Business Value Articulation for Sustenance - Part 3
Having delved upon business value avenues in my prior posts (Part 1 and Part 2) in this series, let us visit the value articulation aspect. In case of SAP ERP steady state environment, it’s all about bringing out and quantifying the value augmented in the business processes as the business goals and objectives thrive on them.
As mentioned in my first post in this series, the business value has two facets -tangible and intangible. The tangible component may be quantified but the intangible generally remains qualitative, although equally important. Hence the articulation exercise must identify all the touch points of any business value case and bring out all of them- tangible and intangible. The more touch points brought out, the better articulation of value.
In the milieu of steady state SAP ERP environment, with a set of existing processes running, when it comes to quantifying business value of an improvement it can be carried out in two dimensions. The first is the process effectiveness and second is the business continuity ensured.
Let us look at the first dimension. How well the process connects with the business goals and how far it aids in meeting those goals would determine how effective the process is. In case of ‘sales to customers’ process how well it generates revenue and how much revenue it generates would decide its effectiveness. A key to link a business process and the business goals is process metrics that help measure the process performance. These measures help in articulating how far the process is successful in generating value. In the example of ‘sales to customers’ process, some of the key process metrics are as follows.
• Hit Rate (Acquired Customers/ Prospective Customers)
• Book to Bill (Billed Value/ Booked Sales Order Value )
• Cost of Sales ( Cost of Selling Effort / Revenue earned)
• Cost of Warranty and Returns (Cost of Warranty claims and Returns/Revenue )
• Average cycle time (Order Entry to Billing Document released to Accounting)
• Customer acquisition cost
• Sales per Sales Employee
• Back Orders % of Sales Orders Entered
Any improvement done in the ‘sales to customers’ process should be measured on these metrics with adequate data to determine the ‘pre’ and ‘post improvement’ levels. Therefore as a case of adding business value if the step of sales order entry is automated, the quantification should include the process cycle time reduction apart from user effort saving. Thus these measures help much beyond the effort and time saving in the quantification activity and in turn help in establishing a straight connect with the business goals.
The second dimension which must be considered for quantification is the business continuity ensured. In other words, avoiding interruptions in business processes. Every organization earns revenue from sales and incurs cost on various fronts like manufacturing and procurement. So if the business operations are stalled for 1 hour it can be looked as manufacturing effort lost for 1 hour and revenue delayed to the next financial year or even lost. Any proactive improvement that gets implemented to avoid such disruptive situation is as good as earning business continuity worth the business revenue apportioned to that 1 hour. With that if an enterprise has annual top line of $ 1 billion, taking 250 workdays in a year and 8 hours of productive work time per day, ensuring 1 hour of business continuity is worth $ 500,000. Let us correlate this point to a BVA case. A business had manual process to address the failed messages exchanged with SAP through IDocs. This used to result in delays in documents (like orders and invoices) creation and mutation. As an improvement option an automated clearing desk for interface messages was set up leading to reduction in time taken for corrections and posting the documents. On the business continuity dimension, an improvement of even 30 minutes in the documents posting can be quantified as business continuity worth $ 250,000 ensured.
Your views are welcome.