Maximizing ROI from SAP - The Se_savings by liuqingyan


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Maximizing ROI from SAP

Rebecca Wettemann
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About Nucleus Research
An ROI-focused technology research and advisory

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
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 SAP: promises and realities

 Learning to play

 ROI factors

 Leverage strategies

 Measuring success

 Examples
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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.
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Let’s look at ROI…
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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?‖
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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.
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Increasing Breadth
   Key cost/effort            SAP Portal/    Another technology
   considerations             NetWeaver
Software               low                  medium


- To SAP               low to medium        low to medium

- To other apps        high                 low to medium
Ongoing support        medium               medium

Future customization   high                 low to medium

Future upgrades        high                 low to medium
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Increasing Repeatability
 Can I integrate more transactions or

Technology strategies:
- SAP portal and NetWeaver.

- Another portal or integration vendor.
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   Delivering Content – or
   Supporting Transactions?
                           “We deployed the SAP Portal to get
                           simplified self-service access into
               Portal UI   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                    “We’ve reduced the cost of
                           preparing sales materials because
                           teams have all the information
                           easily accessible to them.”
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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                                                                   Other
systems. We’re running SAP on                                                                Portal
the back-end and will be seeing                                                               UIs
an SAP portal within the IBM                              Single
portal. In most cases its easier to                        View
integrate with IBM than rewrite                                                              Other
the SAP portal. The SAP Portal is                                                            Portal
very specific to SAP, but the IBM                                                             UIs
portal is much more flexible as an
enterprise portal.”                                    Portal Framework

                                            Data access (EAI, messaging, adapters)

“We don’t want to have to             BPM/Human workflow (state, exception handling, etc.)
reinvent the wheel when we
upgrade. So it’s better to open
the app. with Web services than
to use the portal directly.”                               Other
                                          SAP app                          SAP app
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Example: Xerox Document Supplies
The challenge:               ROI:          232%
Needed a way to support      Payback:      1.1 years
orders and fulfillment for

The strategy:
                              Increased profits
Deploy hosted
e-commerce solution           Reduced manual order
(Venda) integrated with        entry costs
SAP to open SAP product
information and order         Improved relationships
fulfillment to resellers
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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?
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Reducing Costs

 Should I look at automated data delivery tools?

 Should I invest more in SAP reporting and

 Should I buy a standalone BI solution?

 Should I buy a supply chain or e-commerce
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 ―The ability to do revenue screen analysis
 drove our closes down from eight days to two

 ―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.‖
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Increasing Collaboration and
 Can I integrate SAP data into a
  collaborative portal or workspace?

 Can I expose portions of it to customers and

 Can I provide more or greater information
  to users?
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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.‖
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Practice, practice, practice!

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

 Get a good conductor

 Listen to the conductor

 Make sure the violins are
  on board

 Make ROI the score
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The Calculations
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Using Financial Measurements

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



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Short Finance Class

 Toolbox used to measure the value of
  •   Net present value
  •   Payback period
  •   Return on investment
  •   IRR
  •   TCO
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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
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Return On Investment

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

Payback                                     Payback Period

 The time period
 needed before net
 savings equal initial                                         Time

 Excellent measure of risk.
 Should be the key measurement!     Costs
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Internal Rate of Return
                                            Year 1               Year 10

                                            $199                   $9

IRR                                                  IRR = 100%

 The interest rate that                     Year 1               Year 10
 equates to the cash
 flows.                                      $0                   $102K

 Never use IRR!                                      IRR = 100%
 If you have to, use MIRR instead.
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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
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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.
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 Measuring the
Volume of Benefit
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Benefit Examples -
Directly Quantifiable
 Reduced the number of personnel

 Reduced costs to print and distribute the maintenance

 Avoided regulatory fines

 Reduced accounts receivable

 Reduced the cost to publish
  to the web

 Reduced travel costs
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Benefit Examples -
Productivity Based

 Reduced the time needed to
  develop new software by

 The financial audit takes 1
  week rather than 3 weeks

 Maintenance on an aircraft
  takes 10% less time

 Increased software quality
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Types of Benefits
            Direct savings
            - Reduction in cost

                             Semi-direct savings
                             - Expected reduction in cost

 Believability                           Indirect savings
                                         - Increase in worker productivity
                                                            Very indirect savings
                                                            - Increase in manager productivity

                 1st Order     2nd Order      3rd Order      4th Order
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Techniques for Measuring Benefits
        Direct observation – pilot site
        Corporate history
        Surveys
        Case studies
        Benchmark data                Always do a worst-case assessment

        Educated guess
        Uneducated guess
        Psychic
        Vendor-supplied estimates
Bad     Vendor ROI sales quick calculator
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Benefit Achievability
Type of benefit

     4th Order

                        Caution                 Unlikely
     3rd Order

     2nd Order

                          Good                  Caution
     1st Order

                 Observation   Case studies   Educated guess   Vendor calculator

                                 Measurement strategy
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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
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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)
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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

Assumption: No change in workload
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Seattle Public School District

The challenge:            ROI:     35%
procurement process       Payback: 2.9 years
was labor intensive and
difficult to track

The strategy:
Deploy online
procurement system as
part of SAP R/3 rollout
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Seattle Public School District
Driver Best Practices:             ROI:     35%
 change management focus
                                   Payback: 2.9 years
 user adoption planning

 training based on skill level

Mechanics Best Practices:
 Don’t implement two systems

 Build in time for knowledge transfer
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What’s your ROI
  from SAP?
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The Tool
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The Right Corporate ROI Strategy

 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
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 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
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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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