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Hosted by Maximizing ROI from SAP Rebecca Wettemann

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1 Hosted by Maximizing ROI from SAP Rebecca Wettemann

2 Hosted by 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 About Nucleus Research

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

4 Hosted by 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.

5 Hosted by


7 Let’s look at ROI…

8 Hosted by 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?”

9 Hosted by 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.

10 Hosted by Increasing Breadth Key cost/effort considerations SAP Portal/ NetWeaver Another technology Software lowmedium Integration - To SAP - To other apps low to medium high low to medium Ongoing supportmedium Future customizationhighlow to medium Future upgradeshighlow to medium

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

12 Hosted by Portal UI Billing SAP applications 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.”

13 Hosted by SAP app Other app SAP app Single View BPM/Human workflow (state, exception handling, etc.) Data access (EAI, messaging, adapters) Other Portal UIs Portal Framework 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.”

14 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

15 Hosted by 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?

16 Hosted by Reducing Costs Should I look at automated data delivery tools? 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?

17 Hosted by 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.”

18 Hosted by 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?

19 Hosted by 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.”

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

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

22 Hosted by The Calculations

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

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

25 Hosted by 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 $100 Year 3 $152.09 @ 15% Interest Rate

26 Hosted by 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 Initial Cost ROI =

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

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

29 Hosted by 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

30 Hosted by 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.

31 Hosted by Measuring the Volume of Benefit

32 Hosted by 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 - Directly Quantifiable

33 Hosted by 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

34 Hosted by Types of Benefits Believability 1 st Order2 nd Order3 rd Order4 th Order Direct savings - Reduction in cost Indirect savings - Increase in worker productivity Semi-direct savings - Expected reduction in cost Very indirect savings - Increase in manager productivity

35 Hosted by 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 Good Bad Always do a worst-case assessment

36 Hosted by Benefit Achievability Type of benefit 1 st Order 2 nd Order 3 rd Order 4 th Order Measurement strategy ObservationCase studiesVendor calculatorEducated guess Good CautionUnlikely Caution

37 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 1 to adjust time saved to time worked

38 Hosted by 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)

39 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

40 Hosted by Examples...

41 Hosted by 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

42 Hosted by 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

43 Hosted by What’s your ROI from SAP?

44 Hosted by The Tool

45 Hosted by 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

46 Hosted by 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

47 Hosted by Resources Nucleus Research Web site: 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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