Digging into HANA ROI and Biz Case Analysis - Discussed by Jon Reed and Tony from TekLink

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In this informal but focused narrated slideshare, Jon Reed of http://www.diginomica.com talks through a HANA business case methodology with Tony Guetersloh of TekLink, based on TekLink's approach and slide deck. The guys review how to move beyond HANA hype and speeds to build a project finance use case informed by process owners. There will be a companion audio slideshare version released with the slides. Jon has no financial relationship with TekLink, this was just for fun because the content was worth a hard look.

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Digging into HANA ROI and Biz Case Analysis - Discussed by Jon Reed and Tony from TekLink

  1. 1. © Copyright 2014 Wellesley Information Services, Inc. All rights reserved. A Step-by-Step Action Plan for Building and Proving a Business Case for SAP HANA Tony Guetersloh TekLink
  2. 2. 2 In This Session • Understand elements and approaches of a strong business case • Learn the critical inputs that must be defined and quantified to build a financial model for your business case • Learn specific methodologies for identifying, evaluating, and prioritizing the most critical business processes • Understand the various use cases and applications of SAP HANA and which business processes they support • See examples of how a Proof-of-Concept (POC) can greatly reduce risk and increase probability of a successful project • Acquire knowledge of how to set up an NPV calculator to evaluate the value and ROI of your business case
  3. 3. 3 What We’ll Cover • Defining a strong business case • Identifying and Evaluating critical processes • Understanding various uses and benefits of SAP HANA • Creating a HANA Value Wheel™ • Predicting the future with a POC • Putting the numbers together • Wrap-up
  4. 4. 4 Fundamentals of Building a Business Case • Business case evaluates whether value/benefit will exceed the costs to implement project  If benefits > cost, then business case exists  If benefits < cost, there is no business case • Best approach for evaluating investment is to use project finance models  Traditionally used for industrial projects, but principles can apply to IT projects as well  Asks whether capital investment provides net positive returns over life of asset  NPV (Net Present Value)  ROI (Return on Investment)  Payback Period
  5. 5. 5 Inputs for Building a Business Case • Solid financial model to build a business case requires knowing Net Present Value (NPV): NPV = -C0 + C1/(1+r) + C2/(1+r)2 + … + CT/(1+r)T  Benefit/Value = CN  Initial benefit and value solution will provide  Long-term ongoing value provided  Cost = C0  Initial hardware, software, and resource costs to deploy solution  Ongoing costs to support and maintain solution  Time = T  Expected lifespan of solution  Risk = r  Likelihood of deploying solution successfully within budget
  6. 6. 6 Common Challenges of SAP HANA Business Cases • Many of the required inputs are very difficult to quantify  Benefit and Value  What are the business benefits of implementing SAP HANA?  How to put a $ amount on efficiency, speed, or improved processes?  Costs  Hard Costs – hardware, software, and labor required based on type of HANA deployment  Soft Costs – intangible costs such as downtime during a migration or drop in productivity as users learn new application  Time  Expected lifespan for new technology is uncertain  Depreciation schedule for software is typically 3-5 years  Critical legacy systems can live on for 10+ years  Risk  How to put a number on probability of realizing expected benefits?
  7. 7. 7 Addressing the Challenges of SAP HANA Business Cases • Proven steps and methodologies to determine numbers for inputs  Benefit and Value  Identify and evaluate critical business processes  Build a “Value Wheel” to understand value contributions by area and process into total business case  Map critical processes to HANA uses cases and applications  Costs  Understand different HANA applications and use cases  Scope project for both immediate deployment and longer- term rollouts and enhancements
  8. 8. 8 Addressing the Challenges of SAP HANA Business Cases (cont.) • Proven steps and methodologies to determine numbers for inputs (cont.)  Time  Start with traditional lifespan based on software depreciation schedule; ~ 5 years  Adjust based on scope of deployment, criticality of system  Risk  Start with WACC (Weighted Average Cost of Capital) as initial discount rate  Conduct a proof-of-concept to better understand likelihood of success and ability to fully realize expected benefits  Successful POC will greatly reduce risk, allow for lower discount rate
  9. 9. 9 What We’ll Cover • Defining a strong business case • Identifying and Evaluating critical processes • Understanding various uses and benefits of SAP HANA • Creating a HANA Value Wheel™ • Predicting the future with a POC • Putting the numbers together • Wrap-up
  10. 10. 10 Identifying Critical Business Processes • Start by conducting interviews with process area owners  Executive interviews  Understand strategic vision  Business team interviews  Collect critical processes and understand pain points • Sample interview map: Sales • John Doe (EVP Sales) • Jane Doe (CCOE Sales) • John Doe, Sr. (SVP Sales National Accts) • Jim Doe, Jr. (SVP Regional Sales) Transportation • Bob Doe (VP Transportation) • Jack Doe (Inbound Freight Manager • Jessie Doe (CCOE Ops) Operations • Bob Jay (EVP Operations) • Sam A. Paul, Sr. (SVP Operations) • Jessie Doe (CCOE Ops) • John Doe, Jr. (CCOE PP) • Janet Doe (GM Plant Ops) HR • James Doe (EVP HR) • Joan Doe (CCOE HR) • John A. Doe (Comp/Benefits Manager) Finance • John Doe (CFO) • Bill Smith (Controller) • Sam A. Paul (AP Manager) • Mary Christmas (Budget Manager) • Jim Doe (CCOE FI) • Jane Doe (Financial Analysis Manager) Promotional Accounting • Jane Doe (Promotional Accounting Manager) • Bill Smith (Controller)
  11. 11. 11 Interviewing Business Process Owners • Ask open-ended questions framed by capabilities HANA can provide  How would your department improve or operate better if you could …  See and report on data in (near) real-time?  Speed up transactions, interfaces, and reports?  Bring in external “Big Data” sources such as POS or social media to join with internal data?  Quickly make changes to existing models and reports with minimum turn-around time?  Accelerate complex and cumbersome business processes?
  12. 12. 12 Capturing Results of Interviews • Capture answers provided during interviews to identify:  Business drivers  Critical processes  KPIs and Metrics  Pain points  Existing gaps and shortcomings
  13. 13. 13 Evaluating Results of Interviews • Capture business drivers and evaluate each critical process or pain point against drivers  Use “Harvey Ball” methodology to evaluate degree to which each meets a criteria Very Low Low Medium High Very High Revenue Generation Cost Reduction Operational Efficiency New Capabilities Customer Satisfaction
  14. 14. 14 Evaluating Results of Interviews – Example • Capture business drivers and evaluate each critical process or pain point against drivers  Use “Harvey Ball” methodology to evaluate degree in which each meets a criteria Pain Point Drivers Benefits Realized Impact Difficult to analyze pricing by region, leading to potential lost opportunities to optimize pricing regionally Increase Customer Loyalty Increase Brand Awareness & Perceptions Improve Productivity Improve Service Efficiency Reduce Customer Support Dependency Increase Revenue Improve Purchasing Decisions Increase Profitability Improve Operational Efficiencies Increase Operating Profits Timeliness of Reporting Minimize Unprofitable Customers Optimize Customer Incentives Enable Product Line Analysis Improve Reporting Inability to look at granular-level detail due to the sheer volume of data (i.e., an account for a month with drill-down capability) Cross New Products and Services Increase Customer Satisfaction Improve Service Efficiency Improve Operational Efficiencies Increase Accessibility to Information Facilitate Closing Processes Timeliness of Reporting Reduce Errors Improve Reporting Inventory write-offs common due to not having real-time visibility to current stock levels of perishable raw materials Reduce cost Eliminate waste Improve inventory turnover Reduce working capital One of the largest challenges for finance is getting the books closed due to lengthy ETL jobs between FI systems Improve Service Efficiency Increase Accessibility to Information Facilitate Closing Processes Timeliness of Reporting Enable Exception Processes Improve Reporting
  15. 15. 15 What We’ll Cover • Defining a strong business case • Identifying and Evaluating critical processes • Understanding various uses and benefits of SAP HANA • Creating a HANA Value Wheel™ • Predicting the future with a POC • Putting the numbers together • Wrap-up
  16. 16. 16 Different “Flavors” of HANA • SAP HANA has multiple uses; SAP is continuing to roll out new capabilities and applications rapidly  Go to SAP Marketplace and SAPHANA.com for more information on new use cases and HANA solutions • To build a business case, one must first understand different uses of HANA and how they map to critical processes
  17. 17. 17 Understanding HANA Use Cases • Most common current HANA solutions and use cases based on client experience  Enterprise HANA as ECC “side-car”  Replicates data from ECC in real-time  Accelerates ECC reports & transactions  Can be used to host and integrate non-SAP data as well  BW on HANA  Accelerates entire BW system  Enables virtualization of data mart layers to eliminate redundancy and improve speed to reporting  Allows easier integration of large “Big Data” data sets into existing enterprise data warehouse  BW is not “dead.” Many new innovations to change data modeling paradigms with BW on HANA.
  18. 18. 18 Understanding HANA Use Cases (cont.) • Most common current HANA solutions and use cases based on client experience (cont.)  EPM/BPC 10 on HANA  Accelerates financial planning and consolidation processes  Significantly improves speed of plan data uploads and allocation processing  Accelerated TPM (Trade Promotion Management) on HANA  Speeds up reporting and plan uploads for trade promotions  Enables near-real-time integration of trade and event data with sales to more accurately track marketing effectiveness  SAP Predictive Analysis powered by SAP HANA  Build predictive models on real-time data coming from SAP HANA  Increase forecast accuracy and identify trends before they impact operations
  19. 19. 19 Mapping HANA Applications to Value Drivers SAP HANA Application Enterprise HANA (ECC side-car) BW on HANA EPM/BPC 10 on HANA Accelerated TPM Predictive Analysis on HANA Value Drivers Improved Service Cost Reductions Operational Efficiency Revenue Generation Innovation & New Capabilities
  20. 20. 20 What We’ll Cover • Defining a strong business case • Identifying and Evaluating critical processes • Understanding various uses and benefits of SAP HANA • Creating a HANA Value Wheel™ • Predicting the future with a POC • Putting the numbers together • Wrap-up
  21. 21. 21 Building a HANA Value Wheel™ • With our HANA Value Wheel™, you can learn how to build business cases for SAP HANA • Take identified business drivers  Map to HANA Capabilities to determine possible values  Give $ values to both savings and new capabilities wherever possible  Assign discount rate to each account for probability of achieving forecasted $  Document assumptions and success criteria
  22. 22. 22 Examples of Mapping Processes to Value Wheel Current State/Limitation SAP HANA Capability Opportunity Investment in Enterprise data warehouse not leveraged for operational reporting Strategic, Analytical, Tactical, & Operational reporting from varied sources from a single reporting platform Only “canned” reports/ dashboards built by IT Co-creation of reports using Agile methodology; more end users empowered for self-service and ad hoc reporting SAP application/s-centric (ECC, CRM, BPC) reporting Prototype flexible reporting scenarios using Enterprise AND Local/Offline/External data on the reporting platform itself Static Reports/Dashboards Predictive analysis and “what if” scenarios Predominantly desktop-based solutions Mobile Analytical solution can be a reality with fast response times Data Explorer/Ad hoc analysis Near real-time, Transaction level data Predictive Analytics * BW Workspaces Fast Response Times Innovation & New Capabilities
  23. 23. 23 Details of Calculations for Value Wheel • Use below template to capture each identified critical process by department and value driver for SAP HANA • Estimate ROI based on highest possible “best guess” value Expected Project Lifespan: 5 Years Business Driver Process Area Description Estimated ROI Prob- ability Discount Rate Recurre- nce Net Present Value IT Cost Savings IT Eliminate Oracle DB Maintenance Costs $20,000.00 95% 5%Annually $86,589.53 Enter the probability that the estimated ROI can be fully achieved. This will drive the discount rate.
  24. 24. 24 • Each critical process or identified value area Description Estimated ROI Probability Discount Rate Recurrence Net Present Value (5 Yrs) Eliminate Oracle DB Maintenance Costs – 3 Env. $XXX,000 95% 5% Annually $XXX,XXX Eliminate Oracle DB Hardware Maintenance Costs – 3 Env. $15,000 95% 5% Annually $76,135 Eliminate BWA Maintenance Costs $XXX,000 95% 5% Annually $XXX,XXX Eliminate BWA Hardware Maintenance Costs – 3 Env. $XX,000 95% 5% Annually $25,378 Reduce time to market of new BI Development – 5 Active Developers, 25% time reduction, $600/day rate $187,500 50% 50% Annually $342,078 BW 7.3 Upgrade Cost savings with Side-by-Side BW-on-HANA Implementation * $250,000 100% 0% One-Time $250,000 Lower occurrences SLA breaches $25,000 80% 20% Annually $83,138 Total $ X,XXX,028 Examples of Calculations for Value Wheel Cost Reduction
  25. 25. 25 Value Wheel to Show Priority and Share • Value Wheel used to prioritize departments that will receive most value  Share of value can also be used for allocating cost of investment
  26. 26. 26 Technical Roadmap Evaluation • Future BI-State Vision to be evaluated against factors of:  Technical feasibility and complexity  Ability to achieve objectives and value drivers identified in Value Wheel  Compatibility with current landscape  New technologies, innovations, and updates from SAP and other providers
  27. 27. 27 Plotting Projects for Future Deployment • In conjunction with business case, projects and initiatives plotted against future timeline • Prioritization of projects driven by:  IRR and NPV delivered (identified in Business Case)  Cost and complexity to implement  Dependencies on other projects or technologies required • Roadmap to include timelines, resource estimates, and hardware / licensing requirements and cost estimates • Roadmap will provide recommendations of best approaches and platforms for deploying the projects and proposed funding sources (identified in Value Wheel) 2015 2016 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Install BW on HANA instance Technical validation and go- live of BW on HANA Harmonize Master Data Migrate SPM Migrate MTI Migrate PTC Migrate Sales & Trade Migrate Transportation Migrate STP Migrate RTR Migrate Remaining Areas New enhancements and development on HANA Retire Legacy BW IT Funded Business Funded
  28. 28. 28 What We’ll Cover • Defining a strong business case • Identifying and Evaluating critical processes • Understanding various uses and benefits of SAP HANA • Creating a HANA Value Wheel™ • Predicting the future with a POC • Putting the numbers together • Wrap-up
  29. 29. 29 How to Address Risk • Most scrutiny for business case will focus on the probability of achieving estimated value benefits • If probability is too uncertain, it will lead to higher discount rate  Higher discount rate will lower total NPV of project  Puts entire business case at risk • Simplest way to reduce uncertainty and raise probability of success is to conduct a Proof of Concept (POC)  Allows testing of solution before full deployment  Requires minimal initial investment before making larger commitment  Develops early learnings and experience of resource to ensure less issues during full deployment
  30. 30. 30 Options for Conducting a POC • Proof-of-Concept can be conducted multiple ways  Partner with technology services firm to host solution within internal labs  Requires no hardware purchase or asset commitment  Enables rapid deployment of POC working directly with partner  Purchase SAP HANA in Cloud to deploy small POC  Cloud hosting requires no hardware or asset commitment  Option to convert POC into production system if cloud hosting is permanent approach  Purchase HANA “sandbox” for POC and prototyping  Allows for additional POCs and testing after initial use case is proven out  Requires larger initial investment
  31. 31. 31 Examples of HANA Proof of Concept – Case Study • Background  Client uses BPC 7.5 NW primarily for Financial Planning and Reporting for P&L and Balance Sheet •  Objective of POC  Client is looking to upgrade the current BPC applications to BPC v10  Performance boost is a key consideration for the upgrade  A Performance Analysis of 7.5 versus 10.0 (with and without HANA) is required as part of a Proof of Concept (POC) to analyze the potential performance gains  Due to the unavailability of the required infrastructure in-house, client utilizing separate environment to conduct the POC off site
  32. 32. 32 Examples of HANA Proof of Concept – Case Study (cont.) • Scope of POC  In order to gain clear understanding of performance gain, a series of tests was performed on 3 different systems  System 1 – BPC NW 7.5 on Oracle  System 2 – BPC NW 10.0 on Oracle  System 3 – BPC NW 10.0 on HANA  We tested  Data Loads  Ad Hoc Reporting (various sizes)  Formatted Reporting  Data Input  Book of Reports  Logic Calculations
  33. 33. 33 Examples of HANA Proof of Concept – Case Study (cont.) • Results of the POC Performance Gain vs. 7.5 Activity BPC v10 BPC v10 HANA Ad Hoc Reporting 65% 85% Report Refresh 46% 72% Data Input 64% 82% Book Publishing 68% 92% Calculation Logic 52% 74% Data Loads 63% 92%
  34. 34. 34 Examples of HANA Proof of Concept – Case Study (cont.) • Results
  35. 35. 35 What We’ll Cover • Defining a strong business case • Identifying and Evaluating critical processes • Understanding various uses and benefits of SAP HANA • Creating a HANA Value Wheel™ • Predicting the future with a POC • Putting the numbers together • Wrap-up
  36. 36. 36 Finalizing the Business Case • Numbers now collected for each of the variables required for building the case:  Benefit/Value = Net total of values identified during interviews  Cost = Hardware, software, and resources based on chosen HANA application(s)  Time = Expected lifespan of solution – typically 5 years  Risk = Probability of achieving the full value expected  This value can be adjusted and reduced through a POC
  37. 37. 37 Putting Numbers into NPV “Calculator” Project: BPC 10 on HANA Deployment             Timeframe: 5 Years                 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total Investment $ (1,000,000)            $ (1,000,000) POC Costs $ (150,000)  $     (150,000) Operational Efficiencies $ 50,000 $ 75,000 $ 100,000 $ 100,000 $ 100,000  $       425,000  Innovation and New Capabilities $ 100,000 $ 250,000 $ 250,000 $ 250,000 $ 250,000  $   1,100,000  Improved Service $ 50,000 $ 75,000 $ 75,000 $ 75,000 $ 75,000  $       350,000  Cost Savings   $ 150,000 $ 150,000 $ 100,000 $ 75,000 $ 50,000  $       525,000                 $                   -    Total:  $       (1,150,000)  $    350,000   $        550,000  $        525,000   $  500,000   $  475,000   $   1,250,000                      Risk Level           Low Moderate High       Discount Factor (WACC + Risk Factor):   5.0% 10.0% 15.0%- Note, low is WACC from treasury Net Present Value (NPV):   $875,467  $594,193  $380,399       Return on Investment (ROI): 209%            Payback in months                            29            
  38. 38. 38 What We’ll Cover • Defining a strong business case • Identifying and Evaluating critical processes • Understanding various uses and benefits of SAP HANA • Creating a HANA Value Wheel™ • Predicting the future with a POC • Putting the numbers together • Wrap-up
  39. 39. 39 Where to Find More Information • www.saphana.com  SAP’s Web site which outlines all HANA solutions and use cases • www.financeformulas.net/Net_Present_Value.html  Web site providing financial formulas and explanations for NPV, IRR, WACC, and other financial terms
  40. 40. 40 7 Key Points to Take Home • Building a solid business case requires building a financial model to determine NPV, ROI, and payback period • Four critical inputs for financial model that must be quantified are Benefit, Cost, Time, and Risk • Conduct interviews with department heads and process owners to identify and evaluate value drivers and critical business processes • Learn and understand the different uses and applications of SAP HANA to know which capabilities can map to the critical business processes
  41. 41. 41 7 Key Points to Take Home (cont.) • Build a HANA Value Wheel™ by grouping processes by value driver and department then assigning $ values to them • Define “risk” by assessing probability of realizing expected values • Mitigate risk and improve probability of success by conducting a POC
  42. 42. 42 Your Turn! How to contact me: Tony Guetersloh Tony.guetersloh@tli-usa.com Please remember to complete your session evaluation
  43. 43. 43 Disclaimer SAP, R/3, mySAP, mySAP.com, SAP NetWeaver® , Duet® , PartnerEdge, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Wellesley Information Services is neither owned nor controlled by SAP.

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