2009 11 Business Case For ‘Erp’ In Government

Business Case for ‘ERP’ in Government of Canada www.fmi.ca November 25, 2009 Doug Hadden VP Products

Clarification
Original session:
Business Case
NRCAN – Government of Canada Department
SAP Implementation
ERP (Enterprise Resource Planning)
New TBS Investment Planning Policy
This session:
Government Case
FreeBalance – a vendor selling to the Government of Canada
FreeBalance , not SAP
GRP (Government Resource Planning)
Huh?
introduction

Goals
Articulating Benefits
“ Value for money and demonstrating sound stewardship in program delivery.”
Total Cost
“ Demonstrable life cycle management best practices”
Project Governance
“ An appropriate capacity for managing projects, which reflects the level of project complexity and risk ”
introduction

Point of view
More potential = harder to measure
Total Cost
ERP lifecycle cost persistent
Project Governance
Project complexity is high
Risk is high
introduction

ERP functional footprint introduction 1 Forrester

ERP Value Problem 1
Costs well understood
Value is not
introduction 1 Aberdeen

With budget pressures, governments are looking for effective ways to quantify the return on IT investments. Private-sector methods are a good start, but not the solution. Gartner July 2003

Return on the Total Cost…
Alphabet soup of T.L.A.s
Many created or promoted by vendors
So, you can really trust the vendor perspective
value ROI EVA ROA TCO IRR

+ statistics 1 1 IDC value

Benefits Balance Efficiency Productivity Effectiveness value

Benefits Balance Efficiency Productivity Effectiveness Transform value

Capacity Balance Efficiency Productivity Effectiveness value Capacity

Benefits Value Capacity value People are Money Decisions are Money Time is Money

Sample Approaches Efficiency Capacity Productivity Effectiveness value CPM BPM Outsourcing

Efficiency Benefits
Reduce Costs
Paper
Power/utility
Maintenance
Information Technology
Throughput:
Net Days Outstanding
Auditing & reporting
Eliminating errors
Service levels
Lowers costs through faster payments
Transaction times
value Efficiency Time is Money

ERP Value Portfolio Argument value (1 x ERP) < (n x BOB)

ERP Value Portfolio Argument value (1 x ERP)- (IT Costs) > (n x BOB)- (IT Costs) integration

Productivity Benefits
Leveraging Automation
Reduce low value, repetitive
Increase high value, variable
Public Service
Personnel optimization & scalability
Grow without adding personnel
“ do more with less ”
value Productivity People are Money

Effectiveness Benefits
Cost Reduction +
Spend management
Compliance
Improved management & financial controls
Clean audits
Performance
Key performance indicators
Improved managerial decisions
Better goal linkage
value Effectiveness Decisions are Money

Transformation Benefits
Service Delivery
Process innovation
Improved mandate achievement
Higher “customer” satisfaction
Public Service
Employee recruitment
Employee satisfaction
Promote and mentor top performers
Program objectives
Transparency
Confidence
From service delivery to participation
value Transform

Problem with Articulating Transformational Benefits
Holistic view
Difficult to articulate
Intangible
Lack of proven measurements
Causality
Crystal ball
No objective measurement like Profit
value Transform

Typical ERP Benefits Tangible Benefits Realized Intangible Benefits Realized value 1 Deloitte Maintenance Cost Reduction Revenue Enhancement Cash Management Improvement IT Cost Reduction Procurement Cost Reductions Service Order Management Cycle Time Improvement Faster Financial Close Cycle Productivity Improvement Inventory Reduction Personnel Reduction Redeployment Greater Flexibility Improved Cost Structure Integration Standardization Improved Customer Responsiveness New/Improved Processes Improved Information Visibility

First Generation of Public Financial Management Automation
to 2006
Silos
value Second Generation of Public Financial Management Automation 2009 – 2013 Participation Collaboration Transformation Strategic Inflection Point 2006 - 2009 Integration

ERP Footprint internal external social structural government 2.0 “ back-office” e-government value

The Secret of Total Cost of Ownership
Product acquisition
Software implementation
On-going costs
Total TCO over 5 years can be 5 times the initial cost for software
cost

Product acquisition
Needs + planning phase costs
Computing hardware, networking and bandwidth
Middleware & Application
Software license costs
On-going costs
cost

Product acquisition
Internal and consultant costs to articulate & adapt processes
Installation, provisioning and set up
Middleware configuration
Configuration and customization costs- change
Phased implementation including pilot, testing and analysis
Technical & Functional Training
Development of any special documentation
Project management “overhead”
On-going costs
cost

Software to Services Ratios 1 0 2 4 6 8 10 12 14 16 Commercial Government Software Services cost 1 Office of Management + Budget 1 5 1 15

Product acquisition
On-going costs
Multi-year life-cycle maintenance costs
Internal personnel providing internal support.
System tuning of databases
Changes to configuration, reports or forms.
New fiscal year processing
Upgrading to a new versions
Additional roll-out of modules
cost

Typical Enterprise Software Acquisition Cost 1 cost 1 Averaged across many published reports Total Software Costs 22% Computer Hardware and Networking 20% Internal costs 22% Consultants for Implementation 36%

Change- the gift that keeps on giving 1 1 IDC cost 0 10 20 30 40 50 60 Need Extra Functionality Changes in Business Process Change in Reporting+ Analysis Change in Business Info Req's Mistakes Other

66% of all IT projects either fail outright or take much longer to install than expected because of their complexity. The Economist October 2004

Disappointing Industry Results
40% of enterprises exceed time and budget estimates > 50%
ERP technology to business benefits rated D+
15% large implementations failed
51% were over budget, over schedule or under delivered.
Half of all respondents incur additional costs after implementing financial applications
Only 41% of companies have achieved the majority of targeted benefits from their ERP systems
Fewer than a third of enterprise decision makers would recommend their ERP vendor to another company
Gartner Group
Peerstone
Standish
BearingPoint
IDC
Accenture
Yankee Group
risk

Governance + Risk risk Risk Private Sector Risk Government

Risk factors in Government
Political
Political
Political
risk

Risk is Good RISK ~ REWARD risk

Risk Factors political technical GOVERNMENT CHANGE MANAGEMENT risk

Change Management Risks
Generic/Standard vs. Customized/Unique
Evolution vs. Revolution
Government Implementation Experience
Treasury Board Investment Planning Policy
+ Critical Success Factors
+ Project Governance
~ Change Management
risk

Good Practices
Vendor Success Stories?
IT Analyst Recommendations?
Vendor Selection Process? 1
Local Cluster Groups?
Financial Management Conferences?
FMI
AGA
ICGFM
risk 1 Forrester

Governance risk capacity building communications RISK ~ REWARD Risk Private Sector Risk Government staged sustainable politics is communications

ERP- Long-Term View 1 0 50 100 150 200 250 300 350 400 450 500 Benefits ($M) 1. AMR Research conclusion Phase II Phase III IT Operating Expense Reduction Business Operating Expense Reduction Additional Net Income Reduced Materials Costs 2/3 of Benefit Cost of Consolidation

Capacity Balance Efficiency Productivity Effectiveness conclusion Capacity Transformation Sustainability

Point of view
Easy – US DOD discovers
Hard – Transformational
Total Cost
ERP lifecycle cost persistent
Project Governance
Complexity risk
Government change management
conclusion

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2009 11 Business Case For ‘Erp’ In Government

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