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© Copyright Sopheon plc. Sopheon Confidential
Confidential & Proprietary
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© Copyright Sopheon plc. Sopheon Confidential
Confidential & Proprietary
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© Copyright Sopheon plc. Sopheon Confidential
Confidential & Proprietary
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© Copyright Sopheon plc. Sopheon Confidential
Confidential & Proprietary
5
© Copyright Sopheon plc. Sopheon Confidential
Context and Objectives – Today’s Session
Asset is
Operationalized
End-of-Life
Date
Start
Date
Go-live
Date
Project Initiation Project Execution Turned over to Business & Support
✓ Financial Analysts
✓ IT Leads
✓ Business Sponsor
✓ PMO
✓ Project Manager
✓ Delivery Team
✓ Business Sponsor
✓ PMO
✓ Business Sponsor
✓ Business Operations Team
✓ FP&A
Understand the key components of a compelling Business Case
How Capex versus Opex classification impacts Income Statements, and why you
should care
Tracking Capital Spend on Waterfall & Agile Projects – What happens behind the
scenes
6
© Copyright Sopheon plc. Sopheon Confidential
Objectives of todays Session
Understand the key components of a compelling Business Case
How Capex versus Opex classification impacts Income Statements, and why you
should care
Tracking Capital Spend on Waterfall & Agile Projects – What happens behind the
scenes
Review a checklist for Business Cases
Asset is
Operationalized
End-of-Life
Date
Start
Date
Go-live
Date
Project Initiation Project Execution Turned over to Business & Support
✓ Financial Analysts
✓ IT Leads
✓ Business Sponsor
✓ PMO
✓ Project Manager
✓ Delivery Team
✓ Business Sponsor
✓ PMO
✓ Business Sponsor
✓ Business Operations Team
✓ FP&A
7
© Copyright Sopheon plc. Sopheon Confidential
Hypothetical Acme Inc – Organic Tomato Paste Manufacturer
Sales
Restaurants and some grocery stores
buy this paste and they are expecting
$20MM in sales
Cost of Goods Sold
Cost of people/supplies required to
make paste – organic tomatoes, cans,
machine operators, warehouse
operators, loaders, etc.
SG&A Expenses
Fixed Costs – e.g., back-office
employees, leadership team, IT,
marketing, advertising, sales team,
office space, warehouse lease
Depreciation and Amortization
Annual depreciation charges for
Assets – forklifts, canning machinery,
IT systems etc.
Acme Inc. Income
Statement
Represents the financial
performance (Profit or Loss) of a
company over a specific period of
time.
Net Sales
Cost of goods sold
SGA& Expenses
Depreciation & Amortization
Operating Profit
Interest Expenses
Taxes
Net Profit
$20,000,000
$13,000,000
$3,000,000
$3,000,000
1,000,000
$50,000
$100,000
$850,000
4.25% Profit
8
© Copyright Sopheon plc. Sopheon Confidential
We need to make an entry into the consumer world. We need to create a new website that allows restaurant owners and
customers to order online which emails the warehouse, factory foreman. Factory can print a Shipping Label and have
shipping arranged; Also automates the invoice creation and email based on Fulfillment and shipping data. At the same time
→ Eliminates a lot of current manual steps and paperwork
• Staff answers phone, takes order, writes it down, and enters into the order management system
• Save 0.5 FTE
• Increase Sales by 5% annually – easier to order, 24x7, fewer errors, fully automated
In addition, we need explore how to open an Amazon Storefront.
Acme Inc – Contract to Cash Automation
Project Charter – Story in words
Acme Inc.
9
© Copyright Sopheon plc. Sopheon Confidential
Contract to Cash Automation – What a CFO is looking for
Project Charter – Story in words
Financial Terms
This table answers the following:
✓ Business Case
✓ Project Financial Model
✓ ROI Analysis
✓ Cash Flow Statement
✓ Breakeven Analysis
This helps Leadership and Finance understand how
the project will impact the bottom line
→ Speak their language (numbers)
Project Business Case – Story in numbers
10
© Copyright Sopheon plc. Sopheon Confidential
Financial Lifecyle of Projects
One Time Cost
Ongoing Cost
Asset is
Operationalized
End-of-Life
Date
Project
Spend
Project
Income
Start Date
Go-live
Date
Useful Life
Break-Even
Date
Payback Period
Project
Initiation
Project Execution
Turned over to Business & Support
Financial Duration of Business Case
11
© Copyright Sopheon plc. Sopheon Confidential
Mapping the Financial Model to our Project Lifecycle
Important Numbers needed for the model
❑ One Time Cost
❑ CapEx
❑ Opex
❑ Benefits Over Life of Business Case
❑ Annual Operating Expenses Over the Life of Business Case
Additional Data needed for the model
❑ Financial Duration of Business Case
❑ Go-Live Date
❑ End of Life Date
❑ Discount Rate
12
© Copyright Sopheon plc. Sopheon Confidential
Discounted Cash Flow (DCF) is a modeling methodology
that shows the project value in today’s dollars – depicts
NPV.
Net Present Value (NPV) provides an absolute value by
calculating the sum of all“Present Value”dollars in
your project.
Typically you spend money upfront with the
assumptions of future return. NPV applies a discount to
future benefits that can be used with current costs to
determine a more real value of the project and
investment.
Our Project:
Measures that Matter – 3 Metrics to Remember
Payback Period
Payback Period is the amount of time it will take the
company to recoup the money it spent on the project.
Most CFOs and Leaders want payback < 3 years.
Once a project has gone live, what is the first time the
cumulative cash flow in a future year becomes positive.
Internal Rate of Return (“IRR”)
Internal Rate of Return is the interest rate at which the
Discounted Cash Flow will yield an NPV of $0.
It is an interesting metric. You want IRR to be
significantly higher than your Cost of Capital or
Discount/Interest Rate!
Not easily calculated manually; Iterative calculation;
Acclaim Projects starts with a guess value of 10%
Net Present Value (“NPV”)
i = Interest Rate
n = # of years into
future
Present
Value
Future Value
(1+i)n
13
© Copyright Sopheon plc. Sopheon Confidential
Key Business Case Metrics
Project Business Case – Story in numbers
14
© Copyright Sopheon plc. Sopheon Confidential
What we just learned
Next
Understand the key components of a compelling Business
Case
How Capex versus Opex classification impacts Income Statements,
and why you should care
Tracking Capital Spend on Waterfall & Agile Projects – What happens
behind the scenes
Review a checklist for Business Cases
15
© Copyright Sopheon plc. Sopheon Confidential
Checklist for Effective Business Cases – Benefits Validation
CHECKLIST ITEM DONE REVIEWED
Have all the key stakeholders including the
Intrapreneurs/Sponsor and Delivery Owner been identified?
Understand all the stakeholders that are impacted by this
project so you can work with them appropriately once the
charter is completed. Roles assigned on the team?
Is there a concrete plan to deliver benefits? Have all the
assumptions on benefit delivery been validated? Have the
benefits been signed off by the leader who owns the P&L for
the business unit in question?
✓
✓
✓ High Priority Problems Addressed? Are you sure that there
are no issues that can prevent the benefits from being
delivered?
Are the benefits underwritten by the Intrapreneur/Sponsor?
Intrapreneur
16
© Copyright Sopheon plc. Sopheon Confidential
Checklist for Effective Business Cases – Are the costs reasonable?
CHECKLIST ITEM DONE REVIEWED
Has the scope of work been identified? Have the
subject matters made a reasonable attempt at
documenting the scope of the project at hand? It is
important to have well documented assumptions
and sources.
Is the solution clearly documented. Is there
enough clarity in the solution blueprints for an
experienced project manager to build a high-level
project plan?
Critical problems identified? Don’t forget to make
sure that all the problems with the current
operations have been identified and have been
associated with specific tasks in a documented
current state process flow
Do you have a high-level project plan? Is there
enough clarity in the project plan and the
solution blueprints so that they can be used as
the basis for the financial model?
Are the costs underwritten by the Delivery
Owner?
Delivery Owner
17
© Copyright Sopheon plc. Sopheon Confidential
What we just learned
Next
Understand the key components of a compelling Business
Case
How Capex versus Opex classification impacts Income Statements,
and why you should care
Tracking Capital Spend on Waterfall & Agile Projects – What happens
behind the scenes
Review a checklist for Business Cases
✓
✓
18
© Copyright Sopheon plc. Sopheon Confidential
When, why and how do we identify Capital versus Expense?
One Time Cost
Asset is
Operationalized
Project
Sped
Project
Income
Start Date
Go-live
Date
Capital Spend
(CapEx)
Expense
❑ Hardware
❑ Software
❑ Equipment
❑ CapEx Labor
❑ Architecture
❑ Design
❑ Development
❑ OpEx Labor
❑ Training
❑ Project Mgmt.
❑ Travel Expenses
CaPex is important, when
1. Initiation Phase -> Building the Business Case –
Annual Budget
2. Execution Phase -> When we have to track the
actual spend
How do you determine
Classification of CapEx
versus Expense?
Expense – Hits Income Statement immediately
CapEx – Gets distributed across Useful Life
19
© Copyright Sopheon plc. Sopheon Confidential
Why CapEx is Important? Look at the Net Profit
Income Statement
(Before Project)
Net Sales
Cost of goods sold
SGA& Expenses
Depreciation & Amortization
Operating Profit
Interest Expenses
Taxes
Net Profit
2024
$20,000,000
$13,000,000
$3,000,000
$1,000,000
$50,000
$100,000
$850,000
$3,000,000
Income Statement
(With Project)
Net Sales
Cost of goods sold
SGA& Expenses
Depreciation & Amortization
Operating Profit
Interest Expenses
Taxes
Net Profit
2024
$20,000,000
$13,000,000
$50,000
$3,000,000
The entire project expense ($1.4MM) hits the Income Statement – takes it from a $850K Profit to a ($450K) Loss! While the
project helps the company in the long run, it impacts the profitability for the year.
$4,400,000
($400,000)
($450,000)
Scenario – No CapEx Attributed to the Project
$1,400,000
20
© Copyright Sopheon plc. Sopheon Confidential
Project Financials – With appropriate CapEx Classification
$250,000
After the correct CapEx Classification is applied to $1.4MM , only $250K of expense hit the income statement. The $1.15M of
CapEx is distributed evenly over the 4 years of useful life. → The same cash is spent in both situations; Applying the SOP98.1
rules, ACME Inc spread the financial impact and can show profitability!
Scenario – With Appropriate CapEx Attributed to the Project
Income Statement
(Before Project)
Net Sales
Cost of goods sold
SGA& Expenses
Depreciation & Amortization
Operating Profit
Interest Expenses
Taxes
Net Profit
2024
$20,000,000
$13,000,000
$3,000,000
$1,000,000
$50,000
$100,000
$850,000
$3,000,000
Income Statement
(With Project)
Net Sales
Cost of goods sold
SGA& Expenses
Depreciation & Amortization
Operating Profit
Interest Expenses
Taxes
Net Profit
2024
$20,000,000
$13,000,000
$50,000
$3,000,000
$3,250,000
$600,000
$500,000
$50,000
21
© Copyright Sopheon plc. Sopheon Confidential
Comparing Financials – With and Without Capitalization
To take advantage of the“cost distribution” of CapEx Costs, we need to do a little extra bookkeeping!
No Capitalization With Capitalization
NET PROFIT = $850k-1400k = (550K) loss in 2024 but
Higher Profits subsequent years if project succeeds
NET PROFIT = $850k-$250k = 600k Profit but
lower Profits subsequent years if project succeeds
22
© Copyright Sopheon plc. Sopheon Confidential
What we just learned
Next
Understand the key components of a compelling Business
Case
How Capex versus Opex classification impacts Income Statements,
and why you should care
Tracking Capital Spend on Waterfall & Agile Projects – What happens
behind the scenes
Review a checklist for Business Cases
✓
✓
✓
23
© Copyright Sopheon plc. Sopheon Confidential
Implications of Waterfall Development on Project Financials
Business Case
& Ideation
❑ One Physical deployment
❑ One Financial Asset
24
© Copyright Sopheon plc. Sopheon Confidential
Order to Cash System – Waterfall Model
Jan 2024 March 2024 Nov 2024 Dec 18th 2024
Build
Business
Case
Project
Is approved
Baselined
Plan is approved
Requirements
Detailed
WBS Planning
Design
Build
Test
Train
Deploy
$0K
$150K
$1.05
MM
Tangible Asset
Worth
$1.15MM
On Server & on
Balance Sheet
$50K
$100 K
25
© Copyright Sopheon plc. Sopheon Confidential
Capital Work In Progress(CWIP)
Accounts
Waterfall Model – Monthly Spend & Timecard Gymnastics
Jan 2024
Dec 18
2024
Requirements
Detailed
WBS Planning
Deploy
Tangible Asset
Worth
$1.15MM
On Server & on
Balance Sheet
Feb 2024
Detailed
WBS Planning
Requirements
160 Hrs. $16000 $16000
160 Hrs.
Requirements
160 Hrs.
160 Hrs. $12,800
24Hrs.
$12,800
Requirements
Requirements
160 Hrs.
160 Hrs. $12,800
$12,800
$1,680
CapEx Cost
Center 900017
$27,280
Capital Work In Progress(CWIP)
Accounts
CapEx Cost
Center 900017
$27,280
Capital Work In Progress(CWIP)
Accounts
1/31/20 2/28/20 CapEx Cost Center 900017 $27,280
CapEx Cost Center 900017 $27,280
$1.15 MM
Total
Jan 1
2024
Go-Live
The Asset ($1.15MM)
starts to depreciate
over 4 years (Straight
line depreciation),
roughly $287K per year
Finance
SME
Controller
Developer
& BA
This is where ROI
Blueprints helps in
automating the
classification of
time based on Job
Roles and Work
Classification
26
© Copyright Sopheon plc. Sopheon Confidential
Waterfall Model – Depreciation Schedule
12/18/2024
Software
package is
officially
deployed on
Production
Servers
01/01/2021
Financial
Asset
becomes
operational
12/31/2024
$287,303 $287,303 $287,303 $288,090
01/01/2022 01/01/2023 01/01/2024
Tangible Asset
Worth
$1.1MM
On Server & on
Balance Sheet
1
27
© Copyright Sopheon plc. Sopheon Confidential
Implications of Agile Development on Project Financials
❑ Physical deployment
❑ Financial Asset
❑ Physical deployment
❑ Financial Asset
❑ Physical deployment
❑ Financial Asset
Business Case
& Ideation
Backlog
Grooming
Release 1 Release 2 Release 3
28
© Copyright Sopheon plc. Sopheon Confidential
Order to Cash System – Agile
Jan 2024 March 2024 July 1
Dec 18th, 2024
Project
Is approved
Baselined
Plan is approved
Release
Planning
Backlog
Grooming
Release 1 Release 2 Release 3
Train
Deploy
$100K $800K
Online order
Processing Website is
Operational
Tangible Asset Worth
$800K
On Server & on
Balance Sheet
Oct 1
$200K $100K
S1 S2 S3 S1 S2 S3 S1 S2
Train
Train
Deploy Deploy
Integration
With Order Management
and Warehouse System
Integration
With FedEx and UPS for
Shipping is completed and
Deployed
High level
Story Boarding
$30K $30K $20K
$80K $30K $10K
Tangible Asset Worth
$200K
On Server & on
Balance Sheet
Tangible Asset Worth
$100K
On Server & on
Balance Sheet
29
© Copyright Sopheon plc. Sopheon Confidential
Agile Model – Monthly Spend & Timecard Gymnastics
June 18
2024
Deploy
July 1
2024
Go-
Live
Tangible Asset
Worth
$800K
On Server
& on
Balance Sheet
The Asset ($800K) starts to
depreciate over 4 years (Straight
line depreciation), roughly $200K
per year
900017 $200K
Capital Work In
Progress(CWIP)
Accounts
3/31/2024
CapEx CC 900017 $200K
Capital Work In
Progress(CWIP) Accounts
$800K
Total
$200K
$200K
$200K
March 2024
❑ Detailed Planning
& Management
(OPEX)
❑ User Story
Definition(CAPEX)
❑ User Story
Definition (CAPEX)
❑ Development
(CAPEX)
Project
Manager
Analysts
(Internal/
External)
Development
Team
(External)
Controlle
r
April 2024
900017 $200K
Capital Work In
Progress(CWIP)
Accounts
4/30/2024
❑ Detailed Planning &
Management
(OPEX)
❑ User Story
Definition(CAPEX)
❑ User Story
Definition (CAPEX)
❑ Development
(CAPEX)
May 2024
900017 $200K
Capital Work In
Progress(CWIP)
Accounts
5/31/2024
❑ Detailed Planning &
Management
(OPEX)
❑ User Story
Definition(CAPEX)
❑ User Story
Definition (CAPEX)
❑ Development
(CAPEX)
CapEx CC 900017
CapEx CC 900017
CapEx CC 900017
This is where PPM
software is
extremely useful
in automating the
classification of
time based on Job
Roles and Work
Classification
30
© Copyright Sopheon plc. Sopheon Confidential
Agile– Depreciation Schedule
6/18/2024
07/01/2025
Financial
Asset becomes
operational
06/30/2028
01/01/2026 01/01/2027 01/01/2028
Tangible Asset
Worth
$800K
On Server
& on
Balance Sheet
1 $200,000 $200,000 $200,000
10/01/2025
12/31/2028
$200,000
09/30/2024
2 $50,000 $50,000 $50,000 $50,000
Tangible Asset
Worth
$200K
On Server
& on
Balance Sheet
3 $25,000 $25,000 $25,000 $25,000
Tangible Asset
Worth
$200K
On Server & on
Balance Sheet
31
© Copyright Sopheon plc. Sopheon Confidential
Recap of what we learned
Understand the key components of a compelling Business
Case
How Capex versus Opex classification impacts Income Statements,
and why you should care
Tracking Capital Spend on Waterfall & Agile Projects – What happens
behind the scenes
Review a checklist for Business Cases
✓
✓
✓
✓
32
© Copyright Sopheon plc. Sopheon Confidential
Confidential & Proprietary

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Strategic Project Finance Essentials: A Project Manager’s Guide to Financial Metrics

  • 1. 1 © Copyright Sopheon plc. Sopheon Confidential Confidential & Proprietary
  • 2. 2 © Copyright Sopheon plc. Sopheon Confidential Confidential & Proprietary
  • 3. 3 © Copyright Sopheon plc. Sopheon Confidential Confidential & Proprietary
  • 4. 4 © Copyright Sopheon plc. Sopheon Confidential Confidential & Proprietary
  • 5. 5 © Copyright Sopheon plc. Sopheon Confidential Context and Objectives – Today’s Session Asset is Operationalized End-of-Life Date Start Date Go-live Date Project Initiation Project Execution Turned over to Business & Support ✓ Financial Analysts ✓ IT Leads ✓ Business Sponsor ✓ PMO ✓ Project Manager ✓ Delivery Team ✓ Business Sponsor ✓ PMO ✓ Business Sponsor ✓ Business Operations Team ✓ FP&A Understand the key components of a compelling Business Case How Capex versus Opex classification impacts Income Statements, and why you should care Tracking Capital Spend on Waterfall & Agile Projects – What happens behind the scenes
  • 6. 6 © Copyright Sopheon plc. Sopheon Confidential Objectives of todays Session Understand the key components of a compelling Business Case How Capex versus Opex classification impacts Income Statements, and why you should care Tracking Capital Spend on Waterfall & Agile Projects – What happens behind the scenes Review a checklist for Business Cases Asset is Operationalized End-of-Life Date Start Date Go-live Date Project Initiation Project Execution Turned over to Business & Support ✓ Financial Analysts ✓ IT Leads ✓ Business Sponsor ✓ PMO ✓ Project Manager ✓ Delivery Team ✓ Business Sponsor ✓ PMO ✓ Business Sponsor ✓ Business Operations Team ✓ FP&A
  • 7. 7 © Copyright Sopheon plc. Sopheon Confidential Hypothetical Acme Inc – Organic Tomato Paste Manufacturer Sales Restaurants and some grocery stores buy this paste and they are expecting $20MM in sales Cost of Goods Sold Cost of people/supplies required to make paste – organic tomatoes, cans, machine operators, warehouse operators, loaders, etc. SG&A Expenses Fixed Costs – e.g., back-office employees, leadership team, IT, marketing, advertising, sales team, office space, warehouse lease Depreciation and Amortization Annual depreciation charges for Assets – forklifts, canning machinery, IT systems etc. Acme Inc. Income Statement Represents the financial performance (Profit or Loss) of a company over a specific period of time. Net Sales Cost of goods sold SGA& Expenses Depreciation & Amortization Operating Profit Interest Expenses Taxes Net Profit $20,000,000 $13,000,000 $3,000,000 $3,000,000 1,000,000 $50,000 $100,000 $850,000 4.25% Profit
  • 8. 8 © Copyright Sopheon plc. Sopheon Confidential We need to make an entry into the consumer world. We need to create a new website that allows restaurant owners and customers to order online which emails the warehouse, factory foreman. Factory can print a Shipping Label and have shipping arranged; Also automates the invoice creation and email based on Fulfillment and shipping data. At the same time → Eliminates a lot of current manual steps and paperwork • Staff answers phone, takes order, writes it down, and enters into the order management system • Save 0.5 FTE • Increase Sales by 5% annually – easier to order, 24x7, fewer errors, fully automated In addition, we need explore how to open an Amazon Storefront. Acme Inc – Contract to Cash Automation Project Charter – Story in words Acme Inc.
  • 9. 9 © Copyright Sopheon plc. Sopheon Confidential Contract to Cash Automation – What a CFO is looking for Project Charter – Story in words Financial Terms This table answers the following: ✓ Business Case ✓ Project Financial Model ✓ ROI Analysis ✓ Cash Flow Statement ✓ Breakeven Analysis This helps Leadership and Finance understand how the project will impact the bottom line → Speak their language (numbers) Project Business Case – Story in numbers
  • 10. 10 © Copyright Sopheon plc. Sopheon Confidential Financial Lifecyle of Projects One Time Cost Ongoing Cost Asset is Operationalized End-of-Life Date Project Spend Project Income Start Date Go-live Date Useful Life Break-Even Date Payback Period Project Initiation Project Execution Turned over to Business & Support Financial Duration of Business Case
  • 11. 11 © Copyright Sopheon plc. Sopheon Confidential Mapping the Financial Model to our Project Lifecycle Important Numbers needed for the model ❑ One Time Cost ❑ CapEx ❑ Opex ❑ Benefits Over Life of Business Case ❑ Annual Operating Expenses Over the Life of Business Case Additional Data needed for the model ❑ Financial Duration of Business Case ❑ Go-Live Date ❑ End of Life Date ❑ Discount Rate
  • 12. 12 © Copyright Sopheon plc. Sopheon Confidential Discounted Cash Flow (DCF) is a modeling methodology that shows the project value in today’s dollars – depicts NPV. Net Present Value (NPV) provides an absolute value by calculating the sum of all“Present Value”dollars in your project. Typically you spend money upfront with the assumptions of future return. NPV applies a discount to future benefits that can be used with current costs to determine a more real value of the project and investment. Our Project: Measures that Matter – 3 Metrics to Remember Payback Period Payback Period is the amount of time it will take the company to recoup the money it spent on the project. Most CFOs and Leaders want payback < 3 years. Once a project has gone live, what is the first time the cumulative cash flow in a future year becomes positive. Internal Rate of Return (“IRR”) Internal Rate of Return is the interest rate at which the Discounted Cash Flow will yield an NPV of $0. It is an interesting metric. You want IRR to be significantly higher than your Cost of Capital or Discount/Interest Rate! Not easily calculated manually; Iterative calculation; Acclaim Projects starts with a guess value of 10% Net Present Value (“NPV”) i = Interest Rate n = # of years into future Present Value Future Value (1+i)n
  • 13. 13 © Copyright Sopheon plc. Sopheon Confidential Key Business Case Metrics Project Business Case – Story in numbers
  • 14. 14 © Copyright Sopheon plc. Sopheon Confidential What we just learned Next Understand the key components of a compelling Business Case How Capex versus Opex classification impacts Income Statements, and why you should care Tracking Capital Spend on Waterfall & Agile Projects – What happens behind the scenes Review a checklist for Business Cases
  • 15. 15 © Copyright Sopheon plc. Sopheon Confidential Checklist for Effective Business Cases – Benefits Validation CHECKLIST ITEM DONE REVIEWED Have all the key stakeholders including the Intrapreneurs/Sponsor and Delivery Owner been identified? Understand all the stakeholders that are impacted by this project so you can work with them appropriately once the charter is completed. Roles assigned on the team? Is there a concrete plan to deliver benefits? Have all the assumptions on benefit delivery been validated? Have the benefits been signed off by the leader who owns the P&L for the business unit in question? ✓ ✓ ✓ High Priority Problems Addressed? Are you sure that there are no issues that can prevent the benefits from being delivered? Are the benefits underwritten by the Intrapreneur/Sponsor? Intrapreneur
  • 16. 16 © Copyright Sopheon plc. Sopheon Confidential Checklist for Effective Business Cases – Are the costs reasonable? CHECKLIST ITEM DONE REVIEWED Has the scope of work been identified? Have the subject matters made a reasonable attempt at documenting the scope of the project at hand? It is important to have well documented assumptions and sources. Is the solution clearly documented. Is there enough clarity in the solution blueprints for an experienced project manager to build a high-level project plan? Critical problems identified? Don’t forget to make sure that all the problems with the current operations have been identified and have been associated with specific tasks in a documented current state process flow Do you have a high-level project plan? Is there enough clarity in the project plan and the solution blueprints so that they can be used as the basis for the financial model? Are the costs underwritten by the Delivery Owner? Delivery Owner
  • 17. 17 © Copyright Sopheon plc. Sopheon Confidential What we just learned Next Understand the key components of a compelling Business Case How Capex versus Opex classification impacts Income Statements, and why you should care Tracking Capital Spend on Waterfall & Agile Projects – What happens behind the scenes Review a checklist for Business Cases ✓ ✓
  • 18. 18 © Copyright Sopheon plc. Sopheon Confidential When, why and how do we identify Capital versus Expense? One Time Cost Asset is Operationalized Project Sped Project Income Start Date Go-live Date Capital Spend (CapEx) Expense ❑ Hardware ❑ Software ❑ Equipment ❑ CapEx Labor ❑ Architecture ❑ Design ❑ Development ❑ OpEx Labor ❑ Training ❑ Project Mgmt. ❑ Travel Expenses CaPex is important, when 1. Initiation Phase -> Building the Business Case – Annual Budget 2. Execution Phase -> When we have to track the actual spend How do you determine Classification of CapEx versus Expense? Expense – Hits Income Statement immediately CapEx – Gets distributed across Useful Life
  • 19. 19 © Copyright Sopheon plc. Sopheon Confidential Why CapEx is Important? Look at the Net Profit Income Statement (Before Project) Net Sales Cost of goods sold SGA& Expenses Depreciation & Amortization Operating Profit Interest Expenses Taxes Net Profit 2024 $20,000,000 $13,000,000 $3,000,000 $1,000,000 $50,000 $100,000 $850,000 $3,000,000 Income Statement (With Project) Net Sales Cost of goods sold SGA& Expenses Depreciation & Amortization Operating Profit Interest Expenses Taxes Net Profit 2024 $20,000,000 $13,000,000 $50,000 $3,000,000 The entire project expense ($1.4MM) hits the Income Statement – takes it from a $850K Profit to a ($450K) Loss! While the project helps the company in the long run, it impacts the profitability for the year. $4,400,000 ($400,000) ($450,000) Scenario – No CapEx Attributed to the Project $1,400,000
  • 20. 20 © Copyright Sopheon plc. Sopheon Confidential Project Financials – With appropriate CapEx Classification $250,000 After the correct CapEx Classification is applied to $1.4MM , only $250K of expense hit the income statement. The $1.15M of CapEx is distributed evenly over the 4 years of useful life. → The same cash is spent in both situations; Applying the SOP98.1 rules, ACME Inc spread the financial impact and can show profitability! Scenario – With Appropriate CapEx Attributed to the Project Income Statement (Before Project) Net Sales Cost of goods sold SGA& Expenses Depreciation & Amortization Operating Profit Interest Expenses Taxes Net Profit 2024 $20,000,000 $13,000,000 $3,000,000 $1,000,000 $50,000 $100,000 $850,000 $3,000,000 Income Statement (With Project) Net Sales Cost of goods sold SGA& Expenses Depreciation & Amortization Operating Profit Interest Expenses Taxes Net Profit 2024 $20,000,000 $13,000,000 $50,000 $3,000,000 $3,250,000 $600,000 $500,000 $50,000
  • 21. 21 © Copyright Sopheon plc. Sopheon Confidential Comparing Financials – With and Without Capitalization To take advantage of the“cost distribution” of CapEx Costs, we need to do a little extra bookkeeping! No Capitalization With Capitalization NET PROFIT = $850k-1400k = (550K) loss in 2024 but Higher Profits subsequent years if project succeeds NET PROFIT = $850k-$250k = 600k Profit but lower Profits subsequent years if project succeeds
  • 22. 22 © Copyright Sopheon plc. Sopheon Confidential What we just learned Next Understand the key components of a compelling Business Case How Capex versus Opex classification impacts Income Statements, and why you should care Tracking Capital Spend on Waterfall & Agile Projects – What happens behind the scenes Review a checklist for Business Cases ✓ ✓ ✓
  • 23. 23 © Copyright Sopheon plc. Sopheon Confidential Implications of Waterfall Development on Project Financials Business Case & Ideation ❑ One Physical deployment ❑ One Financial Asset
  • 24. 24 © Copyright Sopheon plc. Sopheon Confidential Order to Cash System – Waterfall Model Jan 2024 March 2024 Nov 2024 Dec 18th 2024 Build Business Case Project Is approved Baselined Plan is approved Requirements Detailed WBS Planning Design Build Test Train Deploy $0K $150K $1.05 MM Tangible Asset Worth $1.15MM On Server & on Balance Sheet $50K $100 K
  • 25. 25 © Copyright Sopheon plc. Sopheon Confidential Capital Work In Progress(CWIP) Accounts Waterfall Model – Monthly Spend & Timecard Gymnastics Jan 2024 Dec 18 2024 Requirements Detailed WBS Planning Deploy Tangible Asset Worth $1.15MM On Server & on Balance Sheet Feb 2024 Detailed WBS Planning Requirements 160 Hrs. $16000 $16000 160 Hrs. Requirements 160 Hrs. 160 Hrs. $12,800 24Hrs. $12,800 Requirements Requirements 160 Hrs. 160 Hrs. $12,800 $12,800 $1,680 CapEx Cost Center 900017 $27,280 Capital Work In Progress(CWIP) Accounts CapEx Cost Center 900017 $27,280 Capital Work In Progress(CWIP) Accounts 1/31/20 2/28/20 CapEx Cost Center 900017 $27,280 CapEx Cost Center 900017 $27,280 $1.15 MM Total Jan 1 2024 Go-Live The Asset ($1.15MM) starts to depreciate over 4 years (Straight line depreciation), roughly $287K per year Finance SME Controller Developer & BA This is where ROI Blueprints helps in automating the classification of time based on Job Roles and Work Classification
  • 26. 26 © Copyright Sopheon plc. Sopheon Confidential Waterfall Model – Depreciation Schedule 12/18/2024 Software package is officially deployed on Production Servers 01/01/2021 Financial Asset becomes operational 12/31/2024 $287,303 $287,303 $287,303 $288,090 01/01/2022 01/01/2023 01/01/2024 Tangible Asset Worth $1.1MM On Server & on Balance Sheet 1
  • 27. 27 © Copyright Sopheon plc. Sopheon Confidential Implications of Agile Development on Project Financials ❑ Physical deployment ❑ Financial Asset ❑ Physical deployment ❑ Financial Asset ❑ Physical deployment ❑ Financial Asset Business Case & Ideation Backlog Grooming Release 1 Release 2 Release 3
  • 28. 28 © Copyright Sopheon plc. Sopheon Confidential Order to Cash System – Agile Jan 2024 March 2024 July 1 Dec 18th, 2024 Project Is approved Baselined Plan is approved Release Planning Backlog Grooming Release 1 Release 2 Release 3 Train Deploy $100K $800K Online order Processing Website is Operational Tangible Asset Worth $800K On Server & on Balance Sheet Oct 1 $200K $100K S1 S2 S3 S1 S2 S3 S1 S2 Train Train Deploy Deploy Integration With Order Management and Warehouse System Integration With FedEx and UPS for Shipping is completed and Deployed High level Story Boarding $30K $30K $20K $80K $30K $10K Tangible Asset Worth $200K On Server & on Balance Sheet Tangible Asset Worth $100K On Server & on Balance Sheet
  • 29. 29 © Copyright Sopheon plc. Sopheon Confidential Agile Model – Monthly Spend & Timecard Gymnastics June 18 2024 Deploy July 1 2024 Go- Live Tangible Asset Worth $800K On Server & on Balance Sheet The Asset ($800K) starts to depreciate over 4 years (Straight line depreciation), roughly $200K per year 900017 $200K Capital Work In Progress(CWIP) Accounts 3/31/2024 CapEx CC 900017 $200K Capital Work In Progress(CWIP) Accounts $800K Total $200K $200K $200K March 2024 ❑ Detailed Planning & Management (OPEX) ❑ User Story Definition(CAPEX) ❑ User Story Definition (CAPEX) ❑ Development (CAPEX) Project Manager Analysts (Internal/ External) Development Team (External) Controlle r April 2024 900017 $200K Capital Work In Progress(CWIP) Accounts 4/30/2024 ❑ Detailed Planning & Management (OPEX) ❑ User Story Definition(CAPEX) ❑ User Story Definition (CAPEX) ❑ Development (CAPEX) May 2024 900017 $200K Capital Work In Progress(CWIP) Accounts 5/31/2024 ❑ Detailed Planning & Management (OPEX) ❑ User Story Definition(CAPEX) ❑ User Story Definition (CAPEX) ❑ Development (CAPEX) CapEx CC 900017 CapEx CC 900017 CapEx CC 900017 This is where PPM software is extremely useful in automating the classification of time based on Job Roles and Work Classification
  • 30. 30 © Copyright Sopheon plc. Sopheon Confidential Agile– Depreciation Schedule 6/18/2024 07/01/2025 Financial Asset becomes operational 06/30/2028 01/01/2026 01/01/2027 01/01/2028 Tangible Asset Worth $800K On Server & on Balance Sheet 1 $200,000 $200,000 $200,000 10/01/2025 12/31/2028 $200,000 09/30/2024 2 $50,000 $50,000 $50,000 $50,000 Tangible Asset Worth $200K On Server & on Balance Sheet 3 $25,000 $25,000 $25,000 $25,000 Tangible Asset Worth $200K On Server & on Balance Sheet
  • 31. 31 © Copyright Sopheon plc. Sopheon Confidential Recap of what we learned Understand the key components of a compelling Business Case How Capex versus Opex classification impacts Income Statements, and why you should care Tracking Capital Spend on Waterfall & Agile Projects – What happens behind the scenes Review a checklist for Business Cases ✓ ✓ ✓ ✓
  • 32. 32 © Copyright Sopheon plc. Sopheon Confidential Confidential & Proprietary