IBM Global Finance - Building strong IT Business Cases in the New Economic World

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IBM Global Finance - Building strong IT Business Cases in the New Economic World. Presenter: Brett Vincent

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IBM Global Finance - Building strong IT Business Cases in the New Economic World

  1. 1. How to get Your IT Projects Approved in the g j pp New Economic World Brett Vincent General Manager IBM Global Financing, ANZ IBM Insight Forum 09 Make change work for you ®
  2. 2. Agenda A d 1 What is the ‘New Economic World’? 2 What’s important to the Finance Dept? 3 How to address financial imperatives 4 Conclusion and next steps
  3. 3. Agenda A d 1 What is the ‘New Economic World’? 2 What’s important to the Finance Dept? 3 How to address financial imperatives 4 Conclusion and next steps
  4. 4. The 2008 legacy : lack of liquidity 25 US banks and dozens more across the world failed during 2008. The IMF Financial had to rescue 6 country economies markets Financial turmoil markets On average, stocks lost 42% of their turmoil value worldwide, erasing almost $30 trillion in market value NZ economy contracts for 6 successive quarters Volatile Stock Exports down 19% year-to-year consumer market confidence volatility International visitors down 4.2% year-to- year Unemployment at nine-year high of 6% nine year As a result, credit markets continue to conserve cash
  5. 5. Succeeding in uncertain times Significant uncertainty among Tightening businesses credit markets Many corporations in cash conservation mode Economic uncertainty Access to capital shrinking: − Less credit available in the Stock market and more restrictions market turmoil − Credit lines being used for core business needs − Pressure on IT spending p g What has not changed: The future success of an organization is still dependent on its ability to invest in meeting client needs and improving its competitive position
  6. 6. Investment Economics Market Volatility Raises Caution Pre-crash: Typical T i l cost of capital: t f it l 5.50% to 7.50% 5 50% t 7 50% Typical investment threshold: 12.00% to 15.00% or 2x Post-crash: Rates are normalizing; behaviour isn’t: g; Previous cost of capital: 5.50% to 7.50% New cost of capital: 6.50% to 8.50% CAUTION PREMIUM 250 bp New investment thresholds: 18.00% 20.00% 18 00% to 20 00% Capital Planning Scenarios Will Assume Higher ROI Thresholds for the Next 36 Months Source: IDC “IT Funding and Financing: Strategies in a Changed World”, July 2009
  7. 7. Agenda A d 1 What is the ‘New Economic World’? 2 What’s important to the Finance Dept? 3 How to address financial imperatives 4 Conclusion and next steps
  8. 8. Agenda A d 1 What is the ‘New Economic World’? 2 What’s important to the Finance Dept? 3 How to address financial imperatives 4 Conclusion and next steps
  9. 9. The new economy is more challenging than ever for CFOs New Economic Environment Management Challenges Unprecedented constraints on access to Manage short term financial matters credit and capital; Unwinding of over- Review and validate or reset the leverage company strategy Falling de a d, increased p ce a g demand, c eased price Reprioritize projects/investments sensitivity as consumers and enterprises cut back Interact with the board to assure priorities are correct and are being Disruptions in supply chains, p p pp y partner and followed customer arrangements Take decisive actions Restructuring of industries: Firms fail, sold off overnight New regulatory authorities
  10. 10. One result: More power now shifts to CFOs as they become key players, even leaders, in major decisions Refocus on short Power shifts to CFO Corporate actions term financial matters leadership Reset the company strategy Cost Savings CFO becomes key player, Reprioritize even a leader in major leader, projects/investments Meeting financial covenants decisions Cash Flow Inspect all significant Lead survival plan for the business cases for rigor, Obtain/maintain access to corporation p y payback, return and risk financing Drive cost out of the - Another check point… business another delay Waste no capital Eliminate proposals that do not fit the survival plan t th i l l Assure swift payback on investments Interact with the board to assure priorities are correct and are being followed g Source: Jesse Green, Vice President of Financial Management, IBM
  11. 11. Enterprises and their CFOs need a three-pronged agenda Focus on Exploit Act with Value Opportunities Speed Do more with less Capture share Manage change Focus on cash/capital Disrupt weak competitors Communicate clear & simple Create flexibility Make selective acquisitions goals Seek and leverage Focus on the core Build future capabilities experience Reprioritize businesses Protect & acquire talent Revisit initiatives Develop required assets Lead Get the information to act Re-align relationships Change your industry Set the agenda Assess financial stability of Make bold moves suppliers, partners and Position globally Manage risk and improve customers t transparency Revisit/renegotiate Drive performance management & analytics Manage risk Source: IBM Global Business Services, Institute for Business Value
  12. 12. The CIO has a set of compelling questions to answer in p gq order to support the enterprise in this environment Focus on Exploit Act with Value Opportunities Speed CIO How can I get more from my How can I speed the full How do I create a flexible and Questions infrastructure while improving IT integration of acquisitions? scalable IT infrastructure that performance? support rapid business change? How can I extend the global reach How do I help my IT staff be y of the enterprise? How can IT help reduce more productive? business risk and improve How can I better align IT with stakeholder information access? How can I leverage key vendor business objectives? partnerships for more value? CIO Improve operational Integrate systems and data Exploit a dynamic Response p efficiency and y to improve responsiveness p p infrastructure that is effectiveness – cut costs and drive new insights flexible, resilient and to fund new business secure solutions
  13. 13. The CFO’s critical questions are not the same Focus on Exploit Act with Value Opportunities Speed CFO How do I do more with less or be How can I leverage financial and How do I create a scalable and more effective with the same non-financial data to generate flexible information management Questions timely, relevant insights? framework and financial within Finance and across the organization? management model to navigate ever increasing change and How do I rethink where capital is provide the necessary control? deployed CFO Manage costs Enhance performance Integrate Finance Response and maximize capital management Source: IBM Global Business Services, Institute for Business Value
  14. 14. Selling to the CFO – three essential issues that must be addressed ROI Clarity Execution CFOs are looking CFOs are looking CFOs will demand for rapid ROI for clarity to see the execution plan In today’s environment, they’re environment They need to understand what the They need to be confident that the expecting payback in less than 12 proposed solution will do and how it benefits promised will be realized months will deliver business value They need specifics – if promising to CFOs are intensely focused on cash Generalities won’t do – the benefits cut costs, they’ll want to know how flow and the balance sheet promised need to be business-based much, when, and mostly importantly – The key question CFOs are asking and tangible the plan for delivering savings (e.g. is: “ … is this the right investment, cutting equipment costs, network right now.” expense, or staff reductions) Key point: The metrics for measuring the success of a project need to be clearly defined up front. If the project can’t be measured in a way that tracks the benefits to can t the business, it won’t be approved in today’s environment Source: IBM Global Business Services, Institute for Business Value
  15. 15. Projects to exploit your investments in SAP Source: AMR Research, The Fast-Payback SAP Projects for Saving Money in 2009: Detailed Data for Business Expense Projects, June 2009
  16. 16. Agenda A d 1 What is the ‘New Economic World’? 2 What’s important to the Finance Dept? 3 How to address financial imperatives 4 Conclusion and next steps
  17. 17. Agenda A d 1 What is the ‘New Economic World’? 2 What’s important to the Finance Dept? 3 How to address financial imperatives 4 Conclusion and next steps
  18. 18. CIOs can address CFO requirements in four ways Cut costs ► Provide immediate savings and near-term Get more from existing return on investment infrastructure infrastr ct re ► Defer or amortise capital expenditures ► M Manage/mitigate risk / iti t i k Increase productivity ► Meet changing business demands Seek alternative financing
  19. 19. Some actions to build into business cases Conduct an Cut costs assessment to identify cost savings i Get more from existing infrastructure infrastr ct re Simplify and consolidate computing and p g Increase productivity networking Virtualize IT to Seek alternative reduce costs and financing enhance performance
  20. 20. Some actions to build into business cases Ensure IT is responsive to Cut costs changing business needs Simplify and consolidate Get more from existing networking infrastructure infrastr ct re Improve utilization and capacity through virtualization & grid Increase productivity technologies Reduce expense Seek alternative associated with financing downtime
  21. 21. Some actions to build into business cases Cut costs Improve the productivity of your Get more from existing staff infrastructure infrastr ct re Increase productivity Reduce staffing pressure … out task routine management Seek alternative financing
  22. 22. Some actions to build into business cases Use a specialist IT financier Cut costs Defer/step Get more from existing payments to meet IT budgets infrastructure infrastr ct re Sale/leaseback Increase productivity existing infrastructure Structure project Seek alternative funding to align financing costs and benefits
  23. 23. Financing can help you to justify your infrastructure projects and achieve a faster “time to value” Costs are heaviest at the front end of a project, while benefits do not fully accrue until the project is implemented When the project is financed, replacing up-front costs with payments over time, costs and benefits track much more closely SW Licence Match the Timing of Project Costs to Benefits Services Maintenance & Tech support Major cost / return $ mismatch $ $ Year 1 Year 1 Costs more Year 1 Improved cost / closely aligned return alignment to returns Phase Phase Phase ROI ROI ROI I II III Year Y Year 1 Year 3 Year 2 3 Year 2 Year 3 Phases I - III Year 1 Year 2 Years Years Years Business as Usual Using Term Financing Using IGF Structured Financing
  24. 24. Agenda A d 1 What is the ‘New Economic World’? 2 What’s important to the Finance Dept? 3 How to address financial imperatives 4 Conclusion and next steps
  25. 25. Agenda A d 1 What is the ‘New Economic World’? 2 What’s important to the Finance Dept? 3 How to address financial imperatives 4 Conclusion and next steps
  26. 26. “…a period of discontinuity is, for those with courage and vision, a period of opportunity. Over the next couple of , p pp y p years, there will be winners, and there will be losers. And though it may not be easy to see now, I believe we will see new leaders emerge who win not by surviving the storm, but by changing the game.” - Sam Palmisano, November, 2008
  27. 27. The CFO wants to know how your project enABLes Alignment: Question: How are does your project align with your organisation’s key goals? Action: Develop a deeper understanding from a business and financial perspective as compared to only a technological one Business logic: Question: What is the business logic behind how your project improves performance? Action: Translate a solution’s feature/function benefits into a practical explanation of how they help your organisation better manage the activities within business processes and, in turn, improve key performance indicators (KPIs) Lasting benefits: Question: What are the lasting cash flow benefits and overall value to the enterprise? Action: Build a business case that includes quantitative analyses like the project’s investment project s and TCO, the lasting benefits in the area directly affected by the project – and impact on other areas of the enterprise, payback, ROI and breakeven analysis – plus qualitative analysis like critical success factors and risk assessment • Ask your vendor rep(s) to help you build the business case – it is as much a specialist skill as any technical role. • Ask your rep(s) for assistance from someone with financial selling skills.
  28. 28. Leverage IBM’s financing capabilities IBM Global Financing is the world’s largest IT financier, and provides financing for 91 of the 100 biggest U.S. corporations. We offer you financing specialists who talk the same language as your CFO, and unlike banks, we focus primarily on solution and technology financing. Working with IGF provides: G Access to funding and cash to enable transformation in tight credit market An alternative capital / funding source Allows your organisation to preserve cash and credit lines for other core business needs Cash Flow Management Predictable and known costs over a fixed term Payments matched to solution benefits - a better alignment between the return on investment and the actual expenditure Management of the entire technology lifecycle Leasing eliminates up front investment costs, keeps assets off balance sheet and mitigates the asset lifecycle management headache Management of IT hardware assets ensures the asset register is accurate and provides a hedge against technology obsolescence Asset recovery solutions can free up cash Reduced costs Used equipment provides access to reliable IBM technology at lower price points
  29. 29. For more information contact IBM Global Financing on 0800 408 035 or go to www.ibm.com/finacing/au ib /fi i / or email mloh@nz1.ibm.com

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