Measuring Data Quality Costs

Calculating the business case for data quality management is a complex task. However, it is not impossible to do so. Classifications of traditional quality management, e.g. from Feigenbaum, are an excellent means to identify the costs of data quality. Referring to the „Cost of Conformance“ and „Cost of Non-Conformance“ we can classify data quality costs into

  1. Costs of Data Quality and
  2. Costs of Non-Data Quality.

Costs of data quality are costs related to the identification and prevention of data quality problems. This definition includes hard- and software costs to support data quality managment as well as the costs for manual work involved in the creation and maintenance of data requirements / data quality rules. Non-Data Quality costs are costs caused by poor data quality, such as costs related to rework, poor decisions, or process failures.
Data Quality Costs
With a pure perspective on the costs of data quality management, one could calculate its earned value periodically by subtracting the effort for data quality management (Cost(DQM)) from the amount of money saved through data quality management (Benefits(DQM)) within a specific period.

EV(DQM) = Benefits(DQM) – Cost(DQM)

The benefits of data quality management can (for instance) be a reduction of incidents, a lower rate of returned consignments, or a more efficient inventory management. Of course, noone can really verify that these benefits are execlusively caused by data quality management activities. But it may help to approximate the benefits of data quality management and, therefore, serve as an estimate to decide whether to roll out data quality management to the whole organization. However, in many cases it is not smart to only look at the cost of data quality management. For example, insurance companies in Europe will soon be required to have an effective data quality management system due to Solvency II. Moreover, in healthcare and logistics industries data quality problems can have fatal consequences, e.g. when dealing with patient data or hazardous goods.

The Information Quality Institute helps you to set up an effective data quality management that will pay off for your organization and minimzes risks. Please do not hesitate to contact us for a free first consultation.