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Proving ROI: How to demonstrate the value of your SAP BusinessObjects implementation and integration effort

by The Tip Doctor

December 24, 2010

The Tip Doctor, Insider Learning Network.

This tip was taken from the session Proving ROI: How to Demonstrate the Value of Your SAP BusinessObjects Implementation and Integration Effort, which was presented by Chris Dinkel of Business and Decision at SAPinsider's Reporting, Planning, and Analysis 2010 conference.

Before a company can begin to calculate the ROI for an SAP BusinessObjects project, it’s critical to (a) understand the issues that decision makers face and how going through an ROI exercise will alleviate those issues and (b) understand the process for doing an ROI and how to calculate it.

Understanding the Pressure on Decision Makers

  • Economic meltdown of 2008 resulted in tighter budgets and the demand to do more with less
  • SAP NetWeaver BW is a large and expensive undertaking—doing it right requires some investment
  • IT is not always able to get managers the information they need to make informed decisions
  • Accountability in organizations--since Sarbanes-Oxley Act, there is increased pressure to ensure that data is correct

Understanding the Financial Impact of BI 

According to a 2003 IDC study “ The Financial Impact of Business Analytics”:

  • Range of returns from 17% to 2000%
  • Median ROI is 112%
  • 63% of companies see a payback in two years or less
  • Average five-year ROI is 431%

Where to Begin the ROI Analysis

  • Determine the required rate of return, also known as “the hurdle rate”
  • Other calculations that go into an ROI analysis include:
    • NPV or Net Present Value
    • IRR or Internal Rate of Return
    • Payback Period

Benefits that Go Into ROI Calculations 

  • Two broad categories of quantitative benefits
    • Decreasing costs in the organization
      • Moving to paperless system
      • Eliminating redundant systems
      • Increasing efficiencies
    • Increasing revenues in the organization
      • Better targeting of sales and marketing campaigns
      • Effectively moving one-time buyers to making multiple purchases
      • Reducing customer churn by identifying customer service issues
  • Qualitative benefits
    • Increased information access
    • Increased information dissemination
    • Improved data quality
    • Increased collaboration across business units
  • These are difficult to put a dollar value to, but are necessary for a correct calculation

Costs that Go Into ROI Calculations

  • Initial costs:  Hardware, software, inte rnal labor, external labor, training
  • Recurring costs: Maintenance fees, support fees, expansion hardware and software costs, training

Understand the ROI Calculation Itself

  • ROI is the most commonly accepted financial measure for evaluating BI projects
  • An example of how to calculate is:
    • ROI = ((NPV of Savings or Gains1) + (NPV of Savings or Gains2) + (NPV of Savings or Gainsn)) /n / (Initial Investment) * 100
  • Expressed as a percentage

Net Present Value Calculations

  • Net Present Value (NPV) is a calculation that measures the difference between the Present Value of the future incoming cash flows from an investment and the amount of investment
  • An example of how to calculate is:
    • NPV = (Net G&S1 / (1 + r)1) + (Net G&S2 / (1 + r)2)  + (Net G&S3 / (1 + r)3) + … + (Net G&Sn / (1 + r)n)
      • Net G&S for each respective year
      • r is the discount rate at the time the NPV is calculated
      • n is the number of years in the calculation
  • Expressed as a value

Payback Period Calculations

  • Payback Period calculates the number of months/years for the BI investment to break even
  • An example of how to calculate is:
    • Payback Period = (Initial Investment) / (NPV / Total Number of Years in BI Project Scope)
  • Expressed as a unit of time (months or years)

 

Using KPIs in an ROI Analysis

  • KPIs should be used to track how effectively the implementation is going according to the plan
    • Examples may include:
      • Decision-making speed
      • Business visibility
      • Business alignment
      • Quality of products and services
      • System response time

Chris Dinkel is a speaker at SAPinsider's Reporting, Planning and  Analysis conference and a co-author of the SAP PRESS book Discover SAP BusinessObjects.  Join the Reporting, Planning and Analysis Conference Group  on Insider Learning Network to learn more about the timely, up-to-date BI education available at the Reporting, Planning and Analysis 2011 conference, scheduled for Las Vegas, November 2-4, 2011. 

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