Extreme ROI with Optimization
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We're one week from the announce of the 2012 Franz Edelman Award recipient. Each year, the Edelman Award Committee selects the five or six best entries to advance to the Franz Edelman Award final selection. These five or six entries are called the Edelman award finalists.
We said last week that these Edelman award finalists were showcases of the usefulness of optimization technology.
How useful really?
The answer is given in the 2011 Edelman Award Gala brochure. It contains a report by Jeffrey M. Alden, Group Manager, GM Operations Research, on the monetary contribution of all Edelman award finalists. For each contribution, he looked carefully at the ROI documented in each finalist application. He took conservative estimates, making sure that any approximation was on the safe (read lower) side. Then he summed all contributions, which yields this incredible figure : over $170 Billion US Dollars. Details are given in the following chart showing contribution year after year since the creation of the award in 1972.
It means that the finalists over three decades or so collectively created more than $170 billion savings or increase revenues for the organizations they worked for. And these are in addition to non monetary benefits such as "ongoing practices and organizational changes that improve health, safety, cooperation, decision making, and job satisfaction". This report provides specific examples, including: "legal dispute resolution, cancer treatments, airline security, hazardous material deposition, budget allocation, inclusion of risk in decision making, organizational structure, on-time railway performance, and space shuttle heat shielding performance.".
Alden's report is worth reading in detail (as is all the Edelman Award brochure as a matter of fact). In particular it clearly shows pervasiveness of operations research applications: "The Edelman finalists represent over 100 different application areas including: air traffic, banking, broadcasting, canal operations, consumer products, delivery (express), defense (air force, army), education, financial (pension, investment, credit card, settlement), fire protection, forestry, health care (hospital, pharmaceutical, diagnosis, elderly), hotel management, energy production and distribution (coal, gas, hydroelectric, oil, nuclear), land use, manufacturing (electronics, food, paper, seeds, tires, vehicles, wood), marketing, printing, sanitation, security (airport, police), transportation (airline, highway, railway, space), treasure hunting, waste management, water (resources, quality, flow), and weapons dismantlement. There’s many more … the list goes on and on!"
Should we celebrate without further thoughts? Have we found the ultimate weapon to convince all businesses and organization around us to jump on operations research and start using it? Not yet.
We are missing one important ingredient as we have not discussed the investment needed to achieve these large returns.
Alden' report doesn't document it in detail, but it clearly dismiss investment as being negligible. Indeed, one of the rule used by Alden to establish contribution is to " Ignore costs if insignificant like development and implementation costs.".
Having worked with some of the finalist as a supplier (they used our CPLEX product), we can testify that the implementation costs are often not commensurate with the return. We know for instance that one finalist spent less than a million US dollars for a return in excess of $100 million US dollars. It is our experience that such extreme ROI are not uncommon when using optimization technology.