Building the business case for ERP (Part 3)

Process – the key to developing your ERP system’s business case

In the previous episode we discussed the importance of process in developing a high-quality business case and examined the first 4 steps of the process.

In this article we’ll discuss the difference between “hard” and “soft” business benefits, as well as the final steps in the development process.

Tangible vs intangible benefits – which are better?

Tangible or “hard” benefits

Tangible benefits can be translated into financial terms and used in financial calculations, so the business benefits can be readily quantified. When building a business case for ERP systems we usually look for functionality that can be translated into tangible benefits, such as:

  • Scheduling capabilities – Modern ERP systems have modules dedicated to scheduling. After acquiring such a solution, the company would be able to improve production coordination by defining schedules and SLAs.
  • Profitability targeting – Defining profitability and margin goals adds visibility to KPIs across the business.
  • Customer Knowledge – A modern ERP system can generate a 360-degree view of customers, including sales, marketing and service data.
  • Customer Satisfaction – By better understanding their clients, the company will be able to better serve them, increasing customer satisfaction.
  • Utilisation and productivity – Capacity and workloads will become clearer, allowing employee productivity and resource utilisation to improve.

Intangible or “soft” benefits

Some types of intangible or “soft” business benefits cannot be quantified in “hard” financial terms but are still important.

Intangible benefits in IT investments are sometimes disputed because the term “intangible” is often and mistakenly confused with “valueless”. However, a great deal of business success is often attributed to instinct or “gut feel” and that is intangible.

The important thing to realise about intangible benefits is that they have greater meaning and relevance as you go higher up your organisation’s leadership pyramid. Concepts such as “image” or “competitive advantage” are extremely difficult (if not impossible) to quantify, but to C-level decision-makers they are big prizes and cannot be ignored, whether they can be measured or not.

Step 5. Prove your claims with solid evidence

ERP projects are notorious for cost-overruns and inflated anticipated benefits. Even with well-considered decision criteria and functionality that’s aligned to business goals, your calculations may still be met with disbelief or scepticism.

That’s why you need to support your claims with evidence that points to past successes, or research that predicts a high probability of future success.

Good evidence can be found in:

  • Research and survey reports by respected industry analysts
  • Anecdotal evidence of previous project successes gathered from valid case studies
  • Interviews with executives and leaders who have first-hand experience of the topic, or whose expectations of success are based on stated customer demand (for example, “Our largest customer has indicated that he will increase our share of his spend by 30% if we can guarantee delivery to his needs and schedule”

Step 6. Analyse the costs and payoffs to produce the financial metrics

In this step you will calculate the anticipated financial results such as Internal Rate of Return (IRR), Nett Present Value (NPV) and Payback Period using all cost estimates (hardware, software licensing, support, training, consulting, data migration, etc.) as well as the anticipated “tangible benefit” payoffs.

You will then compare the resulting financial metrics (Payback Period, Internal Rate of Return, etc.) with the required financial threshold values for those metrics that you discovered during the scoping phase. If everything checks out, then you can finalise the business case document for presentation.

Coming up next: We continue the 7-step business case development process and finalise the business case.

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2019-10-16T08:18:01+00:00