The term “information asset valuation (IAV) sounds like meaningless buzz words strung together in an attempt to dazzle the reader with its business-sounding intonations; in truth, however, IAV is an important part of the new surge of infonomics, an increasingly important sphere in any business’ future plans. Under infonomics, information is considered an asset, has economic value, can have a quantified value and should be considered alongside other company assets.
Douglas Laney of Gartner Inc. notes that an IAV can greatly assist multiple aspects of information management.
- Understanding the true ROI of information: In his Forbes article, he notes that IT departments spend a significant portion of their budget on information management tasks. In reality, these budgets could be allocated to areas such as infrastructure improvement or other internal development projects to ensure better long-term operations. IAV allows you to measure the total gains from the information you’re managing and accurately calculate whether an alternative needs to be developed.
- Budgetary interests: After accurately valuing your information, the next step is protecting your assets and working them into the overall budget. Highly valued information might require a greater level of information security, while information with a low value might allow you to redirect attention to other aspects of the company.
- Contract value and business loan management: Accurately valued information can also be helpful in drawing up business contracts, ensuring a fair transaction between companies and providing collateral in business loans. Whether companies would be allowed to do this is a matter between companies, their customers and the contract they mutually agree to. Still, it’s a potentially huge shift in the economic landscape to allow credit to be attained on the basis of information value.
These are only a few of the potential benefits to getting an IAV. Companies like Obsidian Analysis regularly publish reports on IAVs and potential hidden aspects that owners may not be aware of. Obsidian stresses the prevalence of cyber-attacks and hacker infiltrations in an attempt to gain client information or confidential internal documents. While a small commercial company might not think it requires an expensive security infrastructure, consider this: if some of its clients include government organizations, banks, or other wealthy institutions, hackers could view this as a vulnerable target and strike.
Information valuation also has the benefit of exposing weaknesses in the current information infrastructure. A system can look stable, but blow over at the first sign of trouble despite every metric pointing to the contrary. Accurate testing allows a company to objectively review its system and make the kind of decisions needed to ensure that, in the event that somethinggoes wrong, the system will be able to recover.
The actual IAV process can be divided into four separate processes:
- Creating an inventory: Organizing the vast information a company might have and categorizing them according to how they function. Assets must be protected and liabilities must be managed, etc. This can be difficult for companies that rely heavily on third-party IT assistance or on social media – even for those who in general have limited control over their information beyond their immediate IT department. While not directly under their control, companies can still be held liable for information on third-party social media sites such as Twitter and Facebook.
- Immediately discarding unnecessary items: Obsidian categorizes information as either assets (value-adding information) or liabilities (risk exposure). Many companies tend to be overzealous in their obsession with holding onto data over real and imagined litigation risks, even when the data is purely a liability. In one reported case of a major Fortune 500 company, TJX Companies Inc. lost account information (including credit card and social security numbers) of more than 45 million customers in a hacker attack. Many of those affected were no longer customers of TJX Companies, but their data had been retained anyway. A simple IAV could have pointed out that these credit cards and SSNs represented a liability and should have been purged from the system.
- Valuating: This is more subjective, but can generally be fit to match whatever the company’s business may be; the key is in estimating costs according to a number of situations that might arise. Going back to TJX Companies, after purging the unnecessary information, they should have asked what would have happened to their relevant data in the event of a high-level attack. How much money would they stand to lose if this information was exposed? How much would they lose if research files were deleted or, worse, fell into the hands of a competing company? How much would they lose in predicted gains if information were to be exposed to the public ahead of time? These are all questions that need to be asked when attempting an accurate valuation.
- Analysis: This is the review stage, after the large chunks have been divvied up, liabilities excised and assets firmly in place. Analysis is the portion of the valuation where a company can look at what it has before and can reasonably assign worth to something against the established worth of all the rest of the company’s assets. A design schematic for a next-generation electronic device might be valuable, but is it more valuable than the manufacturing facilities, the tech support and the massive engineering team who actually built the thing? No, though some companies might be tempted to overvalue their information. This is the stage to rein in those impulses to overvalue, so that the appropriate amount of funds can be allocated for preservation and protection. The goal is always to maximize ROI, so overvaluation is actually quite harmful to both the companies (who spend too many resources on assets that don’t provide sufficient ROI) and to the investors, who erroneously believe their company has more assets than it actually has.
As a side note to overvaluation, this is by far the most difficult aspect of any company that primarily works in technology. Go to Valleywag.com on any normal day and see a multi-billion dollar valuation for a chat company. Is a company like Snapchat really worthy of a $4 billion acquisition? No, of course not, that’s a ludicrous idea and the result of both hubris and lack of any kind of perspective on the real value of information.
Sherpa Software is a leading provider of information governance and eDiscovery solutions. To learn more, go to www.SherpaSoftware.com