1 In This Session … Attend this session to gain insight into key benchmarks for BI project staffing levels, support requirements, BI project durations (upgrades or new implementations) A tool to calculate ROI, NPV, IRR, and Payback for SAP BI Estimate return on BI investments using three different metrics – replacement cost analysis, new capabilities analysis, and decision option analysis Benchmark your BI performance against best-of-breed and industry averages for project timelines and execution, costs and staffing levels, and ongoing support
2 What We’ll Cover … Introductions Return on Investments (ROI) of a BI project A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI Key benchmarks — BI project staffing levels and support requirements BI project durations (upgrades or new implementations) Wrap-up
3 BI Spending is Increasing and Gaining Momentum 39% of CIOs in a SnapLogic survey said that BI was the #1 priority BI initiatives are also the #1 priority, ahead of cloud computing, in Gartner's survey of 2,335 IT managers and CIOs Corporations are looking for a competitive edge with BI. For example, IDC estimated that BI spending increased by 6.9% to $1.8 trillion in 2012 KEY FACTS 50% of the 2,600 respondents in TechTarget’s annual survey said that they would increase their BI spending by at least 10% TechTarget.com, Bimeanalytics.com, “CIO Insights”, 2012
4 Why Are Companies Investing in BI? FACT: If you want to become a large organization, you need BI as a cornerstone in how you manage Key Question: How is SAP BI enabling large organizations to grow and manage better than smaller companies? Examples 43% of retail companies with revenues under $250 million use Excel as the core BI tool 13% of mid-sized retailers use Excel as their core BI tool 5% of retail companies with revenues over $1 billion use Excel as the core BI tool Source: RSR Sponsored by SAP
5 The Relationship Between Sales and Use of BI FACT: Pushing BI and analytics to operational line managers and store managers increases sales Saturating BI at all levels of the organization creates focus and pushes decision making downwards; it makes the company more agile! Examples Retail organizations who outperformed their peers in sales growth had 53% usage of BI at line manager levels Retail organizations who outperformed their peers in sales growth had 52% usage of BI for store managers Source: RSR Sponsored by SAP
6 But, Is Business Intelligence Really Worth the Cost? In the annual BI survey by the Business Application Research Center (BARC), it was found that most BI investments are relying on soft justifications Faster BI More accurate reporting Improvements in business decision making Improvements in customer satisfaction rates Few were able to justify BI initiatives with hard Return on Investment (ROI) calculations, i.e., tangible cost reductions After 20 years of BI and Data Warehousing, CFOs and CEOs are now demanding proof of benefits before investing more in these technologies BARC, Bi-survey.com, 2012
7 But, Is Business Intelligence Really Worth the Cost? (cont.) BI capabilities have to have hard tangible benefits in order to sustain the current level of enthusiasm and funding The trick to do this is to not align benefits to reporting, dashboarding, and tools. Instead, focus on operational improvements and make the benefits measureable CEOs and CFOs are increasingly asking for real evidence that BI and Analytics helps reduce costs, increases profits, and actually contributes to the enterprise and is not merely a non-value cost area.
8 BI — ROI Calculators There are many BI ROI calculators and tools available on the Internet Some are vendor and tool specific, while others are focused on BI and Analytics in general Depending on the size of your initiative, a more comprehensive calculator may be more appropriate. Some calculators are very complex and comprehensive, while others are simplistic and easier to use
9 What We’ll Cover … Introductions Return on Investments (ROI) of a BI project A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI Key benchmarks — BI project staffing levels and support requirements BI project durations (upgrades or new implementations) Wrap-up
10 The Current BI Time-to-Market is Too Slow… A key complaint is that BI development is simply too slow Currently BI time-to-market is measured in months instead of the time scale businesses operate (days/week) SAP BI Self-Service for power users and authors is key to fast delivery and higher BI ROI Source: SAP AG Source: B. Oosterhof, Informatica For costs to go down, and ROI to increase, we have to get better at delivering BI solutions faster BI Self Service is a key component to reduce time-to-market
11 Time to Market — We Are Simply Too Slow … It has been estimated that 66% of development costs can be reduced by using an Agile or a Rapid Application Development approach for BI Furthermore, up to 500% of the time-to-market can be reduced through rapid prototyping instead of writing functional specs For data warehousing, ASAP and JAD may be appropriate methodologies, but for business intelligence Agile, Scrum, RAD, and interactive prototyping are almost always the most cost effective answers Source: B. Oosterhof, “Agile and Operational BI,” Informatica, 2011 I.e. Scrum, Agile Source: Dr. Berg, Data Management Review Magazine
12 BI Time to Market — Realizing Benefits Earlier Benefits (i.e., sales) should be measured both in terms of the time when benefits emerge and the magnitude of benefits Don’t just write the estimated benefits, track the benefits of previous BI initiatives The Business Case for BI should require some tangible way to quantify what these are and when you should be seeing them in a way that can be measured Most business sponsors believe IT projects are full of rework and missing features You have to change their mentality from building systems to doing BI: New features are always added Source: Michael Krigsman, "75% believe IT projects are 'doomed'. 2011
13 ROI on BI Projects — Replacement Cost Analysis The easiest form for ROI Analysis is to take the cost of a BI investment and simply compare it with the costs of the existing one After this project analysis, we can now estimate the ROI based on a 3-year payback period
14 ROI on BI Operations — Replacement Cost Analysis In this case, we are replacing the current RDBMS with HANA, so the past costs and future benefits are easier to quantify To account for the cost of capital, we discount all future savings by 10% compounded annually. This is known as the Net Present Value (NPV). We divide the NPV with the investment to get the simple ROI.
15 Option Theory — The Inherent ROI of BI There is an intrinsic value of increasing the time from discovery to time-when-action-is-required This value is created by simply having more time to evaluate more options before action is required Option Theory: With BI, we discover opportunities earlier, get more time to make decisions, can evaluate more options, and have more time to implement them Issue or Opportunity Discovery Action Required Option found Time to Evaluate Decision made Time to Implement Time to analyze No BI Issue or Opportunity Discovery Action Required Option found Time to Evaluate Decision made Time to Implement Time to analyze With BI Option found Time
16 What We’ll Cover … Introductions Return on Investments (ROI) of a BI project A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI Key benchmarks — BI project staffing levels and support requirements BI project durations (upgrades or new implementations) Wrap-up
17 A Step-by Step Example of ROI Calculator In this example, we are using the BI ROI calculator from Hall Consulting and Research It is one of the most comprehensive BI calculators available and relies on a 6-step approach: Profile BI Initiative Selection BI Maturity Assessment Initiative costs Initiative Benefits Analysis and Report In this demo example we will look at the major activities of this tool, but there is also an enterprise edition with even more capabilities Source: Hall Consulting and research
18 A Step 1a – The Profile – Organization In this ROI tool we first enter the organizational profile. This include: Industry Location PC users BI users Financial Information and cost structure
19 A Step 1b – The Profile – Financial Information From HR we enter the key labor cost numbers including: Salaries Overhead Standard hours per year These Labor Costs are used throughout the tool for estimates of ROI, Net Present values (NPV), Internal Rate of Return (IRR) and benefits graphs
20 A Step 1c – The Profile – Preliminary capabilities assessment Using simple scores or investments and importance, we quickly build a capability as-is and to-be BI Capability Profile that we guide us in the BI ROI benefits case Having a basic understanding of the current environment will help us focus our BI initiatives later.
21 A Step 1d – The Profile – Preliminary BI maturity assessment Using basic scores and answering a few questions, the maturity profile is generated Building, or enhancing, systems in a mature BI organization is substantially less costly than in emerging organizations.
22 A Step 1e – The Profile – Results The profile generates a preliminary cost per user, a cost for the organization and the overall benefits. This will automatically be updated by the next steps where we refine hardware, software and implementation costs Throughout the tool, the system updates key numbers from other Excel tabs and change graphs accordingly KPIs per users are key to benchmarking
23 A Step 2a – BI Initiative and Application Selection The next major step is to determine the BI applications in scope for our initiative. Business cases and BI strategies should not be focused on a single project, but instead look at major initiatives over months. Strategy is long-term (1-5 years); Tactics is short-term (1-12 months)
24 A Step 2b – BI Source System Selection It is estimated that as much as 40-70% of a BI and DW initiative is spent on Extracting, Transforming & Loading data (ETL). In this screen we are adding data sources from a high-level and making an assessment of the type, volume, complexity and integration to the DW. This helps drive a more accurate cost picture of what is required to integrate into the BI solution using key benchmarks
25 A Step 2c – Enhancements to Data Warehouse In this section we are looking at changes required to the data warehouse to accommodate our BI initiatives. It also include process improvement, metadata management and enhancements required to data marts and data structures. The tool also has help and explanations included in each tab to guide a users to the tasks required in these input sheets.
26 A Step 2d – Enhancements to BI and Analytics In the last initiatives input tab, we enter the changes required to BI and Analytics. This include: Reporting Scorecard/Dashbaords Analytical Tools Workflow and collaboration We are now ready to view the output from the exercise so-far
27 A Step 2e – BI Initiatives Profile The system then generates a BI capability profile of what the current state of the BI environment is and what capabilities the initiative will focus on. These profiles can help communicate with the sponsor the focus of your initiative
28 A Step 3 – BI Maturity Assessment By filling out a survey based on objective questions, a BI maturity profile is automatically generated.
29 A Step 4 – BI Initiative Labor Costs Default values workload by week are selected based on scope, scale and complexity of initiatives. However, these can be changed by planners. Detailed Graphs are also created based on labor estimates.
30 A Step 4 –Software and Hardware Costs for BI By filling out a detailed guided spreadsheet with cost numbers for storage, application servers, database, software, utilities, support, desktop software, training and more, these graphs are generated for user costs.
31 A Step 5a – BI Initiative Benefits Input - Revenue A key to justifying BI spending is to identify tangible and credible revenues generated by the investments. Work with your finance and sales groups to get numbers you can justify to your management team.
32 A Step 5a – BI Initiative Cost Savings and Productivity In addition to revenues, benefits can also be expressed as: Cost avoidance (easy to quantify) Cost savings (harder to quantify) Increased productivity (hard to quantify) also known as new capabilities ROI
33 A Step 6 – Final Step – ROI Analysis and Report The last step is to review the final report. Key measures required in a business case include: ROI NPV Bayback period IRR Costs Benefits Total Cost of Ownership (TCO)
34 Calculating ROI with a Spreadsheet Tool
35 What We’ll Cover … Introductions Return on Investments (ROI) of a BI project A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI Key benchmarks — BI project staffing levels and support requirements BI project durations (upgrades or new implementations) Wrap-up
36 Benchmark Your Organization Against Eight Companies In this example we are looking at key benchmarks from eight companies that are using Business Intelligence and Analytics instead of a traditional list reporting and Excel The organizations range from 1,200 employees to over 80,000
37 Savings for Knowledge Worker by using BI While the hours saved per knowledge worker ranged from 1.0 to 3.0 hours in our sample, best of class knowledge workers spend 1.3 fewer hours per week looking for pertinent information compared to knowledge workers in all other organizations Source: The Aberdeen Group, Aug. 2012
38 KPI — BI Cost Per Knowledge Worker This included helpdesk, training, desktop licensing, software maintenance, change requests, print costs, and estimated additional developer support It did not include hardware, new development, data center operations, backup, recovery, network costs, and upgrades to software components by IT staff From a Total Cost of Ownership, you should also include the cost of executive and casual users (tends to be lower per user but you will have more casual users). You can find the number of users in your SAP EarlyWatch report. A key measure of costs of ownership is the cost per knowledge worker. In our sample, that ranged from $4,271 to $908 per employee.
39 ROI for BI Investment by Knowledge Worker Labor Savings This ROI is for Knowledge workers alone and does not include additional benefits from better access to cleaned data, ability to do collaborative decision making, or more timely decisions and better agility of the organization Plan for a comprehensive business case for SAP BI, but labor hours are the easiest to quantify Using the expected ratios of the knowledge workers relative to other workers, as well as their average salaries, labor savings per week, and the overall cost per knowledge worker, we found an overall ROI
40 KPI Benchmarks of ROI by BI Platform Type ROI of BI depends largely on the number of BI systems and data warehouses you maintain “Best-of-breed” BI and data warehouses use whatever tool is best in its class. This includes ETL, reporting, management, database, scheduling, admin, etc. Using a single BI and DW platform instead of Federated Data Warehouses can significantly increase the ROI of BI Source: SAP AG, Enterprise Business Intelligence ROI white paper Integrated BI and DW systems use a single platform Integrated BI has significantly less costs and higher long-term ROI (on average)
41 The Various Costs of BI by Platform Type Direct Costs Acquisition costs Infrastructure costs Implementation and Deployment costs Support and Lifetime costs Uptime, Reliability, and Performance costs Indirect Costs Shadow IT costs Compatibility costs Lost Opportunity costs Improve ROI: The trend for most organizations is to simplify the BI landscape, reduce the number of tools, and go to a single DW and BI platform Source: SAP AG
42 A Health Check: Is Anyone Using your System? Named Users: 14,503 Real Users: 7,509 (52%) Active Users: 1,309 (9%) User trend reports are found in the SAP EarlyWatch report – It is a Health Check to see if your initiative is failing or succeeding Source: SAP AG Named Users: 67,534 Real Users: 50,912 (75%) Active Users: 6,279 (9%) Named Users: 1,672 Real Users: 783 (47%) Active Users: 191 (11%) Named Users: 2,330 Real Users: 762 (33%) Active Users: 129 ( 6%) Named Users: 549 Real Users: 127 (23%) Active Users: 24 ( 4%) Real Examples
43 What We’ll Cover … Introductions Return on Investments (ROI) of a BI project A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI Key benchmarks — BI project staffing levels and support requirements BI project durations (upgrades or new implementations) Wrap-up
44 BI Project Durations for ROI Planning While there are many considerations for various BI projects including skillsets, budget constraints, available resources, scope and number users, there are some basic rule-of-thumbs you can use in your ROI calculations Each BI project requires its own milestone plan and detailed project plan. However, for high-level budgeting these durations may help your business case.
45 BI Project Durations for ROI Planning (cont.) For reporting and analytics, the data scope and the availability of existing skilled staff and existing infrastructure will drive much of the timelines Each BI project requires its own milestone plan and detailed project plan. However, for high-level budgeting these durations may help your business case.
46 What We’ll Cover … Introductions Return on Investments (ROI) of a BI project A Tool to Calculate ROI, NPV, IRR and Payback for SAP BI Key benchmarks — BI project staffing levels and support requirements BI project durations (upgrades or new implementations) Wrap-up
47 Where to Find More Information Asim Abdel Rahman El Sheikh and Mouhib Alnoukari, Business Intelligence and Agile Methodologies for Knowledge-Based Organizations: Cross-Disciplinary Applications, IGI Global; 1 edition (September 30, 2011) Thomas H. Davenport and Jeanne G Harris, Competing on Analytics: The New Science of Winning, Harvard Business School Press; 1 edition (March 6, 2007) Computing The ROI for IT Projects and Other Investments Another calculator for ROI calculator on BI projects
48 7 Key Points to Take Home ROIs on BI projects must be based on tangible and measurable benefits ROI should be calculated at a program level and tracked over time There are many tools available to help you do this – Don’t reinvent the wheel Benchmark your BI initiatives in terms of project duration, cost per employee, labor savings, ROI, payback periods, and BI platform type Be prepared to back up your business case with hard facts from the business users and avoid a technology focus Replacement projects and cost avoidance efforts are easiest to quantify Some projects are done out of operational necessities and ROI may not be required (audits, SOX, compliance, financial SEC reporting, etc).
49 Your Turn! How to contact me: Dr. Bjarne Berg Please remember to complete your session evaluation
50 Disclaimer SAP, R/3, mySAP, mySAP.com, SAP NetWeaver ®, Duet ®, PartnerEdge, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Wellesley Information Services is neither owned nor controlled by SAP.