Hosted by Maximizing ROI from SAP Rebecca Wettemann

Hosted by Maximizing ROI from SAP Rebecca Wettemann rwettemann@Nucleus. Research. com

Hosted by About Nucleus Research An ROI-focused technology research and advisory firm. We deliver ongoing advice, analysis and modeling tools to help senior management quantify and prove the financial and business benefit their technology decisions bring to the corporation. Research centers in Boston, Paris, and London

Hosted by Agenda l SAP: promises and realities l Learning to play l ROI factors l Leverage strategies l Measuring success l Examples

Hosted by Nucleus Research products l ROI advisory service: • • We provide on-going information, insight, financial tools and methodology to help you accurately assess the return for proposed and existing technology. Unlimited support for your IT CFO. l Project support: • • We give you assessment support for a single technology decision. A Nucleus Research analyst helps develop the business case.

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Hosted by Let’s look at ROI…

Hosted by Key Factors to a High ROI l Breadth “How many people will the application affect? ” l Repeatability “How many times a day will they use it? ” l Cost “Is this a costly task? ” l Collaboration “Will employees need to collaborate? ” l Knowledge “Can I reuse the information I create? ”

Hosted by Increasing Breadth l Can I deploy to more people? l Can I give access to customers or partners? Technology strategies: - SAP portal and Net. Weaver. - Another portal or integration vendor.

Hosted by Increasing Breadth Key cost/effort considerations Software SAP Portal/ Net. Weaver Another technology low medium - To SAP low to medium - To other apps high low to medium Ongoing support medium Future customization high low to medium Future upgrades high low to medium Integration

Hosted by Increasing Repeatability l Can I integrate more transactions or applications? Technology strategies: - SAP portal and Net. Weaver. - Another portal or integration vendor.

Hosted by Delivering Content – or Supporting Transactions? Portal UI “We deployed the SAP Portal to get simplified self-service access into SAP HR information. ” “Customers can call up information about their orders for delivery or repair and have the drill-down from SAP delivered to them. ” SAP applications Billing “We’ve reduced the cost of preparing sales materials because teams have all the information easily accessible to them. ”

Hosted by “Our next phase will bring in back -end transaction access. That’s dependent on how quickly we can Web-enable back-end systems. We’re running SAP on the backend and will be seeing an SAP portal within the IBM portal. In most cases its easier to integrate with IBM than rewrite the SAP portal. The SAP Portal is very specific to SAP, but the IBM portal is much more flexible as an enterprise portal. ” Portal Framework Delivering Content – or Supporting Transactions? Single View Portal Framework Data access (EAI, messaging, adapters) “We don’t want to have to reinvent the wheel when we upgrade. So it’s better to open the app. with Web services than to use the portal directly. ” BPM/Human workflow (state, exception handling, etc. ) SAP app Other app SAP app Other Portal UIs

Hosted by Example: Xerox Document Supplies The challenge: Needed a way to support orders and fulfillment for resellers The strategy: Deploy hosted e-commerce solution (Venda) integrated with SAP to open SAP product information and order fulfillment to resellers ROI: 232% Payback: 1. 1 years Benefits: § Increased profits § Reduced manual order entry costs § Improved relationships

Hosted by Reducing Cost l Am I using all the licenses I’m paying maintenance on? l Are there non-productive areas of development I should stop/reenergize? l Can I use my internal support team better? l Can I reduce reporting costs?

Hosted by Reducing Costs l Should I look at automated data delivery tools? • www. esker. com l Should I invest more in SAP reporting and analytics? l Should I buy a standalone BI solution? l Should I buy a supply chain or e-commerce solution?

Hosted by SAP BW l “The ability to do revenue screen analysis drove our closes down from eight days to two days. ” l “It made reporting a huge amount more flexible. We get users to write their own reports and users are positive because access to information is better. ”

Hosted by Increasing Collaboration and Knowledge l Can I integrate SAP data into a collaborative portal or workspace? l Can I expose portions of it to customers and partners? l Can I provide more or greater information to users?

Hosted by SAP Portal l “We had to do more and more with same number of people –we’ve been able to avoid hiring more people. There’s a fair amount of time savings, what we’re trying to achieve really is going from launching a few products to many products a year. It’s really having a more educated and capable sales force. ” l “It wasn’t so much the reduced cost (of licenses), but really the marketing appeal — having the my. SAP logo as part of our extranet offering for customers, associating us with the cutting edge in technology. ”

Hosted by Practice, practice! Fine tuning • • • Benchmarking Milestoning Evaluating upgrades

Hosted by Practice, practice! l Get a good conductor l Listen to the conductor l Make sure the violins are on board l Make ROI the score

Hosted by The Calculations

Hosted by Using Financial Measurements l Compare financial measurements to other internal decisions and success factors - NOT to the results of other companies! Positive ROI! Document Management?

Hosted by Short Finance Class Toolbox used to measure the value of technology: • • • Net present value Payback period Return on investment IRR TCO

Hosted by Net Present Value @ 15% Interest Rate NPV $152. 09 The value today of cash received at a future date given an interest rate $100 Year 3 Use a spreadsheet or a financial calculator

Hosted by Return On Investment ROI The average total savings over 3 years divided by the cost. (Year 1, Year 2, Year 3) / 3 ROI = Initial Cost Nucleus recommends a three year horizon but use a time period consistent with your organization’s standards.

Hosted by Payback Period Savings Payback Period The time period needed before net savings equal initial cost. Time Excellent measure of risk. Should be the key measurement! Costs

Hosted by Internal Rate of Return Year 10 $199 $9 $100 IRR = 100% IRR The interest rate that equates to the cash flows. Year 1 $0 $100 Never use IRR! If you have to, use MIRR instead. Year 10 $102 K IRR = 100%

Hosted by What About TCO? Total Cost of Ownership looks at costs and ignores benefits • • Good for comparing two similar applications • • Bad for choosing applications Good for budgeting Bad for prioritizing projects

Hosted by What About the Others? l EVA - Economic Value Add(ed) is really ROI less the cost of capital. It’s simple but eliminates an important ratio: Is an EVA=3% good or bad? l TEI - Total Economic Impact is really just ROI but explicitly includes direct and indirect benefits. l ROO - Return on Opportunity is TEI made fluffier. l ROA - Return on Assets is only interesting if there are sunk intangible costs. l c. ROI – False ROI inflated by vendor marketing folks.

Hosted by Measuring the Volume of Benefit

Benefit Examples Directly Quantifiable Hosted by l Reduced the number of personnel l Reduced costs to print and distribute the maintenance manual l Avoided regulatory fines l Reduced accounts receivable l Reduced the cost to publish to the web l Reduced travel costs

Hosted by Benefit Examples Productivity Based l Reduced the time needed to develop new software by 25% l The financial audit takes 1 week rather than 3 weeks l Maintenance on an aircraft takes 10% less time l Increased software quality

Hosted by Types of Benefits Direct savings - Reduction in cost Semi-direct savings - Expected reduction in cost Indirect savings - Increase in worker productivity Believability Very indirect savings - Increase in manager productivity 1 st Order 2 nd Order 3 rd Order 4 th Order

Hosted by Techniques for Measuring Benefits Good l Direct observation – pilot site l Corporate history l Surveys l Case studies l Benchmark data Always do a worst-case assessment l Educated guess l Uneducated guess l Psychic l Vendor-supplied estimates Bad l Vendor ROI sales quick calculator

Hosted by Benefit Achievability Type of benefit 4 th Order Caution Unlikely Good Caution 3 rd Order 2 nd Order 1 st Order Observation Case studies Educated guess Measurement strategy Vendor calculator

Hosted by Inefficient Transfer of Time The fact of life: time saved does not equal time worked Use correction factors to adjust the estimate of time saved to a reasonable estimate of the value to the company Range from 0. 1 to adjust time saved to time worked

Hosted by Benefit Assessment Worksheet Estimate of productivity increase: 5% (based on: direct survey and estimate) Value of increase for 10 people @ $100 K ea: $50, 000 (use fully loaded cost) Correction factor: 0. 50 (Correct for inefficient transfer of time) Expected benefit to company: $25, 000 How will the benefit be achieved? __ Reduction in staff or staff hours __ Increase in productivity, limiting the need for more staff __ Increase in profit to company __ Gradual attrition over next 3 years (10%, 50%, 100%) Worst-case benefit: (In this case, assume 50% of initial estimate) $12, 500

Hosted by Benefit Milestone Commit to achievable milestones: Target: $25, 000 annual savings Year 1: Reduce hourly cost by $2, 500 Year 2: Reduce hourly cost by $12, 500 Year 3: Reduce hourly cost by $25, 000 or staff by one person Assumption: No change in workload

Hosted by Examples. . .

Hosted by Seattle Public School District The challenge: ROI: Paper-based procurement process was labor intensive and difficult to track Payback: 2. 9 years The strategy: Deploy online procurement system as part of SAP R/3 rollout 35%

Hosted by Seattle Public School District Driver Best Practices: l change management focus l user adoption planning ROI: 35% Payback: 2. 9 years l training based on skill level Mechanics Best Practices: l Don’t implement two systems simultaneously l Build in time for knowledge transfer

Hosted by What’s your ROI from SAP?

Hosted by The Tool

Hosted by The Right Corporate ROI Strategy Includes: l Common metric for all projects § ROI and payback l Standard correction factors for benefits l Standard ROI tool and business case presentation l Key personnel managing assessments armed with information, case studies, benchmark data

Hosted by Summary l SAP is not a toy piano – you have to learn to use it effectively l Using ROI as your score for a deployment will help limit scope creep and keep benefits on track l Once you’ve learned the ropes, look to breadth, repeatability, and other ROI factors to get more ROI from SAP l Keep fine tuning – by adding or upgrading technology or looking for new ways to expand benefits or reduce costs

Hosted by Resources Nucleus Research Web site: www. Nucleus. Research. com Nucleus Research knowledge center l Tutorial l B 20 – ROI Quick Reference Guide l A 11 – Managing Payback and Risk l A 10 – Maximizing ROI l A 21 – The Strengths and Weaknesses of TCO l A 4 – Human Factors Impact Application Value