The Value of Data on the Balance Sheet
As the value of data is acknowledged by almost everybody and every company these days. More and more the questions rise about the financial value. What is the net worth of data? Is it possible to measure data in euros or dollars?
If you store materials in your warehouses you have to make inventory reports and you are obliged to put the value of the stored goods on the balance sheets as well. Why not include data reports or reports about data in your balance sheet? Last week I asked this question to an accountant of a well know firm in The Netherlands. He told me:
There should be a identified ownership to put something on the balance sheet. If something isn’t identified as such you cannot claim the ownership. You also have make clear that there are future benefits of the data that can be quantified such as revenue or market value. To determine the value there should be a transaction made; what did you pay for the data? Internal generated data is therefore hard to valuate because of the subjectivity. Bought data on the other hand has already a transaction in place and determine the value is less complicated.
Recently I read the article called “drilling into the value of data” in Forbes about this topic and a lot of companies are spending certain amounts to collect and store data as much as they can. Just not to miss out on possible value of data in the near future.
The published article of CEBR (Centre for Economics and Business Research) about “data on the balance sheet” puts a lot of this in perspective. They are certain about the fact that data belongs on the balance sheet. But there are a lot of factors involved to make sure the valuation is correct or near correct. They included this factors:
Datasets are heterogeneous, meaning market valuation is not always appropriate.
Estimations of the return on investment in data
The costs of gathering and managing data may be difficult to distinguish from the costs of doing business
Data does not have a physical presence and therefore may be considered to have an infinite life when compared alongside physical assets.
Some data has additive value, that is, the value of the original data increases as more data is accumulated
While the rate of depreciation tends to be high, there is value in the option to put the data to unforeseen commercial usages in the future.
The behavior of competitors and consumers can change the value of data.
Legal and regulatory conditions can affect the value of data.
Data only have value if they can be accessed and analyzed by current technologies..
Human input and understanding is needed to ask questions of data, analyze it and devise responses to its insights.
The blogpost of Mark van Rijmenam on DataFloq: “Big data balance sheet” says it all:
Formally putting (big) data on a company’s balance sheet is a big decision that should be well-founded. An advantage of putting Big Data on the balance sheet is that it for sure would drive better control and governance of that data. Putting data on the balance sheet would therefore make people aware of the presence of the value of data within an organization.
Awareness is a u huge improvement in the world of data. I you are aware of possible value of data you can handle it this way. Turn data into information and let you company grow upon it. A lot of CIO’s and CDO’s fortunately allready do. However the real question about valuating is perhaps not that the value of data is complex to measure, but that we have not the right system of measurement in place. How should we do this? I dont know but maybe you do?
If you like to discuss this topic with me? Feel free to reply to this article below. This post is also written as a personal opinion and has an earlier post on my LinkedIn page.