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Maximizing ROI from SAP

Rebecca Wettemannrwettemann@NucleusResearch.com

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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

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Agenda

SAP: promises and realities

Learning to play

ROI factors

Leverage strategies

Measuring success

Examples

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Nucleus Research productsROI 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…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 BreadthCan 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 BreadthKey cost/effort

considerations

SAP Portal/

NetWeaver

Another technology

Software low medium

Integration

- To SAP

- To other apps

low to medium

high

low to medium

low to medium

Ongoing support medium medium

Future customization high low to medium

Future upgrades high low to medium

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Increasing RepeatabilityCan I integrate more transactions or

applications?

Technology strategies:

- SAP portal and NetWeaver.

- Another portal or integration vendor.

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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.”

“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.”

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SAP appOther app

SAP app

Single View

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

Data access (EAI, messaging, adapters)

Other Portal

UIs

Other Portal

UIsPort

al Fra

mew

ork

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.”

“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.”

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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

Benefits:

Increased profits

Reduced manual order entry costs

Improved relationships

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Reducing CostAm 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?• 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?

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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.”

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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?

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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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Compare financial measurements to

other internal decisions and success

factors

- NOT to the results of other companies!

Using Financial Measurements

Document Management?

Document Management?

Positive

ROI!

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Short Finance Class

Toolbox used to measure the value of

technology:

• Net present value

• Payback period

• Return on investment

• IRR

• TCO

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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

$100Year 3

$152.09

@ 15% Interest Rate

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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 =

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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

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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 1 Year 10

$100

$0 $102K

IRR = 100%

Year 1 Year 10

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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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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

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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

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Types of Benefits

Believability

1st Order 2nd Order 3rd Order 4th 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

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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

GoodGood

BadBad

Always do a worst-case assessmentAlways do a worst-case assessment

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Benefit AchievabilityType of benefit

1st Order

2nd Order

3rd Order

4th Order

Measurement strategy

ObservationObservation

Case studiesCase studies

Vendor calculatorVendor calculator

Educated guessEducated guess

Good

Caution Unlikely

Caution

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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 worked

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Benefit Assessment WorksheetEstimate 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 MilestoneCommit 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

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Examples...

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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

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Seattle Public School DistrictDriver 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

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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 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

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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

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ResourcesNucleus 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