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Applied Infonomics

Information asset management and valuation
by

Douglas Laney

on 3 November 2015

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Transcript of Applied Infonomics

Barriers to Information
Asset Management

charges on a silicon wafer or bubbles on an optical disk
an idea or concept
a representation
other?
"Information is one of our biggest corporate resources."
"Information is one of our biggest competitive assets."
"Information is one of our biggest pains in the asset."
"Information is one of our biggest corporate risks."
a business by-product
a tool or resource
a business performance fuel
a reputational or compliance risk
A brief history of accounting innovation
7500 BC
The first accounting records in Jericho & Sumerian cities
2200 BC
The Code of Hammurabi. One of the earliest transaction legal codes
7th Century BC Coins invented in Lydia
575 BC
Greek banks start to mint coins, accept deposits, make loans
1494
A Venetian merchant codifies double-entry accounting methods
1772
Charles Darwin’s grandfather, Josiah Wedgwood, invents cost accounting
1845
William Deloitte founds the first of the Big-8 accounting firms in London
1923
General Motors’ controller develops ROI and ROE calculations
1936-38
SEC-chartered committee standardizes financial statements
1953
Arthur Andersen computerizes the payroll of a GE plant
1979
Dan Bricklin and Bob Frankston create VisiCalc for the Apple II
1990’s - Rise of accounting packages and integrated financial systems, e.g., Peachtree, Quickbooks, Oracle, Peoplesoft, SAP
(gain-cost)/cost
So is information an asset?
It is not on the balance sheet.

You can’t account for it because it is so nebulous.

It is not really consumable like other assets.
It is owned and controlled.

It can have an exchange value.

It can generate a positive economic value.
Stuff
businesses
manage
What we do WITH assets
What we do TO assets
How is information providing business benefit
What are we doing to add value to the information
Where are we getting information from
The information value chain
A unit of information
A transaction
A customer contact record
An e-mail
What is Information anyway?
Infonomics is the economic theory of information as new asset class, and the discipline of accounting for and managing information as any other enterprise asset.
Why quantify information's value?
You can't manage what you don't measure
Projecting and confirming ROI of IM initiatives
Gauging what to spend on infosec
Claiming M&A valuation premiums
Assessing risk that contracts, judgments & insurers deny info is property
Collateralizing loans
Using information as a currency
Productizing information
Principles
of
Infonomics
1
2
4
5
6
7
3
Introducing
Realized Information Value
Your current capabilities and solutions
Probable Information Value
Your expected capabilities and solutions
Potential Information Value
If you applied info to all relevant business processes
Information
Value Gap

Human Capital Management
Material Asset Management
Financial Asset Management
Recruiting
Hiring
Training
Staffing
Roles
Teams
Performance reviews
Reduction in force
Termination
Outsourcing
Temporary workers
Accounting
Investment
Acquisition
Leverage
Credit
Valuation
Portfolio
Factoring
Liquidity
Volatility
Raw materials
Unfinished inventory
Finished goods
Storage
Maintenance
Replacement
Standardization
Disposal
Transportation
Resource training
Safe handling
Security

1. Update IM strategy to include measuring information value

2. Communicate intent to measure information's value for improved management and benefit

3. Determine methods to measure data quality characteristics

4. Consult with CFO on ascribing information assets an economic value

5. Determine models for quantifying information's actual, potential and probable value

6. Establish a process and schedule for performing information asset valuation assessments

7. Use results to plan how to deal with under-performing information assets

8. Borrow information asset management ideas from established asset management practices
Infonomics Action Plan
Borrowing Traditional Asset Management Principles and Practices
Information is an actual asset (if not yet a recognized asset class)
Information has potential, probable and realized value
Information’s value can be quantified
Information should be accounted for as an asset (internally)
Information’s realized value should be maximized
Information’s value should be used to budget IT and business initiatives
Information should be managed and leveraged as an asset
What is an Asset?
Asset Management
Insurance Industry
The standard U.S. General Commercial Liability (CGL) policy was revised to explicitly exclude electronic data
Accounting Profession
International Financial Accounting Standard FAS 38 was revised to explicitly exclude information from being capitalized.
Legal System
Courts around the world are split on the issue of whether information constitutes "property."
You and your data are definitely at risk
Should information be recognized as a corporate asset?

What are the ways information can be managed and deployed as a corporate asset to drive business performance?

How can information's value be measured?
Key Issues
An asset is more than just "something of value."
Yesterday's and Today's Corporate Value Components
Valuation Premiums for Companies Serious about Information
*ratio of market value to tangible assets
Revenue

Growth

Expenses

Risk

Compliance

Valuation
Squeezing more value out of information
Optimizing and eliminating business processes
Improving business performance
Trading information for goods and services
Strengthening business relationships (partners, employees, customers, and suppliers)
Optimizing availability versus quality
Balancing accessibility versus security
Improving information supply chain performance and integration
Adhering to regulatory issues regarding information
Managing information more effectively
Why Bother to Think About and Manage Information as an Asset?
In 1975, tangible assets comprised 83% of a company's market value. Today it's only 20%.
However...
Over half of the value of M&A transactions cannot be accounted for
Executives are unable to identify a large chunk of their organization's value
Therefore...
The Contrails of
Information's Value
$
$
$
$
$
$
1
Tobin's Q = ratio of market value to tangible asset value
Average business = 0.96
Infocentric companies = 2.4
Infoproduct companies = 4.7
Investors reward companies
that are serious about information!
Lack of executive support
Mistakes not tolerated
Manager workarounds
IM practices neither rewarded nor punished
No IM vision
IT see as a panacea; IM ignored
Info not managed as an enterprise asset
Resistance to change
Lack of responsibility and accountability
Level of responsible person
Board does not understand IAM
CIO has technical focus
Lack of measurement
Language imprecise
Accounting practices incapable of handling info assets
Technology shortcomings and poor IT reputation
Leadership & Management
Governance
Justification
Awareness
Enabling Systems & Practices
Lack of a catalyst (e.g. crises, business changes, compliance)
Compliance and risk are burdensome/costly
Other priorities prevail
Cost, value and benefits of info assets is unknown
The value of information is contextual
Benefits are intangible and intertwined
Process view
Inefficiency is rewarded
IM is not an interesting topic

Problem is not recognised
No formal secondary or tertiary education
Limited informal on-the-job training
Organisation immaturity
Barriers to the Effective Management of Information Assets, J.Price & N.Evans 2012
What is your objective for valuing information?
Leading Indicator
FUNCTIONAL

Improving information management discipline


FINANCIAL

Improving information's economic
benefits


Trailing Indicator
"All models are wrong, but some are useful."
Dr. George E.P. Box

President, The American Statistical Association.

Infonomics In Practice
2018 Bifurcation of the traditional IT department into "I" and "T" department

2020 Information auditing & valuation (internal)

2022 Information insurance policies

2024 University of Illinois offers first MBA in infonomics

2026 Information banking

2030 Accounting recognition of information assets



Longer term infonomics implications:
Full transcript