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Maximizing ROI from SAP Rebecca Wettemann rwettemann@NucleusResearch.com
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 • SAP: promises and realities • Learning to play • ROI factors • Leverage strategies • Measuring success • Examples
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 • 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 • 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 • Can I integrate more transactions or applications? Technology strategies: • SAP portal and NetWeaver. • Another portal or integration vendor.
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 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
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 • 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 • 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 • “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 • 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 • “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! Fine tuning • Benchmarking • Milestoning • Evaluating upgrades
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 • Compare financial measurements to other internal decisions and success factors- NOT to the results of other companies! Positive ROI! Document Management?
Short Finance Class Toolbox used to measure the value of technology: • Net present value • Payback period • Return on investment • IRR • TCO
@ 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 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
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!
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? 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? • 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 • 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 • 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 • 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
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 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 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 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 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
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
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: • 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 • 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 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