Building The Business Case
1
Assemble IT And Business Personnel
2
Define Initial Scope and Cost Parameters
3
Review Functionality Contained in the Scope
4
Measure The Benefits
 SAP AG 2001
ROI Business Case
1
What is a Business Case?
A business case outlines the overall business benefits
that justify the initial and on-going commitment of time,
resources, and funding for technology projects.
Financial
Strategic
Costs, benefits and
impact on business
performance measures
New capabilities and
improved competitive
position
ROI
Technical
Operational
Benefits to IT
infrastructure and
support for technology
strategy
Process improvements
 SAP AG 2001
ROI Business Case
(Tangible and
Intangible)
2
The Business Case Should Cover the Entire Life
Cycle of the Solution
DISCOVERY
Qualification of Improvement Opportunity
EVALUATION
OPERATIONS & CONTINUOUS
BUSINESS IMPROVEMENT
Develop business strategy
Identify business solution
Align industry solution with key
process indicators (KPI’s)
Estimate total cost of ownership
Use integrated content to
develop business case
Assess baseline value for ongoing
business performance
Measure business performance
against industry best practices
Justify continuous business change
and performance tuning
Realize continuous improvement
IMPLEMENTATION
Incorporate business case as part of implementation methodology
Ensure KPI’s are measured throughout implementation
Use business case for scope/change control
Use integrated content to monitor project risk performance
 SAP AG 2001
ROI Business Case
3
Business Case Development - Objectives
 Identify critical business processes and prioritize by impact on
company operations (largest/most important results)
 Identify opportunities for improvement/problem areas/pains
 Identify key business drivers (current and future)
 Select relevant benefit areas to quantify

Gather data regarding current environment

Utilize metrics and internal information to formulate anticipated
benefit levels
 Select measurements that will enable continuous monitoring
during implementation and beyond
 SAP AG 2001
ROI Business Case
4
Building The Business Case
 Assemble business and IT leads for each area
 Define Initial Project Scope and Cost Parameters

Implementation (internal/external consulting by project phase)

Infrastructure/hardware requirements and maintenance
Software license costs and maintenance
Level of detail required in the business case
Training and change management requirements
Testing tools and other costs




 Functionality Review

Identify business drivers and pain in current processes

Identify benefit opportunities enabled by proposed solution
Identify challenges and obstacles

 SAP AG 2001
ROI Business Case
5
Building The Business Case
 Measure the Benefits


 SAP AG 2001
Data Collection & Analysis

Collect baseline data (in current legacy systems)

Calculate benefit opportunities

Identify required changes in business processes
Build the Business Case

Document benefits and assumptions based on the expected new
functionality

Establish timeframe or horizon

Be careful to not double count benefits
ROI Business Case
6
Measures for Business Case Proposals
IRR = Internal Rate of Return = The interest (discount) rate that causes the net present
value of a project to just equal zero (0). If the project’s IRR is greater than the
cost of capital, the project is acceptable; otherwise, it should be rejected.
The calculation of IRR assumes that the cash inflows will be reinvested at the
same rate as the internal rate of return.
@ 5% Interest Rate
NPV = Net Present Value = The value today of a
series of cash flows received in the future
based on a given interest rate (e.g., 5%).
$152.09
$100
Savings
Payback = The time period needed before net
savings equal initial and ongoing costs
(breakeven).
ROI Business Case
7
Payback Period
Time
Costs
 SAP AG 2001
Year 3
Cost
Implementation
Ongoing
Software
Software Maint.
$476,000
$40,000
$81,000
Requisite
Software
$250,000
0
0
$250,000
$328,000
0
0
$39,000
Requisite
Software Maint.
Hardware
Hardware Maint.
External
Consulting
Internal Project
Team
Training/Change
Management
Other
Total
 SAP AG 2001
ROI Business Case
$952,000
0
$952,000
0
$167,000
0
$3,165,000
$370,000
8
Comments
17% per year
Excludes costs of
existing internal
catalogs
69% of SW
(rule-of-thumb)
15% per year
May be lower w/
greater internal
involvement
Benefit
Type
Electronic
Catalogs
Carrying
Process
Maverick
Costs
Efficiencies
Purchases
(VMI)
One-Time
BW
$0.220
Annual
$0.390
$0.121
$2.325
$0.608
$0.057
Total
$0.390
$0.121
$2.325
$0.608
$0.277
Notes:
1. All amounts in $millions
2. Annual benefits total $3.5 million
3. BBP benefits above are reduced carrying costs from use of VMI, reduced maverick purchases,
and process efficiencies in the order through invoicing cycle time
4. Business Warehouse (BW) benefits include cost avoidance for developing data marts, ease of
use savings related to end-users, and reduced costs of data extracts
 SAP AG 2001
ROI Business Case
9
Business Benefits - Some Examples
Financials:
Improve Time to Process A/P Invoice 15%-40%
Reduce Term Discounts Lost
Improve Time to Close Books
35%-80%
25%-75%
Process Improvements Due to Elimination of Reconciliations, Duplicate Data Entry, etc. 15%-45%
Purchasing:
Reduction in New Item Inventory
10%-30%
Reduce Cost of Materials/Services
Procurement Process Efficiencies
35%-80%
Purchase Cycle Time Improvements 30%-80%
Increase Compliance of Purchases from Government-wide Contracts
2%-6%
25%-50%
Human Resources/Payroll:
Personnel Administration Efficiencies 10%-40%
Payroll Check Processing Efficiencies 15%-40%
Reduced Time and Exp. Reporting
Recruitment/New Hire Efficiencies
10%-20%
Employee Self-Service Transaction Reduction
 SAP AG 2001
ROI Business Case
10
25%-50%
15%-25%
Business Benefits - Some Examples
Inventory:
Reduction in Inventory
10%-50%
Reduction of Inventory Write-Offs
15%-40%
Improvement in Inventory Turns
10%-50%
Reduction in Warehouses Maintained 15%-85%
Facility/Plant Maintenance:
Reduction in Repair Parts Inventory 10%-40%
Improved Field Service Response
10%-20%
Reduction in Work Order Prep Time 25%-75%
Reduction in Overtime Cost
10%-20%
Reduction in Cost to Re-Enter Work Order Data into Payroll 100%
Project Management/Systems:
Reduce Project Reporting Costs
5%-20%
Reduce Invoicing Costs
40%-80%
Reduce Cost for Revenue Calculation/Analysis
 SAP AG 2001
ROI Business Case
11
Reduce Project Set-Up Costs
30%-50%
Reduce Reconciliation/Budget Time 15%-30%
40%-75%