Whether it’s the amount of risk in a particular decision or the reason for a problem that impacts the bottom line, the unknown is a scary concept. As businesses continue to generate vast amounts of data, the business value of this information is palpable. However, determining whether or not this data has any economic value is difficult. Armed with advanced tools that produce incredibly huge amounts of data, storage, retrieval and analysis, businesses have taken on a new method to minimize this unknown.
An analysis from Ocean Tomo, LLC has demonstrated that from 1975 to 2009, the proportion of intangible assets has grown from about 17 percent to 81 percent, mainly due to the value of information playing an increasing role. In addition, Gartner predicts that 30 percent of businesses will monetize their information assets directly by 2016.
Other market analysis shows that a large percentage of executives believe that their companies’ information asset value is not correctly represented in their balance sheets. Many times, information is absent as an asset class and not recognized as a specific intangible asset.
This has led to a concerted effort by many within the industry to identify methods to put a price tag on data. “Infonomics,” a term coined by Gartner’s Doug Laney, describes quantifying, managing and leveraging information as a formal business asset. Infonomics endeavors to apply both economic and asset management principles and practices to the valuation and handling of information assets. This will provide companies with a better understanding of the true value of their data and how they can apply it to their business operations.
Considering the increasing levels of dependency that organizations have on their data, the question of valuation arises. What is the real economic value of a business’s digital assets? How do we define it?
Defining the formulas that measure data’s value is increasingly challenging. A few models have been developed in the last years that either focus on the valuation of quality attributes of information or on the financial valuation of information in terms of costs, market price or potential revenue generation.
One way, in particular, is to apply accounting principles to information assets in a transparent and automated fashion using an information governance solution. Accountants favor three overall approaches to quantifying the economic value of any asset: the cost approach, the income approach and the market approach.
Cost approach values an asset at what it cost to obtain it -- or what it would cost to replace it. Income approach assesses the portion of a revenue stream attributable to any given asset. Market approach is appropriate for assets that are being exchanged in some way for goods, services or direct remuneration.
These approaches can all be applied depending upon the type of information to be valuated. For example, the income approach would be an acceptable way to establish value for customer information that is used to directly impact the corporate revenue stream.
Improving Data Economics Through Data Governance
As with anything that has significant value, there is a requirement to secure it from losing value and to try to increase its value. One method for achieving this for a company’s data is through information governance, which provides a fundamental outline for managing, improving and controlling data.
An information governance platform helps a company to better value their information assets over time and automate the creation of supplemental appendixes to the corporate accounts. Improving information economics and justifiable disposition of irrelevant content is becoming a need for most organizations.
As businesses continue to generate greater volumes of data, they face greater challenges to extract value. IT costs and security risks will likely increase in tandem. It’s vital for the industry as a whole to develop a pragmatic and cost-effective solution to solve these challenges.