Quantifying the benefits of BPM

10th September 2006

Identifying the cost of investment is relatively straightforward but attaching a value to softer benefits such as more insightful information, more timely reports, fewer reconciliations and the redeployment of skilled finance professionals can be challenging. Furthermore, since few companies have the financial means and resources to implement a fully fledged BPM solution from day one, any cost benefit appraisal needs to assess the impact of a 'big bang' approach versus an incremental approach.

New factors, such as constantly stretching regulatory requirements are also colouring the approach to investment appraisal and making the task much harder. James Fisher, Director at Cartesis, told FSN, " Access to better quality information can be highly valuable to those organisations that are able take advantage of it. We believe this is key to its value - the ability to make it actionable. However, actionable information is now only part of the story in today's compliance landscape. As it becomes more important to explain business decisions, and validate the data on which these decisions are made, the need for consistency, transparency and auditability in information is becoming central to the definition of good data."

Hyperion's European Strategist, Frank Buytendijk, is a pragmatist. "Putting a price on better information is not that hard. That's the cost of the project, implementation and running it," he told FSN , "but developing an ROI is definitely more demanding. The problem is, there is no 'parallel universe' in which you can test the conditions of not having had the information and insight. So there is, like with many things, an unquantifiable or intangible benefit."

But few finance professionals evaluating the economic feasibility of a BPM investment are likely to be let off the hook that easily. So Buytendijk suggests more searching examples of quantifiable benefit. "There are many different tangible business cases, such as saving time and working less. For example, I have seen business cases where introducing "master data management" (aligning the key dimensions of an organisation, such as Time, Product, Geography, Customer, Line Item,) eliminated 50% of the time of closing the books, as it removed all the manual reconciliations. In a few cases it led to less headcount, but in most cases it led to doing more and different things with the same resources."

Cartesis' Fisher agrees. "Take the example of time savings generated through a fast close initiative. A streamlined close process offers time savings in terms of manual intervention, error reconciliation, variance analysis and data processing/collection across a variety of close processes. These time savings can then be quantified into numbers of man-days which in turn can result in reduced headcount, fewer temporary staff working on low value activities and reduced recruitment costs. While some companies do reduce the numbers of FTEs (Full Time Equivalent) there are others who simply use these savings to get back to normal operating mode having previously struggled to cope with growing demands as for example compliance requirements, data volumes and management requests have all increased. The majority however tend to use this time to focus on additional value added activities to either increase revenues or lower cost. By way of an example you have the application to SOX s.404, where fast close initiatives not only aid compliance but also assist in driving down the high costs associated with s.404 by establishing sustainable and repeatable processes to drive down audit fees. Another common example of this is the ability to improve responsiveness to tax opportunities. A recent paper published by Robert Francis Group estimated it is possible to achieve savings on annual tax payment in the range of 1-9% and reduced audit fees of between 10-12% through improvements to the close process."

But the business case need not be just inwardly focused. Buytendijk encourages an external perspective as well. He told FSN, " The best business case is when management information is shared with customers. Giving customers insight in the business relationship with you is additional service and competitive differentiation, it creates more loyalty. And even better when it is information the customer needs in their own operations - that's lock-in. I have seen examples of this in very many industries already. Not long term future, but today's reality."

The foregoing illustrates that, if one looks deeply and is prepared to work from first principles a valuation can indeed be applied to "better" management information. Nevertheless neither Fisher nor Buytendijk pretend that all of the benefits are quantifiable. Even if quantifiable benefits materialise it can often be difficult to lay claim to them. Ed Kiernan, Director of Business Intelligence at Deloitte, told FSN, "Suppose a business reduces its inventory levels or improves its working capital, it may be impossible to pin the success on a particular BPM initiative because there is usually so much else going on."

Whilst many organisations look for hard nosed savings such as reductions in headcount, Kiernan cautions against overdue weight being placed on staff savings. "In the current climate of compliance, when finance functions are constantly under pressure, then the ability to produce more outputs with the same level of resource is a major success and in many situations every bit as valuable as making headcount reductions."

Martin Gelb, Marketing VP, Clarity Systems, a Canadian based BPM provider that has recently commenced trading in the UK says, "To date we have not heard of reduced headcount. We have cases where large multinationals have reduced their month end close process by 1 or 2 days. In one case this amounted to approximately 24,000 man days per year saved (1000 participants in the month end x 2 days x 12 months). Discount that number by 50% or more and it's still a huge saving. So are they reducing headcount? No, they are deploying these same resources to other functions and tasks of the business."

Regardless of whether the benefits are quantifiable or intangible Cartesis' Fisher suggests that information naturally becomes more valuable if it is both actionable and trustworthy, particularly if it can be produced at the lowest cost possible and with as much speed compared to peers as possible. "Value is determined by how actionable and trustworthy that data is, the cost at which you can produce it and the value you are able to drive back into the business by using it," he says.

With BPM projects the scale of the costs and benefits achievable obviously depends on the extent of the BPM project. A modern performance management architecture can reach across the all of a businesses' core financial processes from strategy formulation, planning and forecasting, through to financial consolidation reporting, KPIs and scorecarding.

"Organisations need to balance the need to generate the best possible business impact against the costs and resources required to do so, that is the ROI [return on investment]. While a holistic big bang BPM project will deliver significant benefit, it's also likely that this will require more investment than a step by step approach and therefore require a better business case. I liken this to a 'big win' and for an increasing number of companies this is becoming the route they choose. For others it is possible that a smaller project, like starting your BPM initiative by implementing just a consolidation and reporting tool or starting with a planning implementation also offers tangible benefits but with less required resource and investment. Provided that incremental approach is made in the context of a broader vision (i.e.ensuring your planning tool has a fully integrated consolidation engine that is capable of meeting your needs in the future) then this approach can also help to demonstrate the ROI more quickly and therefore drive sponsorship for future steps in the process," says Fisher.

Buytendijk agrees. "There are two types of project. The first type is when you start small, and bit by bit figure out what the next steps will be. This business case has an advantage over "big bang" as it allows you to learn. However, it leads to fragmentation due to absence of focus and alignment. The second type is that you have a larger plan and you fill it in with incremental steps. That has a positive effect on the business case. It allows learning, it provides control over every step minimizing risk and it still allows you to address burning issues, whilst the overall picture provides focus and alignment.  I would choose this approach over big bang every day of the week!"

Gelb of Clarity Systems told FSN that the optimum approach also depends on the readiness of the organisation. "There are many variables that play a role in the adoption of BPM within an organisation, such as, organisational culture, business and market dynamics, business threats, complacency, employee talent and so on," he says.

"The business case should include a review of third party experiences implementing BPM solutions in companies that have successfully driven BPM throughout the organisation and those that have adopted more limited point solutions. BPM vendors should be put on the spot to identify customers with high and low adoption of CPM that evaluators can then interview. Making such comparisons is useful and helps define the probability of how well and deeply BPM will permeate your own organisation."

Regardless of implementation route and scale, BPM provides many opportunities for tangible savings and intangible benefits. But they are not always obvious and can vary significantly from organisation to organisation. Allowing plenty of time to develop a BPM business case is the key to winning Board approval.