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Maximizing ROI from SAP. Rebecca Wettemann [email protected] About Nucleus Research. An ROI-focused technology research and advisory firm.

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Maximizing roi from sap

Maximizing ROI from SAP

Rebecca Wettemann

[email protected]


About nucleus research
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


Agenda
Agenda

  • SAP: promises and realities

  • Learning to play

  • ROI factors

  • Leverage strategies

  • Measuring success

  • Examples


Nucleus research products
Nucleus Research products

  • 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.

  • Project support:

    • We give you assessment support for a single technology decision.

    • A Nucleus Research analyst helps develop the business case.



Key factors to a high roi
Key Factors to a High ROI

  • Breadth

    “How many people will the application affect?”

  • Repeatability

    “How many times a day will they use it?”

  • Cost

    “Is this a costly task?”

  • Collaboration

    “Will employees need to collaborate?”

  • Knowledge

    “Can I reuse the information I create?”


Increasing breadth
Increasing Breadth

  • Can I deploy to more people?

  • Can I give access to customers or partners?

    Technology strategies:

  • SAP portal and NetWeaver.

  • Another portal or integration vendor.



Increasing repeatability
Increasing Repeatability

  • Can I integrate more transactions or applications?

    Technology strategies:

  • SAP portal and NetWeaver.

  • Another portal or integration vendor.


Delivering content or supporting transactions
Delivering Content – or Supporting Transactions?

“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.”

“We’ve reduced the cost of preparing sales materials because teams have all the information easily accessible to them.”

Portal UI

Billing

SAP applications


Delivering content or supporting transactions1
Delivering Content – or Supporting Transactions?

“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 back-end 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.”

“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.”

Other Portal UIs

Single View

Portal Framework

Other Portal UIs

Portal Framework

Data access (EAI, messaging, adapters)

BPM/Human workflow (state, exception handling, etc.)

SAP app

Other app

SAP app


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

Example: Xerox Document Supplies

  • Benefits:

  • Increased profits

  • Reduced manual order entry costs

  • Improved relationships


Reducing cost
Reducing Cost

  • Am I using all the licenses I’m paying maintenance on?

  • Are there non-productive areas of development I should stop/reenergize?

  • Can I use my internal support team better?

  • Can I reduce reporting costs?


Reducing costs
Reducing Costs

  • Should I look at automated data delivery tools?

    • www.esker.com

  • Should I invest more in SAP reporting and analytics?

  • Should I buy a standalone BI solution?

  • Should I buy a supply chain or e-commerce solution?


Sap bw
SAP BW

  • “The ability to do revenue screen analysis drove our closes down from eight days to two days.”

  • “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.”


Increasing collaboration and knowledge
Increasing Collaboration and Knowledge

  • Can I integrate SAP data into a collaborative portal or workspace?

  • Can I expose portions of it to customers and partners?

  • Can I provide more or greater information to users?


Sap portal
SAP Portal

  • “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.”

  • “It wasn’t so much the reduced cost (of licenses), but really the marketing appeal — having the mySAP logo as part of our extranet offering for customers, associating us with the cutting edge in technology.”


Practice practice practice
Practice, practice, practice!

Fine tuning

  • Benchmarking

  • Milestoning

  • Evaluating upgrades


Practice practice practice1
Practice, practice, practice!

  • Get a good conductor

  • Listen to the conductor

  • Make sure the violins are on board

  • Make ROI the score



Using financial measurements
Using Financial Measurements

  • Compare financial measurements to other internal decisions and success factors- NOT to the results of other companies!

Positive

ROI!

Document Management?


Short finance class
Short Finance Class

Toolbox used to measure the value of technology:

  • Net present value

  • Payback period

  • Return on investment

  • IRR

  • TCO


Net present value

@ 15% Interest Rate

$152.09

$100

Year 3

Net Present Value

NPV

The value today of cash received at a future date given an interest rate

Use a spreadsheet or a financial calculator


Return on investment
Return On Investment

ROI

The average total savings over 3 years divided by the cost.

Nucleus recommends a three year horizon but use a time period consistent with your organization’s standards.

(Year 1, Year 2, Year 3) / 3

ROI =

Initial Cost


Payback period

Savings

Payback Period

Time

Costs

Payback Period

Payback

The time period needed before net savings equal initial cost.

Excellent measure of risk.

Should be the key measurement!


Internal rate of return

Year 1

Year 10

$199

$9

$100

IRR = 100%

Year 1

Year 10

$0

$102K

$100

IRR = 100%

Internal Rate of Return

IRR

The interest rate that equates to the cash flows.

Never use IRR!

If you have to, use MIRR instead.


What about tco
What About TCO?

Total Cost of Ownership looks at costs and ignores benefits

  • Good for comparing two similar applications

  • Good for budgeting

  • Bad for choosing applications

  • Bad for prioritizing projects


What about the others
What About the Others?

  • 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?

  • TEI - Total Economic Impact is really just ROI but explicitly includes direct and indirect benefits.

  • ROO - Return on Opportunity is TEI made fluffier.

  • ROA - Return on Assets is only interesting if there are sunk intangible costs.

  • cROI – False ROI inflated by vendor marketing folks.



Benefit examples directly quantifiable
Benefit Examples - Directly Quantifiable

  • Reduced the number of personnel

  • Reduced costs to print and distribute the maintenance manual

  • Avoided regulatory fines

  • Reduced accounts receivable

  • Reduced the cost to publish to the web

  • Reduced travel costs


Benefit examples productivity based
Benefit Examples - Productivity Based

  • Reduced the time needed to develop new software by 25%

  • The financial audit takes 1 week rather than 3 weeks

  • Maintenance on an aircraft takes 10% less time

  • Increased software quality


Types of benefits
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

1st Order

2nd Order

3rd Order

4th Order


Techniques for measuring benefits

Good

Bad

Techniques for Measuring Benefits

  • Direct observation – pilot site

  • Corporate history

  • Surveys

  • Case studies

  • Benchmark data

  • Educated guess

  • Uneducated guess

  • Psychic

  • Vendor-supplied estimates

  • Vendor ROI sales quick calculator

Always do a worst-case assessment


Benefit achievability
Benefit Achievability

Type of benefit

Caution

Unlikely

4th Order

3rd Order

Good

Caution

2nd Order

1st Order

Observation

Case studies

Educated guess

Vendor calculator

Measurement strategy


Inefficient transfer of time
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 1 to adjust time saved to time worked


Benefit assessment worksheet
Benefit Assessment Worksheet

Estimate of productivity increase: 5%

(based on: direct survey and estimate)

Value of increase for 10 people @ $100K 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: $12,500

(In this case, assume 50% of initial estimate)


Benefit milestone
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



Seattle public school district

The challenge:

Paper-based procurement process was labor intensive and difficult to track

The strategy:

Deploy online procurement system as part of SAP R/3 rollout

ROI: 35%

Payback: 2.9 years

Seattle Public School District


Seattle public school district1

Driver Best Practices:

change management focus

user adoption planning

training based on skill level

Mechanics Best Practices:

Don’t implement two systems simultaneously

Build in time for knowledge transfer

ROI: 35%

Payback: 2.9 years

Seattle Public School District




The right corporate roi strategy includes
The Right Corporate ROI Strategy Includes:

  • Common metric for all projects

    • ROI and payback

  • Standard correction factors for benefits

  • Standard ROI tool and business case presentation

  • Key personnel managing assessments armed with information, case studies, benchmark data


  • Summary
    Summary

    • SAP is not a toy piano – you have to learn to use it effectively

    • Using ROI as your score for a deployment will help limit scope creep and keep benefits on track

    • Once you’ve learned the ropes, look to breadth, repeatability, and other ROI factors to get more ROI from SAP

    • Keep fine tuning – by adding or upgrading technology or looking for new ways to expand benefits or reduce costs


    Resources
    Resources

    Nucleus Research Web site:

    www.NucleusResearch.com

    Nucleus Research knowledge center

    • Tutorial

    • B20 – ROI Quick Reference Guide

    • A11 – Managing Payback and Risk

    • A10 – Maximizing ROI

    • A21 – The Strengths and Weaknesses of TCO

    • A4 – Human Factors Impact Application Value


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