The Real ROI for Government Open Data

Doug Hadden, VP Products

Make sure you calculate the Return on Investment of open data projects. Experts warn us: the open data business case is often lacking. Traditional ROI calculations are too narrow.

Traditional ROI Calculation and “Government as Platform”

A traditional calculation compares open data costs and lost revenue from selling the data relative to additional tax revenue achieved. Tim O’Reilly  coined the notion of “government as platform” where open data (such as GPS) generates significant economic development. Some, like Andrea di Maio, disagree that governments should be acting as platforms.  Yet, this is what governments do: build economic platforms such as highways and bridges.

The problem with:

$TaxRevenue > $OpenDataCost + $DataSales

is that the government organization that provides data and benefits directly from selling the data to the private sector does not directly receive the additional taxes nor can these taxes be easily directly attributed to open data.

1. Economic Development and “Government as Platform”

Open data as policy can be compared to stimulus programs. Stimulus programs can improve employment and reduce bankruptcies. This reduces social services costs:

$TaxRevenue + $SocialServicesCostAvoidance > $OpenDataCost + $DataSales

2. Freedom of Information Costs

David Eaves has pointed out that open data can reduce the costs of Freedom of Information:

So in a world without an open data portal the hypothetical cost of fulfilling these “Canadian” downloads as formal access to information requests would have been $967,184.46 in January alone. Even if I’m off by 50%, then the cost – again, just for January – would still sit at $483,592.23. Assuming this is a safe monthly average, then over the course of a year the cost savings could be around $11,606,213.52 or $5,803,106.76 – depending on how conservative you’d want to be about the assumptions.

Open data portals can eliminate the need for many Freedom of Information requests – a high cost to governments.

$TaxRevenue + $SocialServicesCostAvoidance + $FOIAvoidance 
> $OpenDataCost + $DataSales

3. Productivity

Open data shines light on the public service. Although transparency does not necessarily mean accountability in the sense of enforcement, it has the power to change behaviour. Government organizations become aware that the public is watching. Civil service behaviour changes.

$TaxRevenue + $SocialServicesCostAvoidance + $FOIAvoidance + $ImprovedProductivity 
> $OpenDataCost + $DataSales

4. Corruption

Procurement expert Jorge Claro estimates that procurement corruption costs up to 20% for governments in developing nations. That’s why countries like Timor-Leste open budget and procurement data: to improve oversight by vendors and civil society to reduce corruption. (This also reduces the cost for auditors when the press is examining all large government purchases.)

$TaxRevenue + $SocialServicesCostAvoidance + $FOIAvoidance + $ImprovedProductivity + $ReducedCorruption

> $OpenDataCost + $DataSales

5. Trust

There remains a distrust of government in many countries. Not just in developing countries: distrust of government is a powerful narrative in American politics. The distrust in government can boil over to protest (Tea Party, Arab Spring, Occupy Wall Street etc.) This costs governments – although the release of data might give cause for protest in some cases!

$TaxRevenue + $SocialServicesCostAvoidance + $FOIAvoidance + $ImprovedProductivity + $ReducedCorruption +$ReducedProtests

> $OpenDataCost + $DataSales + $IncreasedProtests

6. Tax Compliance

Developed and developing nations alike struggle with tax avoidance. This is especially rampant when citizens believe that governments are wasting tax money. This is often made acute because of the lack of open data. There are frequent studies that show a significant delta between how governments spend and what citizens think governments are spending. In particular: foreign aid and crime. One can make the argument that Scandinavians are less concerned about high tax rates than Americans because they see value.

$TaxRevenue + $ReducedTaxAvoidance $SocialServicesCostAvoidance + $FOIAvoidance + $ImprovedProductivity + $ReducedCorruption +$ReducedProtests

> $OpenDataCost + $DataSales + $IncreasedProtests

7. Reduced Perceived Business and Donor Risk

Transparency is fundamental in many governance valuations used by the World Bank World Governance indicators (WGI) and the Millennium Challenge Corporation (MCC). Transparency indicators used to demonstrate reduced business risk and help generate donor funds in developing countries include Open Budget Index for open budgets and Revenue Watch Index for revenue transparency from extractive industries. International transparency standards include the Extractive Industries Transparency Initiative (EITI) and the International Aid Transparency Initiative (IATI). Public Expenditure and Financial Accountability (PEFA) assessments are gaining widespread use by donors in making funding decisions. Transparency is a key element for 6 measurements in the PEFA Performance Measurement Framework:

 

B. KEY CROSS-CUTTING ISSUES: Comprehensiveness and Transparency
PI-5 Classification of the budget
PI-6 Comprehensiveness of information included in budget documentation
PI-7 Extent of unreported government operations
PI-8 Transparency of inter-governmental fiscal relations
PI-9 Oversight of aggregate fiscal risk from other public sector entities.
PI-10 Public access to key fiscal information

Transparency can reduce perceived business and donor investment risk in developing countries. This increases taxes, improves outcomes and ultimately improves credit ratings.

 

8. It’s a Network

ROI in the physical world is a diminishing returns calculation. Each new market for toothpaste increases costs. The virtual world is one of increasing returns. Each new chunk of open data adds value to previous chunks of open data. And the costs to collect and maintain open data goes down because the infrastructure scales. (That’s why Amazon can provide such value for the Elastic Cloud.)

∑($TaxRevenue + $ReducedTaxAvoidance $SocialServicesCostAvoidance + $FOIAvoidance + $ImprovedProductivity + $ReducedCorruption +$ReducedProtests)↑increasingreturns

> ($OpenDataCost + $DataSales + $IncreasedProtests)↓reducing costs

Conclusions

The ROI calculation is a bit mangled here. Yet, there is a compelling value proposition for government organizations to take the open data journey. The calculus depends on the country situation – in some cases open data can pay for itself thanks to reduced corruption or protest.

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