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BVPS Partner Training Business Case

Packaged Services Benefit. Business Value Planning Services. BVPS Partner Training Business Case. Agenda. Introduction to business case Elements of the business case Communicating benefits Communicating costs Sensitivity analysis Summary. Workshop Sequence Chart. Business Case.

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BVPS Partner Training Business Case

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  1. PackagedServices Benefit Business Value Planning Services BVPS Partner TrainingBusiness Case

  2. Agenda • Introduction to business case • Elements of the business case • Communicating benefits • Communicating costs • Sensitivity analysis • Summary

  3. Workshop Sequence Chart Business Case

  4. Intro Business Case Objectives • Communicate value of the future state process design and solutions to senior Business Decision Makers • Communicate both the financial benefits and costs associated with the implementation of the proposed solution

  5. Elements of the Business Case Objectives Solution Description Assumptions and Risks Cost Section Benefit section Financials

  6. Process Map Δ Developing the Business Case IRR, NPV Payback Cost/Benefit Equation Operational KPIs Δ Work Time/Cycle Time Δ

  7. The Benefit Line Financial Measures Year 0 Year 1 Year 2 Year 3 Total Implementation Costs ($764,000) ($764,000) Additional Operating Costs ($15,200) ($15,200) ($15,200) ($45,600) Benefits (one-time) $0 $3,838,462 Benefits (on-going) $1,279,487 $1,279,487 $1,279,487 Net Cash Flow ($764,000) $1,264,287 $1,264,287 $1,264,287 $3,028,862 Cumulative Cash Flow ($764,000) $500,287 $1,764,574 $3,028,862 Discount Rate 15% Net Present Value (NPV) $2,000,000 NPV per User $4,000 Payback (months) 7 Internal Rate of Return (IRR) 150%

  8. Value Equations Examples Reduced Operating Cost= Change in work time per unit (hours) X number of units annually X Fully burdened cost/hour = Extra $ Saved Increased Revenue = (Target close rate – Current close rate) X Number of Opportunities X Average Revenue per closed sale X Profit Margin = Extra $ Earned

  9. Business Process Value Modeling: Best Practices • Study one process at a time • Prerequisite: Work directly with the end user • Physically map business process metrics to get buy-in for process change • Business managers are the source for pains and benefit equation variables • Pain/KPI discussion drives business value versus productivity • Keep equations simple • Estimate process change metrics and then present them for approval if you can’t get the numbers you need • Get buy-in to defend numbers before presenting

  10. The Cost Line Financial Measures Year 0 Year 1 Year 2 Year 3 Total Implementation Costs ($764,000) ($764,000) Additional Operating Costs ($15,200) ($15,200) ($15,200) ($45,600) Benefits (one-time) $0 Benefits (on-going) $1,279,487 $1,279,487 $1,279,487 $3,838,462 Net Cash Flow ($764,000) $1,264,287 $1,264,287 $1,264,287 $3,028,862 Cumulative Cash Flow ($764,000) $500,287 $1,764,574 $3,028,862 Discount Rate 15% Net Present Value (NPV) $2,000,000 NPV per User $4,000 Payback (months) 7 Internal Rate of Return (IRR) 150%

  11. Common Costs Elements

  12. Cost Analysis: Best Practices • Group costs into buckets • For example, desktop and server solutions usually have different cost buckets • The key to effective costing is identifying the time spent on each activity • Recognize costs that should not be included in analysis • Costs that would be incurred anyway • e.g.., normal hardware refresh • Costs not directly related to the project • e.g., additional system changes • Costs already incurred (sunk costs) • e.g., operating system upgrades already completed • Be sure to include all components • Always perform “what-if” analysis • Like benefits, get buy-in to defend numbers before presenting business value study

  13. Pulling Financial Metrics Together Financial Measures Year 0 Year 1 Year 2 Year 3 Total Implementation Costs ($764,000) ($764,000) Additional Operating Costs ($15,200) ($15,200) ($15,200) ($45,600) Benefits (one-time) $0 Benefits (on-going) $1,279,487 $1,279,487 $1,279,487 $3,838,462 Net Cash Flow ($764,000) $1,264,287 $1,264,287 $1,264,287 $3,028,862 Cumulative Cash Flow ($764,000) $500,287 $1,764,574 $3,028,862 Discount Rate 15% Net Present Value (NPV) $2,000,000 NPV per User $4,000 Payback (months) 7 Internal Rate of Return (IRR) 150%

  14. CFO NPV - Net Present Value $ > Zero Payback Period Ideally < 12 months IRR - Internal Rate of Return % > Company Hurdle Rate BDM Any Customer KPIs Company Specific CIO TCO Lower Key Metrics By Stakeholder Stakeholders Metrics Desirable Results • Beware unreasonable results: • IRR, ROI >500% • Instant Payback • Beware undesirable results: • IRR < hurdle rate • ROI < 0% • Payback > 24 months

  15. Risk Analysis/Sensitivity Analysis • Sensitivity Analysis – Illustrates the sensitivity of model results to model assumptions • Assumptions: Hurdle Rate, Adoption Rate, Rate of KPI Improvements, Deployment Cost Estimates • Outputs: Payoff period, NPV, ROI 1 yr ROI = %20 1 yr ROI = %10 Return 1 yr ROI = %5 Time Positive project return given a range of potential costs and benefits will ease customer concerns that an analysis is over aggressive

  16. Anticipated Process Benefits Template

  17. Anticipated Financial Benefits Template

  18. Anticipated Costs Template

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