Business Case for ERP in Government of Canada

www.fmi.ca November 25, 2009 Doug Hadden VP Products

introduction

Clarification
Original session:
Business Case NRCAN Government of Canada Department SAP Implementation ERP (Enterprise Resource Planning) New TBS Investment Planning Policy

This session:
Government Case FreeBalance a vendor selling to the Government of Canada FreeBalance, not SAP GRP (Government Resource Planning) Huh?

introduction

Goals
Articulating Benefits
Value for money and demonstrating sound stewardship in program delivery.

Total Cost
Demonstrable life cycle management best practices

Project Governance
An appropriate capacity for managing projects, which reflects the level of project complexity and risk

introduction

Point of view
Articulating Benefits
More potential = harder to measure

Total Cost
ERP lifecycle cost persistent

Project Governance
Project complexity is high Risk is high

introduction

ERP functional footprint

E n t e r p r ise

Reporting and analytics

Financial manageme nt

Human resources

Compliance

Property manageme nt

Project manageme nt

Product manageme nt

Qualit y manageme nt

Asset & maintenance manageme nt

Production & plant manageme nt

Salesforce automation

Field se rvice/ post-market support

Order manageme nt

Procurement

Inventory & warehouse manageme nt

Distribution, transportation, & logistics

CRM applictions a

Supply chain applictions a

1Forrester

C us t omers

Suppliers

introduction

ERP Value Problem1

Costs well understood Value is not

1Aberdeen

With budget pressures, governments are looking for effective ways to quantify the return on IT investments. Private-sector methods are a good start, but not the solution.

Gartner July 2003

value

Return on the Total Cost

Alphabet soup of T.L.A.s Many created or promoted by vendors So, you can really trust the vendor perspective

ROI EVA

IRR ROA

TCO

value

+ statistics1
60 50 40 30 20 10 0
Business Cost Process Reduction Improvements Customer Demands Better Decisions Employee Compliance Productivity

1Q'06 4Q'06 4Q'07

1IDC

value

Benefits Balance

Productivity

Effectiveness

Efficiency

value

Benefits Balance

Productivity Effectiveness Transform

Efficiency

value

Capacity Balance
Productivity Effectiveness

Efficiency Capacity

value

Benefits Value

People are Decisions Money are Money

Time is Money

Capacity

value

Sample Approaches
Productivity Effectiveness

Outsourcing

CPM

BPM

Efficiency Capacity

value

Efficiency Benefits
Reduce Costs Paper Power/utility Maintenance Information Technology Throughput: Net Days Outstanding Auditing & reporting Eliminating errors Service levels Lowers costs Time is through faster Money payments Transaction times

Efficiency

value

ERP Value Portfolio Argument

(1 x ERP) < (n x BOB)

value

ERP Value Portfolio Argument

(1 x ERP)- (IT Costs) > (n x BOB)- (IT Costs)

integration

value

Productivity Benefits
Leveraging Automation Reduce low value, repetitive Increase high value, variable Public Service Personnel optimization & scalability Grow without adding personnel do more with less

People are Money

Productivity

value

Effectiveness Benefits
Cost Reduction + Spend management Compliance Improved management & financial controls Clean audits Performance Key performance indicators Decisions are Improved managerial decisions Money Better goal linkage Effectiveness

value

Transformation Benefits
Service Delivery Process innovation Improved mandate achievement Higher customer satisfaction Public Service Employee recruitment Employee satisfaction Promote and mentor top performers Program objectives Transparency Confidence From service delivery to participation

Transform

value

Problem with Articulating Transformational Benefits Holistic view Difficult to articulate Intangible Lack of proven measurements Causality Crystal ball
Transform

No objective measurement like Profit

value

Typical ERP Benefits

Tangible Benefits Realized
Personnel Reduction Redeployment Inventory Reduction Productivity Improvement Faster Financial Close Cycle Service Order Management Cycle Time Improvement Procurement Cost Reductions Improved Information Visibility New/Improved Processes Improved Customer Responsiveness Standardization Integration Improved Cost Structure Greater Flexibility

1Deloitte

Intangible Benefits Realized

IT Cost Reduction
Cash Management Improvement Revenue Enhancement

Maintenance Cost Reduction

value

First Generation of Public Financial Management Automation

to 2006 Silos

Strategic Inflection Point

2006 - 2009

Second Generation of Public Financial Management Automation

2009 2013

Integration

Participation Collaboration Transformation

value

ERP Footprint

social structural internal

government 2.0

back-office

e-government

external

cost

The Secret of Total Cost of Ownership Product acquisition Software implementation On-going costs Total TCO over 5 years can be 5 times the initial cost for software

cost

The Secret of Total Cost of Ownership Product acquisition Needs + planning phase costs Computing hardware, networking and bandwidth Middleware & Application Software license costs Software implementation On-going costs

cost

The Secret of Total Cost of Ownership

Product acquisition Software implementation Internal and consultant costs to articulate & adapt processes Installation, provisioning and set up Middleware configuration Configuration and customization costs- change Phased implementation including pilot, testing and analysis Technical & Functional Training Development of any special documentation Project management overhead On-going costs

cost

Software to Services Ratios1

16 14 12 10

15

8
6 4 2 0 Commercial
1Office

5
1 1 Government of Management + Budget

Software Services

cost

The Secret of Total Cost of Ownership

Product acquisition Software implementation On-going costs Multi-year life-cycle maintenance costs Internal personnel providing internal support. System tuning of databases Changes to configuration, reports or forms. New fiscal year processing Upgrading to a new versions Additional roll-out of modules

cost

Typical Enterprise Software Acquisition Cost1

Total Software

Internal costs
22%

Costs 22%

Computer Consultants for Implementation 36%

1Averaged

Hardware and
Networking 20%

across many published reports

cost

Change- the gift that keeps on giving1

60

1IDC

50

40

30

20

10

Need Extra Changes in Functionality Business Process

Change in Reporting+ Analysis

Change in Business Info Req's

Mistakes

Other

66% of all IT projects either fail outright or take much longer to install than expected because of their complexity.

The Economist October 2004

risk

Disappointing Industry Results

1. 40% of enterprises exceed time and budget estimates > 50% 2. ERP technology to business benefits rated D+ 3. 15% large implementations failed 4. 51% were over budget, over schedule or under delivered. 5. Half of all respondents incur additional costs after implementing financial applications 6. Only 41% of companies have achieved the majority of targeted benefits from their ERP systems 7. Fewer than a third of enterprise decision makers would recommend their ERP vendor to another company
1. 2. 3. 4. 5. 6. 7. Gartner Group Peerstone Standish BearingPoint IDC Accenture Yankee Group

risk

Governance + Risk

Risk Private Sector

Risk Government

risk

Risk factors in Government

1. Political 2. Political 3. Political

risk

Risk is Good
RISK ~ REWARD

risk

Risk Factors
GOVERNMENT CHANGE MANAGEMENT technical

political

risk

Change Management Risks

Generic/Standard vs. Customized/Unique Evolution vs. Revolution Government Implementation Experience

Treasury Board Investment Planning

Policy + Critical Success Factors + Project Governance ~ Change Management

risk

Good Practices
Vendor Success Stories? IT Analyst Recommendations? Vendor Selection Process?1 Local Cluster Groups? Financial Management Conferences? FMI AGA ICGFM
1Forrester

risk

Governance

Risk Private Sector

politics is communications

Risk Government

staged

communi- capacity cations building

RISK ~ REWARD
sustainable

conclusion

ERP- Long-Term View1

500 450 400 350

Phase II

Phase III

2/3 of Benefit

Benefits ($M)

300 250 200 150

Additional Net Income

Reduced Materials Costs

Cost of Consolidation Business Operating Expense Reduction
1. AMR

100
50 0

Research

IT Operating Expense Reduction

conclusion

Capacity Balance
Productivity Effectiveness

Transformation

Efficiency Capacity

conclusion

Point of view
Articulating Benefits
Easy US DOD discovers Hard Transformational

Total Cost
ERP lifecycle cost persistent

Project Governance
Complexity risk Government change management

 www.freebalance.com/blog