The business case for business analysis

bottom line 1I  recently read the article by Pete Ebborn on “The Value of a High Performing Business Analyst” and in the article he quoted John Simpson saying:

“By championing the development of thousands of well-written requirements and collaboratively managing them throughout your innovation process, your staff of business analysts significantly impact the performance of your company every day. And, that makes them a strategic asset.”

That got me thinking…

If the business analyst, specifically the high performing business analyst, is a strategic asset, what is the value of that asset?

Or, in other words, how does a BA impact a company’s bottom line?

I started researching the subject, very sure that someone else must have done this before, but no luck – Google doesn’t have an answer to this one. Then I asked my brother, the fund manager, if there is a way to do this and again, no luck.

But, I carried on…

It is difficult to collect and analyse data on IT costs – regardless of whether at the individual company level or at the industry level. But it is even more challenging to evaluate how much companies get from the IT employed. In other words, how much output is generated by the IT input?

In a study on European banks, McKinsey found that high IT budgets did not increase the business value the bank gets from information technology. Amazingly, the top performing institutions derived the greatest business efficiency from a level of IT spending below that of their peers. According to this study, the quality of IT delivery is even more important than the spending level in achieving the desired results. (but, we knew that already.)
A recent paper based on data from German savings banks reaches similar conclusions: IT efficiency and the competitiveness of banks are positively correlated. Increasing IT budgets only improves a bank’s competitiveness if IT management is sufficiently efficient.

I also found a study conducted by the Corporate Executive Board, Application Executive Council, that states “Improving business analyst proficiency can improve application performance by as much as 30%.” According to the same study a Business Analyst who is proficient in understanding business process complexity, their economic and revenue drives, recognizing the implications of changes in business strategy and accurately measuring the contribution of IT projects to business value contribute to “extremely high application proficiency.”

And then there’s Gartner saying that “Enterprises will struggle to realize the intended benefits of strategic projects because 35 percent of them will begin without predefined, compelling business cases .” 

Based on this, I’m making the (very wild) assumption that high performing business analysts can decrease the cost of IT projects by a third, so a 33% saving.

I’m going to use an  estimation method called Johnomathics. (Thanks, John.) I’ve seen it being applied very effectively and very accurately, so don’t bash it.

Let’s assume the IT spend of the average big SA company is about 5% of total income, for any financial institution it is probably closer to 10%, let’s assume IT project spend is about 20% of that. (that’s based on looking through the annual financial statements of a random sample of listed companies, typically with a turnover greater that R10 000 million).

That means that for a financial company with a turnover of R10 000 million:
IT Spend = R1 000 million
IT Project Spend = R200 million per year

Let’s assume this company has a team of 20 business analyst, ranging from junior to senior, ranging from really good to just downright awful. The average CTC of these BA’s is probably around R500 000/year, so the team costs R10 million per year.

Replace the entire team with the best, hardcore, high performing business analysts you can find at a CTC of R1 million/year each – I’m sure that for that salary you can get the best.

Now the team will cost you R20 million/year, so the net cost of this high performing BA team is R10 million/year.

But this team of high performing business analysts will reduce your IT project spend by 33% of R200 million = R67 million.

That is a R57 million saving – a 570% ROI! Doesn’t sound right, does it.

Let’s reduce the estimate of the impact of high performing business analysts on project spend to 20% – it can’t be lower than that - still a R30 million saving per year.

So, for a team of 20 BA’s, the savings is R1.5 million per BA per year.

Therefore, I postulate that the annula value of a high performing business analyst is R1.5 million per year, and as the typical BA spends about 5 years at a company before moving on:

NAV of a high performing BA = R7 500 000!

If you disagree with me, please prove me wrong. hehe.


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