreed accounting standards, which in themselves take years to agree. And we don’t even have standardised ways to agree data definitions in individual companies and countries. Yet the question of what is data worth will only get more relevant. But is the benefit of valuing data like any other asset solely about balance sheets, M&A and accounting?
Our experience and 87% of data leaders say no.
Data is an asset like no other. It’s not on an even playing field in the game of business investment decisions. Proving a clear line of sight to ROI is hard, and in itself requires an extra investment. Some, like Barry Panayi Chief Data Officer, Lloyds Banking Group, and Non-Executive Director at Ofgem, argue it should be a BAU investment.
“Data’s not on an even playing field, it should be a BAU investment, like keeping the loos clean or having a finance department. When investment in data projects have to compete on short term ROI measures to get signed-off, you create all sorts of problems for the future.”
Valuing data like any other asset delivers a range of benefits, beyond a monetary number.
Never have to convince people data’s valuable again
91% of business leaders say data is critical for success. 76% are committed to large scale transformation on data. 67% of Boards say data is material. Yet, just 34% of businesses consistently manage data to the same professional standards as other tangible assets. That is a massive 57% gap between the intent and the execution.
When people understand data, they will value it and act accordingly. That’s the standard industry line. Data literacy. It hasn’t worked over the past 20 years, so why would it now?
Tell a business their data assets are worth £4bn because of the value they create, and watch them go to work on what they now know is valuable to their business. No more time spent convincing people why they should prioritise data.
Allow the CFO to compare investments like for like
The COO at one of Anmut’s clients, a major infrastructure provider with a £6bn annual spend, said, “For every £2 of physical asset, we now know we have £1 of the data asset. It’s given people in the business the language to manage data as a strategic asset. For the first time, I can compare investments in concrete with data.”
Money is a medium of exchange. Its absence makes decisions about capital allocation far harder. And people are very good at going the path of least resistance, just ask Amazon or Uber.
Know which data assets to invest in to move the needle the most.
When you simplify it, a business makes decisions about where to invest capital across different assets to drive activities that create value. Valuing data as an asset makes it speak the language of business. If the method of valuation is robust, the result is a prioritised list of the business’ data assets. Investing in these assets then generates significant returns, because data assets underpin multiple use cases. When you consider the failure rate of data-related projects, having the assurance of investment delivering value is not just good for the business, but the CDOs job too.
Make the difference between data and technology clear.
When technology receives x5 more budget and x3 more attention than data, making the distinction between the two clear for business decision makers clear, could be a source of advantage. One that might stop the CFO from thinking the CDO’s budget is x5 larger than it actually is.
Make the full ROI of data clear for all to see.
Depending on how you do it. There are many different methods of valuation.
· Basic cost-based methods just measure data cost, which is far below the benefits, so inaccurate.
· Market-based methods set the price on what someone is willing to pay, but there isn’t a trusted and efficient data market yet.
· Utility-based methods seek to use economic measures of the benefits to value data. Typically, short term changes in costs or revenue as a result of data use, but they miss most of the benefits data brings, which are over the longer term. · Stakeholder valuation determines which activities create value in the eyes of the business’ stakeholders, by how much and how data dependent those activities are. This values specific data assets based on the role they play in creating value, not just revenue or efficiencies, giving a more realistic picture of how the organisation creates value and the value of data in that.
If you choose stakeholder valuation, it’s possible to project, full short and long term ROI of investments in data assets. The kind of thing that makes a CFO very happy.
At first, talk of valuing data like any other asset feels like a nice to do tomorrow, rather than a business imperative today. Yet it’s tough economic times like this that every investment has to count. Data is the way to achieve this, but we all know data has been chronically underinvested in, unless a step change in the way we approach data is made, we won’t see a step change in the data itself.