Data Economics

Enabling chief data officers and investors to tie the financial value of data to enterprise value

Chief Data Officer: Does your CFO consider Enterprise Data Management to be Destructive or Accretive to Enterprise Value?

Sunil Soares

CEO, YourDataConnect

Data Monetization is the process of realizing value from information in a financially quantifiable manner. The “Data Monetizer in Chief” in any organization will likely be the Chief Data Officer (CDO) if one exists.

As shown in the figure above, the data monetizer role needs to have skills across Data Management, Technology, Regulatory Compliance, and Finance. In my experience, most CDOs have skills around the first three areas but often lack experience around alignment with Finance.  According to Forbes, the average tenure of a CDO is “a brief and difficult 2.4 years.”

Consider Enterprise Data Management (EDM) spend from the standpoint of the CFO. Let’s say, a CDO at a large organization is spending $170M annually on EDM across FTEs, contractors, software, hardware, and other services. Taking a three-year horizon and a 5% discount rate, the Net Present Value of EDM spend is negative $463M. These numbers are conservative because we only assumed a three-year horizon. So, the CFO is going to think of EDM spend as equivalent to Long-Term Debt worth $463M that pays out three annual payments of $170M.

In a medium-size organization, the EDM spend may be $50M annually. Assuming a three-year horizon and a 5% discount rate, the Net Present Value of EDM spend is $136M.

Now, the CDO needs to justify all the value that is being generated from EDM including cost reduction, revenue enhancement, risk mitigation and cash flows. If that value is less than $463M, the CDO will lose executive sponsorship, lose their budget, find a new job, etc. 

We’ve seen this movie play out many times in the past. 

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