By Richard Barrett, Director of Solution Marketing with SAP

Proven – but not the whole story

Back in May 2010, I was part of the SAP team that worked with Accenture in commissioning Forrester Consulting to examine the total economic impact and potential return on investment (ROI) enterprises may realize by deploying SAP Enterprise Performance Management (EPM) solutions. I must admit I’d forgotten all about it and was pleasantly surprised when the finished study hit my in-box, but I guess setting up global studies and doing the interviews all takes time.

The three core themes that come out of the study are around how finance needs to provide tangible business value; the challenge if keeping up with the increasing demand for finance functions and constant need to embrace technology to keep up with these change. Forrester calls these themes Business Value, Pace and Role of Technology.

Business Value  - Organizations noted three areas of additive value throughout the enterprise beginning within the finance organization and expanding out to specific integration points between Finance and other departments as well as across departments:

• Process efficiency is a standard objective for all Finance organizations
• Value beyond process efficiency to measuring functional productivity / business health
• Aspiration to tie functional and financial performance measures to top level business objectives

Pace – All of the above has to be delivered at the appropriate pace – because the velocity of business is different from company to company and industry to industry. Whereas some organizations depend on information that is virtually real-time, others can make do with periodic reports.

Role of technology – The view of technology benefits was limited to process efficiency with Forrester noting that interviewees had a ‘murky concept’ on how technology could be applied to address strategic business drivers.

In addition to the qualitative interviews with the four multinationals involved in the study, Forrester developed a model to calculate 5 Year Risk Adjusted ROI that incorporated the following:

• Improved process efficiency – savings within the finance and back-office operations through improved reporting and financial-close efficiency resulting from a reduction in time of key process steps.
• Improved forecasting from improved visibility -reduced risk of exposure within the budget and forecasting process from greater speed of aggregating data and visibility of changes to information.
• Improved insight around profitability and cost management. – increased speed and cost in identifying underperforming products and sales channels.
• Costs – the investment in EPM included the cost of annual license, maintenance, professional support for implementation and strategy, training, and hardware.

Typically breakeven was reached within 24 months with an ROI of 92% and the study goes works through how the ROI was calculated for each solution area – budgeting, cost and profitability reporting etc – which is all good stuff if you’re currently in search of a sound and pragmatic methodology.

However, wisely Forrester restricted their focus to the Finance function so much of the ROI comes from process improvements such as easier and quicker reporting and the commercial benefits of being able to make better business decisions due to quicker and more frequent forecasting or better cost and profitability reports are not included. Perhaps this is just as well as in my experience trying to capture and put a figure on these less tangible – but arguably more important benefits – takes forever and they would still be there today.

Similarly, when they discuss risk, they focus solely on the risks associated with the implementation knowing that attempting to quantify how things such as more frequent forecasting can actually help reduce operational risks that are ultimately reflected in the P&L or more accurate forecasts help reduce reputational risk that is reflected in the stock price. Again – a major task perhaps left to some boffins in a business school with time on their hands.

So overall a sound result – EPM brings tangible benefits. But I still maintain the less tangible benefits are actually more important.