How to measure the value of data?
When someone points that “data is a valuable business asset”, usually everyone gives a nod of approval. But not many have the tools to prove and show the actual value of data. What is the value of our customer data base? What about the product data we have in our company?
As data itself is “just” a collection of values: numbers, characters etc. it is not even possible, I dare to say, to define value for it alone. There is usually a cost linked directly to the data: cost of collecting or acquiring it, cost of processing it and cost of storing it, even a cost of sharing it. But linking data to revenue or other type of monetary value is challenging, because it is not a product that is being sold on it’s own (for most).
It is common that the terms “data” and “information” are sometimes mixed. Information means processed data that has a meaning to human. Data is the ingredient for information. When thinking about information it starts to be a bit easier to think of the value as well. “If I have this information, I am able to do xxx”. And doing the xxx eventually creates business value, i.e. cost savings or revenue.
In this article I will share some learnings and a few practical examples from Finnair in calculating the value of data. Although COVID19 has changed the environment for air traffic significantly, and at the moment the challenge is not to manage the high volumes, it is still important to understand the 360 operational effect when flights are cancelled or changed – so this information is still useful.
Practical examples from Finnair in how to generate value from data:
Being able to target marketing campaign to right audience we used data of our customers earlier interactions with us. We modelled this data and created recommendations: “this person would be most likely to be interested in this type of product”. This recommendation was then the information we got. By using that information in our marketing campaign, we got great results. The results were measured with A/B testing: one target group was formed using the traditional method and another one using this new information. The second group was significantly smaller, so the email campaign costs were also lower. However, the conversion rate (people buying the product) was significantly higher for the second group. The value of the data used and information gained from it was the cost saving of marketing campaign + better revenue gained from the product sales.
2. Growing sales through high quality customer care
After the successful campaign, we did not stop there but shared the same information also to our customer contact center. Now they are also able to use the same information when in contact with the customers. The value is not directly just upselling products for customers to make their travel experience even nicer, it is also increasing the overall customer satisfaction which brings back not only the same customers again, but also new customers when recommended. And customers like to spend their money on service providers that add value for them.
Talking about customer satisfaction: Weather is one major component what comes to flight delays, especially in Helsinki airport, which is the home hub of Finnair. Flights are tightly connected in many ways: transferring passengers, crew, cargo and aircrafts all have connections that cause extra hassle for customers and work for ground crew and operations if missed. By bringing together weather data (past and forecast), runway capacity data and historical data of flights, and modelling that we were able to create information about the likelihood of a flight being delayed. By using that information in the Operations Control Centre daily work, it is now possible to take actions earlier to manage the disruption situations with more flexibility and secure customer satisfaction by reduce the hassle. Value in this case comes from f.e. being able to focus ground operations to the correct place and being prepared before f.e. the customers arrive – saved time.
Based on these few examples I would define the formula to calculate value of data being as simple as:
(RoC + SC + CV) - (CoRoDAM + CoAS2D)
- CoRoDAM = Cost of resources and effort put to Data Asset management
- CoAS2D = Cost of acquiring, storing and distributing the data
- RoS = Revenue gained
- SC = Cost Saved (also time saved if relevant)
- CV = Customer Value
Like investing your money, it is also important to carefully consider where you invest your data to get the best ROI. Therefore starting every data & analytics initiative with the business value potential is critical as that is the only way to validate if it makes sense to use the time & effort to build the solution. In addition, continuous monitoring of the value generation is important, as is managing your investment portfolio, sometimes you need to make the decision to move your money to a new portfolio that creates more value.
We have developed in collaboration with AI Roots new tools for making sure that the business benefits are analyzed and estimated when designing new data solutions. Data Design method and the tailored canvas template helps us to integrate that with the understanding of the core customer needs and the evaluation of solution feasibility, i.e. how much effort and resources are needed to maintain, develop and use it. Check out our article explaining the roots of the Data Design method.
Feel free to comment or contact us to discuss more about the topic. It would be interesting to find out what is your formula for calculating the value of your data.