I read a fascinating article about a theft at a major hospital in Manhattan that I thought would make an interesting case for the ROI of BI… The theft was in the range of $1.2 million to $3.8 million USD and the thief almost got away with it!
If you are wondering how a hospital could lose nearly $4 million dollars over the course of a couple of years and not notice, it is because they purchase nearly $800 million a year in outside services and supplies and the thief was simply taking a little bit off of the top!
Here’s the basic story: A 32 year old man was in charge of ordering and receiving printer toner and other office supplies at the main outpatient center at the hospital. He thought it would be a great idea to order a few extra printer toner cartridges and rather than put them in inventory he just sold them on the black (and I’d presume magenta, cyan and yellow) market. Ok, that was bad, but you get the idea.
He ordered $3.8 million dollars in toner over a period of 6 years (sometime in 2004 – August 2010). Now there is of course no way to know how much of that was eventually sold out the back door, but we do have a pretty good idea of at least part of that number. You see over the last bit of his great plan, he purchased $1.2 million dollars of toner cartridges for printers that the hospital didn’t own. That’s right, he was so confident in his scam that he bought toner that the hospital didn’t even use at an astonishing rate of $110,000 a month for the final 11 months of his shopping spree. If we figure 20 work days a month and $50 a cartridge that’s about 110 boxes a day!
During this final 11 months of buying stuff that the hospital couldn’t even use, he somehow managed to make it through all of the checks and balances that the company had in place to prevent people from buying the wrong products. He was also able to avoid anyone noticing that their budget numbers were being blown up by over spend. And of course no one noticed that they weren’t loading the warehouse with everything that was ordered and paid for. It begs the question, if this is what one person on purpose can do to you, what about all of the innocent mistakes of the other thousands of employees? How much does that cost?
By my rough calculations (the hospital isn’t making their numbers public for some strange reason) the company spent approximately $705,000,000 on ALL outside services and products during this period. So that’s everything from consulting to specialist care to beds to cars. We don’t know how much of that was in the office supply category but even of that huge number he stole almost .2% of their entire spend. Just to make the numbers more meaningful, if we assume that 25% of the big number was office supplies then he stole 4.25% of their total office supplies spend. How could this not raise at least a yellow flag unless there is no one with flags watching the data?
So now after all of that background, we are at the subject of this post…how do we measure the ROI of BI projects? You see if someone had an effective BI program in place they would have noticed an increase in the consumption of office supplies in the office, way before he ordered all of that toner and sold it. An analysis of the data would have shown that expendable supplies were being consumed at a much higher rate than they had been historically and this would have allowed someone to drill down to see that printer toner costs were way higher than they should have been.
A few more clicks and suddenly you would see that one guy is buying all of this toner, and stopping by his office would have put you on to some more clues. Little clues, for instance, his diamond Rolex, his flashy clothes and his 2011 BMW X6, and his apartment in a Trump high rise. Mind you he was making $37,000 a year so any of these might beg a few more questions.
In the defense of the company no one should be watching their employees for how they spend their money but if you knew that you were ordering a lot of toner that never made it into the building a cursory glance at your employees is probably in order.
The story will soon end as the man in question did plead guilty to theft to the tune of $1.2 million and a recent article in the Associated Presssays that he “expects to be sentenced Aug. 8 to 2 1/2 to 7 1/2 years in prison. He’ll also have to give up proceeds from selling a BMW SUV, a diamond Rolex watch, Vuitton bags and other pricey items.” I’m sure that will make the executives at the hospital happy, but I think that they will still be a little short on their $2-4 million loss.
This story exemplifies the problem with BI in general. While most projects and efforts are built around simply presenting expected numbers and known reports/data the real value is in presenting data in such a way as to drive questions. What I mean is that I can imagine that the accountants asked the IT team to develop reports which showed spending figures on office supplies. What they should have been asking is for the IT department to build an infrastructure where they could see anomalies in spending and then track them down. Of course they may have done this and still missed the first month or two…but .2% of the entire spend over nearly a year of unneeded purchases? How does this not go down as gross negligence on the part of management?
We obviously don’t know all of the conversations which took place before (or even better after!) this series of events but these questions should be a part of the conversation between every BI manager and their business counterparts.
So to you Mr. BI Manger, what questions are you asking your business people? Are you pushing them to do more than the minimum? Are you helping them remind everyone that a few extra dollars in the project budget can pay off as insurance against huge loss? Are you building alerts and dashboards to highlight bad spending?
Original Article in the Wall Street Journal
Image Credit: www.presentermedia.com
