Cost Benefit Analysis For Solving Master Data Management Iss

Cost Benefit Analysis For Solving Master Data Management Issues At Abc

Cost-Benefit Analysis for Solving Master Data Management Issues at ABC The ABC Company buys a certain type of sales information from many (several thousand) companies (suppliers). ABC compiles the information into research reports and other products and services which it sells to businesses (customers). The Data Compilation Department manages the processing and building of the research reports and maintains an up-to-date master list of data suppliers each with a unique master identifier. A different department, the Sales Department, markets and delivers to the customers who buy ABC products and services. The Sales Department maintains its own customer master system giving each customer a unique, but different identifier. A recent analysis by the Data Compilation Department showed that about 60% of the data supplier companies are also customers buying ABC products and services. The analysis was difficult to conduct because the Sales Department has its own customer master management system that is independent from the one used by the Data Compilation Department. The data supplier master data management system was internally built several years ago. The customer master data management system was recently purchased from a commercial vendor. These systems assign different identifiers and also track different information about each company. So even if the same company is both a data supplier and a customer, it is assigned different master identifiers in the two systems. The Chief Marketing Office (CMO) does not now know, but would like to know, which data suppliers are already customers and which suppliers are not customers. The CMO believes there could be many new sales opportunities in converting data suppliers into customers, especially by offering special product purchase discounts to suppliers willing to become customers. The Chief Data Officer (CDO) likes this idea too, because she believes the ABC products and services could be significantly enhanced if there were more suppliers enriching the data, and hence, could increase the number of customers. In other words, the CDO would like to know the opposite of the CMO, i.e. which of the current customers are not data suppliers, and see if they could be also incentivized with product discounts to become a data supplier. The IT department has provided estimates for two possible solutions. One is to keep both of the current MDM systems (Supplier and Customer), but internally develop a bridging system to maintain a “cross-walk” between the identifiers in the two systems. They estimate the bridging system would cost about $750,000 and 8 months to build, and would require about $400,000/year of additional ongoing operational cost to keep it current and accurate. The second solution offered by IT is to migrate the information from the custom-built, legacy data supplier master into the more modern commercial customer master. The vendor for the customer master claims its system can be modified to handle both suppliers and customers. The vendor has given an estimate of $2,300,000 one-time charge and 3 months to make the changes needed for its system to service both data supplier and sales operations, but this estimate does not include the actual migration of data from the supplier system into the enhanced system. For this second solution, there is essentially no additional ongoing operational cost to maintain, because any additional maintenance cost for the consolidated master system is offset by retiring the legacy supplier master system. In fact, IT believes this migration solution could possibly result in some marginal savings in IT operational cost. Suppose the CDO and CMO came to you and asked you to come up with a recommendation for solving this problem. Even though there is not sufficient information given here to make a complete business case, describe in detail for each solution what direct and indirect costs and what tangible and intangible benefits you think should be considered in order to make a fair comparison of the solutions listed below. For each cost or benefit without an estimated value, indicate how you think the missing value could be obtained. · Solution 1: Let internal IT build and maintain the cross-walk system. · Solution 2: Let the vendor of the customer master make changes necessary for it to serve as both supplier and customer master. · Default Solution: Do not make any changes, continue operations as usual. · Alternative Solutions: Do you think there are other possible solutions to be considered? If so, describe them.

Paper For Above instruction

In evaluating the appropriate solution for the master data management (MDM) issues faced by ABC, it is essential to undertake a comprehensive analysis of both tangible and intangible costs and benefits associated with each proposed solution and the default approach of maintaining status quo. This analysis will facilitate a balanced comparison, enabling informed decision-making aligned with organizational strategic objectives.

Solution 1: Developing an Internal Cross-Walk System

The primary cost consideration for this solution involves the initial development and deployment of the bridging system. The estimated one-time cost of $750,000 to build the system and an ongoing operational expense of approximately $400,000 annually are significant, especially considering their cumulative impact over time. Indirect costs may include the strain on IT resources, potential delays in updates or accuracy issues, and the possibility of integration challenges with existing systems. Additionally, there are intangible costs such as increased complexity and diminished agility in master data management, which could affect the speed of decision-making and responsiveness to market changes.

On the benefits side, this bridge provides immediate alignment capability between the two systems without requiring wholesale replacement, which might otherwise be disruptive or costly. It allows for incremental improvements, maintains existing systems, and offers flexibility to adjust or expand as organizational needs evolve. Indirect benefits include improved data accuracy in cross-referencing supplier and customer data, enhanced insights into client relationships, and the potential to identify cross-selling opportunities.

However, missing estimates such as the long-term operational costs beyond the first few years, costs associated with data reconciliation errors, and the resource costs for ongoing maintenance, should be obtained through detailed budget forecasting, vendor quotes, and operational audits.

Solution 2: Migration to a Unified, Vendor-Modified Customer Master System

This solution entails an initial investment of approximately $2,300,000 to modify the existing vendor system to accommodate both suppliers and customers, along with a three-month implementation period. It also involves a migration process, which, although not estimated here, could incur additional costs related to data cleansing, transfer, validation, and potential downtime. Since this solution substitutes the legacy supplier system, ongoing maintenance costs are anticipated to decrease or be offset, leading to possible operational savings.

Advantages of this approach include a streamlined master data environment, possible enhancements in data quality and consistency, and reduced complexity in system management. The intangible benefits could incorporate improved data governance, quicker access to integrated data, and better strategic insights for marketing and sales initiatives.

Missing costs that need estimation encompass the data migration expenses, such as labor costs for data cleansing, validation, and transition planning; potential system downtime costs; and any costs linked to staff training. These should be estimated through contractor/vendor proposals, project management assessments, and data quality audits.

Default Solution: Continuing Operations Without Changes

The default option avoids capital expenditure and operational costs related to system modifications or upgrades. Its costs are mainly derived from continued inefficiencies, such as recalculating or manually reconciling data discrepancies, missed opportunities for data-driven sales strategies, and potential misalignment between supplier and customer data leading to inaccuracies or missed insights.

Intangible costs include reduced competitive advantage, inability to leverage cross-selling opportunities, and diminished organizational insight into customer-supplier relationships. The benefits of this approach are its simplicity and the avoidance of immediate expenditures, but it likely results in strategic disadvantages over the long term.

Alternative Solutions

Additional options worth considering include implementing an enterprise data governance framework that unifies data standards and policies across departments, thereby reducing duplication and inconsistencies. Deploying an automated matching and reconciliation system utilizing machine learning algorithms could also improve data quality without extensive manual oversight. Establishing a centralized data integration platform or middleware that interfaces with existing systems presents flexibility and scalability advantages.

Each alternative carries its own cost-benefit profile, which should be evaluated in context with organizational priorities, technological maturity, and resource availability.

Conclusion

In conclusion, selecting the optimal solution requires a thorough assessment of direct costs—initial investments and ongoing operational expenses—and tangible and intangible benefits, such as improved data accuracy, enhanced strategic insights, and operational efficiencies. Solution 2 appears to offer a more integrated and potentially cost-effective approach over time, given its lower ongoing maintenance costs and strategic advantages. However, detailed cost estimation, risk analysis, and alignment with organizational goals are critical before final recommendation. Incorporating alternative solutions like advanced data governance and automation can further strengthen the data management strategy at ABC, fostering better decision-making, operational efficiency, and competitive positioning in the market.

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