Sap Approach

SAP AG 2001 ROI Business Case 1

3

2

1 Assemble IT And Business PersonnelAssemble IT And Business Personnel

Define Initial Scope and Cost ParametersDefine Initial Scope and Cost Parameters

Review Functionality Contained in the ScopeReview Functionality Contained in the Scope

4 Measure The BenefitsMeasure The Benefits

Building The Business Case


What is a Business Case?

A business case outlines the overall business benefits that justify the initial and on-going commitment of time,

resources, and funding for technology projects.

ROIOperational

Process improvements

(Tangible and Intangible)

TechnicalBenefits to IT

infrastructure and support for technology

strategy

Financial

Costs, benefits and impact on business

performance measures

Strategic

New capabilities and improved competitive

position


The Business Case Should Cover the Entire Life Cycle of the Solution

OPERATIONS & CONTINUOUS BUSINESS IMPROVEMENT

Assess baseline value for ongoing business performanceMeasure business performanceagainst industry best practicesJustify continuous business change and performance tuningRealize continuous improvement

IMPLEMENTATION

Incorporate business case as part of implementation methodologyEnsure KPI’s are measured throughout implementationUse business case for scope/change control Use integrated content to monitor project risk performance

EVALUATION

Develop business strategyIdentify business solution Align industry solution with key process indicators (KPI’s)Estimate total cost of ownershipUse integrated content to develop business case

DISCOVERY

Qualification of Improvement Opportunity


Business Case Development - Objectives

Identify critical business processes and prioritize by impact on company operations (largest/most important results)

Identify opportunities for improvement/problem areas/pains

Identify key business drivers (current and future)

Select relevant benefit areas to quantify

Gather data regarding current environment Utilize metrics and internal information to formulate anticipated

benefit levels

Select measurements that will enable continuous monitoring during implementation and beyond


Assemble business and IT leads for each area

Define Initial Project Scope and Cost Parameters

Implementation (internal/external consulting by project phase)

Infrastructure/hardware requirements and maintenance Software license costs and maintenance Level of detail required in the business case Training and change management requirements Testing tools and other costs

Functionality Review

Identify business drivers and pain in current processes

Identify benefit opportunities enabled by proposed solution Identify challenges and obstacles



Measure the Benefits

Data Collection & Analysis

Collect baseline data (in current legacy systems)

Calculate benefit opportunities Identify required changes in business processes

Build the Business Case

Document benefits and assumptions based on the expected new functionality

Establish timeframe or horizon Be careful to not double count benefits



NPV = Net Present Value = The value today of a series of cash flows received in the future based on a given interest rate (e.g., 5%).

Payback = The time period needed before net savings equal initial and ongoing costs (breakeven).

Measures for Business Case Proposals

$100Year 3

$152.09

@ 5% Interest Rate

Savings

Costs

Payback Period

Time

IRR = Internal Rate of Return = The interest (discount) rate that causes the net present value of a project to just equal zero (0). If the project’s IRR is greater than the cost of capital, the project is acceptable; otherwise, it should be rejected. The calculation of IRR assumes that the cash inflows will be reinvested at the same rate as the internal rate of return.


Cost Implementation Ongoing Comments

Software $476,000

Software Maint. $40,000 $81,000 17% per year

RequisiteSoftware

$250,000 0Excludes costs ofexisting internalcatalogs

RequisiteSoftware Maint.

0 $250,000

Hardware $328,000 069% of SW(rule-of-thumb)

Hardware Maint. 0 $39,000 15% per year

ExternalConsulting

$952,000 0May be lower w/greater internalinvolvement

Internal ProjectTeam

$952,000 0

Training/ChangeManagement

$167,000 0

Other

Total $3,165,000 $370,000


BenefitType

ElectronicCatalogs

CarryingCosts(VMI)

MaverickPurchases

ProcessEfficiencies BW

One-Time $0.220

Annual $0.390 $0.121 $2.325 $0.608 $0.057

Total $0.390 $0.121 $2.325 $0.608 $0.277

Notes:1. All amounts in $millions2. Annual benefits total $3.5 million3. BBP benefits above are reduced carrying costs from use of VMI, reduced maverick purchases,

and process efficiencies in the order through invoicing cycle time4. Business Warehouse (BW) benefits include cost avoidance for developing data marts, ease of

use savings related to end-users, and reduced costs of data extracts


Business Benefits - Some Examples

Human Resources/Payroll:

Personnel Administration Efficiencies 10%-40% Payroll Check Processing Efficiencies 15%-40%

Reduced Time and Exp. Reporting 10%-20% Recruitment/New Hire Efficiencies 15%-25%

Employee Self-Service Transaction Reduction 25%-50%

Financials:

Improve Time to Process A/P Invoice 15%-40% Improve Time to Close Books 35%-80%

Reduce Term Discounts Lost 25%-75%

Process Improvements Due to Elimination of Reconciliations, Duplicate Data Entry, etc. 15%-45%

Purchasing:

Reduction in New Item Inventory 10%-30% Reduce Cost of Materials/Services 2%-6%

Procurement Process Efficiencies 35%-80% Purchase Cycle Time Improvements 30%-80%

Increase Compliance of Purchases from Government-wide Contracts 25%-50%


Business Benefits - Some Examples

Inventory:

Reduction in Inventory 10%-50% Reduction of Inventory Write-Offs 15%-40%

Improvement in Inventory Turns 10%-50% Reduction in Warehouses Maintained15%-85%

Facility/Plant Maintenance:

Reduction in Repair Parts Inventory 10%-40% Improved Field Service Response 10%-20%

Reduction in Work Order Prep Time 25%-75% Reduction in Overtime Cost 10%-20%

Reduction in Cost to Re-Enter Work Order Data into Payroll 100%

Project Management/Systems:

Reduce Project Reporting Costs 5%-20% Reduce Project Set-Up Costs 30%-50%

Reduce Invoicing Costs 40%-80% Reduce Reconciliation/Budget Time 15%-30%

Reduce Cost for Revenue Calculation/Analysis 40%-75%

Sap Approach

Education

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