Aligning ERP Cloud Benefits to Business Drivers

When building a business case for cloud ERP, project managers should look beyond the standard ROI
and TCO calculations that IT teams have historically relied on. Business is about money—making more
than you spend and spending effectively so that you are good stewards of what you have. One of the big
challenges for project managers is thoroughly identifying all of the benefits of a proposed project and
ascribing credible, tangible, financial and business value to those benefits. This is critical to a successful
business case.
Your business case must show that your ERP cloud project will produce benefits in excess of the cost.
There are really only four compelling business drivers:
 Increase top-line revenue or sales
 Decrease expenses
 Optimize assets
 Mitigate risk
Identifying and categorizing these business benefits need not be difficult if you align your thoughts with
an age-old graphic called the DuPont model (shown below). This excellent and simple understanding of
business drivers was created in 1917 by F. Donaldson Brown of DuPont.

Using the DuPont Model as the basis for your benefit alignment, you can easily see how things flow.
Starting on the left-hand side, the ultimate goal of any capital (or large operating expense) investment
is to increase shareholder value. Using this diagram, you can see how each of these business items
favorably influences shareholder value by looking at the arrows.
For this article, we are concerned about aligning our benefits by business driver. In an upcoming article
we’ll look at specific calculations to drive that value. For now, let’s explore these four business drivers
a little deeper, beginning with top line revenue.
Increase Top Line Revenue
All businesses want more top line revenue. How do they generate more revenue? Typical commercial
businesses can generate more revenue in two ways: sell more of their products or charge more for the
products that they sell. Local governments increase revenue by raising taxes or by offering fee-based
services to the community. Nonprofit organizations can also increase revenue by offering fee-based
services. If your project drives additional revenue to the business, you would align those benefit items
in the Sales area on the right-hand side of the graphic.
Decrease Expenses
Controlling expenses is another desirable goal for every organization. No organization can generate an
endless stream of revenue, so they must spend less than they earn. There are many ways to control
expenses. To be effective, your business case must explore those options and articulate the ones that
are most compelling and relevant to your proposal. Many projects cut costs in the Sales, General and
Administrative (SG&A) category. Other projects cut costs in manufacturing and production and would
align to Cost of Goods Sold.
Optimize Assets (Particularly Working Capital)
Another excellent way to show value is by improving working capital. Working capital involves things
that are either cash or can quickly be converted to cash. The three most common working capital items
that we might impact are accounts receivable (amounts owed to the company by its customers),
inventory (materials that the company has purchased but may or may not yet have been converted into
sellable finished products), and accounts payable (amounts the company owes its suppliers).
Optimizing accounts receivable is a fancy way of saying that your company collects its cash sooner.
There is specific value in collecting your cash sooner. Investors track a metric called “Days Sales
Outstanding” or DSO. Likewise, there is value is converting your raw materials into sellable product
sooner. This metric is called “Days In Inventory” or DII. The third working capital improvement area
deals with vendor management and vendor payment. Prompt payment of trade payables (a term that
refers to routine business purchases that were made on credit) is a good business practice. But there is
a balance between paying too promptly and being delinquent. Your company might be able to benefit
from delaying payment to vendors a day or two without injuring the vendor relationship. This metric is
called “Days Payable Outstanding” or DPO. These three working capital items are often combined in a
calculation called the cash conversion cycle. The cash conversion cycle (sometimes called the cash-to-
cash cycle) refers to the number of days in which you can convert your purchased items into cash. The
equation is DSO + DII – DPO.

Mitigate Risk
This is the most difficult benefit to monetize. It does not align itself directly with the DuPont model, but
mitigating risk is a concern for all businesses. A classic example is a security breach. Obviously, no
business wants a breach, but what is the value of protecting against it? The costs associated with a
security breach—in lost customer confidence, associated bank fees, possible litigation, increased
investment in security protocols, and potential loss of business—can be quantified. Research from the
Ponemon Institute (sponsored by IBM) pegs the average cost of a security breach at US $3.92 million.
And according to a KPMG survey, 75 percent of executives said they plan to allocate 3 to 10 percent of
future ERP budgets towards security and controls. Security is clearly top-of-mind for the C-Suite, and it
would be a mistake not to include the potential cost in your business case.
There you have it: four compelling business drivers that drive all large financial commitments. By
aligning your prospective benefits along these specific categories, you increase the likelihood that your
proposal receives your requested funding.
This post is the third in a series of articles adapted from my award-winning and Amazon Top 10 book,
Business Cases that Mean Business. The next article in the series will address giving executives a reason
to approve your proposal.