ROI on SAP

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Maximizing ROI from SAP
Rebecca Wettemann
rwettemann@NucleusResearch.com

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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

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

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Delivering Content – or
Supporting Transactions?
Portal UI
SAP Billing
applications
“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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Single
View
Delivering Content – or
Supporting Transactions?
Data access (EAI, messaging, adapters)
BPM/Human workflow (state, exception handling, etc.)
SAP app Other
app SAP app
Other
Portal
UIs
Other
Portal
UIs
Portal Framework
Portal Framework
“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

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

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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
$100
$152.09
@ 15% Interest Rate
Year 3

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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
Year 1 Year 10
$199 $9
IRR = 100%
$100
Year 1 Year 10
$0 $102K
IRR = 100%

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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
manual
 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
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
Direct savings
- Reduction in cost
Believability
Semi-direct savings
- Expected reduction in cost
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
 Educated guess
 Uneducated guess
 Psychic
 Vendor-supplied estimates
 Vendor ROI sales quick calculator
Good
Bad
Always do a worst-case assessment

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Benefit Achievability
Type of benefit
4th Order
3rd Order
2nd Order
1st Order
Caution Unlikely
Good
Caution
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
worked

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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
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 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

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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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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