A Forrester Total Economic Impact Study Prepared For Microsoft Total Economic Impact Study Of Microsoft Dynamics AX 2012

Transcription

1 A Frrester Ttal Ecnmic Impact Study Prepared Fr Micrsft Ttal Ecnmic Impact Study Of Micrsft Dynamics AX 2012 Prject Directr: Jnathan Lipsitz Cntributrs: Jn Ericksn December 2013

2 TABLE OF CONTENTS Executive Summary... 2 Micrsft Dynamics Reduces IT Operatins Csts And Increases Business Value... 2 Factrs Affecting Benefits And Csts... 4 Disclsures... 4 TEI Framewrk And Methdlgy... 6 Analysis... 7 Interview Highlights... 7 Csts Benefits Flexibility Risk Financial Summary Micrsft Dynamics AX 2012: Overview Appendix A: Cmpsite Organizatin Descriptin Appendix B: Ttal Ecnmic Impact Overview Appendix C: Glssary Appendix D: Endntes , Frrester Research, Inc. All rights reserved. Unauthrized reprductin is strictly prhibited. Infrmatin is based n best available resurces. Opinins reflect judgment at the time and are subject t change. Frrester, Techngraphics, Frrester Wave, RleView, TechRadar, and Ttal Ecnmic Impact are trademarks f Frrester Research, Inc. All ther trademarks are the prperty f their respective cmpanies. Fr additinal infrmatin, g t Abut Frrester Cnsulting Frrester Cnsulting prvides independent and bjective research-based cnsulting t help leaders succeed in their rganizatins. Ranging in scpe frm a shrt strategy sessin t custm prjects, Frrester s Cnsulting services cnnect yu directly with research analysts wh apply expert insight t yur specific business challenges. Fr mre infrmatin, visit Page 1

3 Executive Summary Micrsft cmmissined Frrester Cnsulting t examine the ttal ecnmic impact and ptential return n investment (ROI) that enterprises may realize by implementing Micrsft Dynamics AX 2012 (Micrsft Dynamics). The purpse f this study is t prvide readers with a framewrk t evaluate the ptential financial impact f Micrsft Dynamics n their rganizatins. Micrsft describes Micrsft Dynamics as a business slutin fr glbal enterprises that supprts industry-specific and peratinal business prcesses, alng with cmprehensive, cre enterprise resurce planning (ERP) functinality fr financial and human resurces management. Micrsft Dynamics Reduces IT Operatins Csts And Increases Business Value Our interviews with tw existing custmers and survey f 22 thers, alng with the subsequent financial analysis, fund that a cmpsite rganizatin based n the rganizatins interviewed/surveyed experienced the risk-adjusted ROI, IRR, csts, and benefits shwn in Table 1. 1 See Appendix A fr a descriptin f the cmpsite rganizatin. (All numbers have been runded.) Table 1 Cmpsite Organizatin Three-Year Risk-Adjusted ROI ROI IRR Payback perid Ttal benefits (PV) Ttal csts (PV) Net present value 92% 53% 21 mnths $6,269,550 ($3,259,651) $3,009,899 Surce: Frrester Research, Inc. Benefits. The cmpsite rganizatin experienced the fllwing benefits that represent thse experienced by the interviewed and surveyed cmpanies: Eliminated systems licenses and maintenance. The cmpsite rganizatin replaced fur legacy systems with Micrsft Dynamics. Only eliminated nging maintenance csts have been quantified, even thugh there may have been incremental, new licenses required ver the life f the study. Original licenses fr the fur replaced systems were $2 millin. The 18% maintenance savings equates t an annual savings f $360,000. Reduced IT team size. The required IT effrt t supprt and upgrade enterprise systems has been reduced. This includes less system/user administratr time at eight lcatins arund the wrld and fewer resurces required fr the central IT team. In Year 1 f the study, fur fewer FTEs are required. This increases t six FTEs in Year 2 and seven FTEs in Year 3. The ttal savings ver three years is $2.2 millin. Page 2

4 Increased business user prductivity. Greater autmatin and efficiency means that the cmpsite rganizatin can cntinue t increase sales and gegraphic expansin withut adding as many emplyees as wuld have therwise been required with legacy systems. These emplyees are a mix f accunting, prcurement, custmer service, and lgistics. By Year 3 f the study, 45 FTE psitins have been eliminated r nt added. This equates t $5.8 millin ver the life f the study. Imprved system reliability and uptime (nn-quantified). The mix f replaced systems experienced frequent crashes r slwdwns. These materially impaired business peratins, reduced business user prductivity, and increased IT team effrt. Better access t infrmatin and decisin-making (nn-quantified). Having a unified ERP system and underlying data repsitries allws business users t have better and timelier access t business infrmatin. With this, they can make mre-infrmed decisins, which imprve business utcmes and saves time. Increased business intelligence capabilities are especially imprtant t glbal cmpanies. Imprved business perfrmance (nn-quantified). Many f the abve benefits cmbine t imprve the cmpsite rganizatin s verall perfrmance in terms f increased sales and prfitability. This is achieved thrugh faster respnses t market changes and decreased internal csts. Csts. The cmpsite rganizatin experienced the fllwing csts: Implementatin internal labr. Implementatin was based n a tw-phased initial deplyment. In phase 1, Micrsft Dynamics implemented in the United States. After a brief pause, Micrsft Dynamics was rlled ut t internatinal lcatins. Bth phases are cunted in the perid. Cmbined, the Micrsft Dynamics implementatin lasted 11 mnths. Fur IT and 2.7 business FTEs wrked n the prject. The ttal csts during implementatin were just shy f $750,000. Prfessinal services. In additin t internal resurces, fur cnsultant FTEs wrked n the implementatin thrughut bth phases. The cmpsite rganizatin chse Micrsft Dynamics partially because less prfessinal resurces were required than with sme f the cmpeting slutins cnsidered. Prfessinal service fees were $1.1 millin. Sftware licenses. The Micrsft Dynamics licenses cver 500 client access licenses (CAL) f different rles task, functinal, and enterprise. The initial license csts were $750,000, and there is an annual maintenance/supprt f 16%. The three-year ttal fr licenses and maintenance is $1.1 millin. Hardware. Hardware requirements are very limited. Only ne physical server, which was virtualized, was added. The three-year cst fr acquisitin and maintenance was $36,250. Training. Training fr the IT team was prvided t the cnsultants; 1.5 internal FTEs were trained t prvide user training t the rganizatin. This was cmpleted during the initial perid and Year 1 f the study. Ttal csts were $193,000. Page 3

5 Figure 1 Cmpsite Organizatin Three-Year Risk-Adjusted ROI Surce: Frrester Research, Inc. Factrs Affecting Benefits And Csts Table 1 illustrates the risk-adjusted financial results that were achieved by the cmpsite rganizatin. The riskadjusted values take int accunt any ptential uncertainty r variance that exists in estimating the csts and benefits, which prduces mre-cnservative estimates. The fllwing factrs may affect the financial results that an rganizatin may experience: Size f rganizatin and deplyment. Larger rganizatins will incur greater system license and deplyment csts. This is a functin f the number f users, lcatins, etc. Small rganizatins will have lwer csts and cmmensurately smaller benefits. The net result is that all rganizatins shuld see a similar ROI t the ne depicted in this study, with larger rganizatins having a lnger payback perid. Systems being replaced. The number and cmplexity f systems being replaced affects the level f effrt t implement Micrsft Dynamics. A greater number f systems being replaced shuld als result in increased benefits frm system license savings and imprved business peratins. Disclsures The reader shuld be aware f the fllwing: The study is cmmissined by Micrsft and delivered by the Frrester Cnsulting grup. Page 4

6 Frrester makes n assumptins as t the ptential return n investment that ther rganizatins will receive. Frrester strngly advises that readers use their wn estimates within the framewrk prvided in the reprt t determine the apprpriateness f an investment in Micrsft Dynamics AX Micrsft reviewed and prvided feedback t Frrester, but Frrester maintains editrial cntrl ver the study and its findings and des nt accept changes t the study that cntradict Frrester s findings r bscure the meaning f the study. The custmers fr the interviews and survey were prvided by Micrsft and an external third-party rganizatin. Page 5

7 TEI Framewrk And Methdlgy Intrductin Frm the infrmatin prvided in the interviews, Frrester has cnstructed a Ttal Ecnmic Impact framewrk fr thse rganizatins cnsidering implementing Micrsft Dynamics AX The bjective f the framewrk is t identify the cst, benefit, flexibility, and risk factrs that affect the investment decisin. Apprach And Methdlgy Frrester tk a multistep apprach t evaluate the impact that Micrsft Dynamics can have n an rganizatin (see Figure 2). Specifically, we: Interviewed Micrsft marketing, sales, and cnsulting persnnel and Frrester analysts t gather data relative t Micrsft Dynamics and the marketplace fr ERP slutins. Received primary data frm a cmbinatin f in-depth custmer interviews as well as a brader survey f custmers wh are currently using Micrsft Dynamics AX 2012 t btain data with respect t csts, benefits, and risks. Designed a cmpsite rganizatin based n characteristics f the interviewed and surveyed rganizatins (see Appendix A). Cnstructed a financial mdel representative f the interviews using the TEI methdlgy. The financial mdel is ppulated with the cst and benefit data btained frm the interviews as applied t the cmpsite rganizatin. Figure 2 TEI Apprach Perfrm due diligence Cnduct custmer interviews Design cmpsite rganizatin Cnstruct financial mdel using TEI framewrk Write case study Surce: Frrester Research, Inc. Frrester emplyed fur fundamental elements f TEI in mdeling the Micrsft Dynamics service: 1. Csts. 2. Benefits t the entire rganizatin. 3. Flexibility. 4. Risk. Given the increasing sphisticatin that enterprises have regarding ROI analyses related t IT investments, Frrester s TEI methdlgy serves the purpse f prviding a cmplete picture f the ttal ecnmic impact f purchase decisins. Please see Appendix B fr additinal infrmatin n the TEI methdlgy. Page 6

8 Analysis Interview Highlights A ttal f tw interviews were cnducted fr this study, invlving representatives frm the fllwing cmpanies: 1. Electrnic cmpnents manufacturer. This rganizatin is headquartered in Eurpe. It has prductin facilities in the UK, Italy, the US, Mexic, China, and India. It als has sales ffices in Eurpe, Nrth America, and Asia. There are 900 emplyees, and 160 cncurrent user Micrsft Dynamics licenses are used. Previusly, each cuntry had its wn ERP-lite slutin. As part f a glbal cnslidatin effrt, they were all replaced with Micrsft Dynamics. The rganizatin is currently using the Financial Management, Supply Chain Management, and Human Capital Management cmpnents. 2. Plastic injectin mlding cmpany. Funded in 1982, the cmpany has grwn t mre than 2,000 emplyees. It has five manufacturing facilities in the US and recently expanded internatinally with facilities in Mexic and Ireland. The cmpany has rather rdinary implementatins f the Financial Management Sales and Marketing, and Supply Chain Management cmpnents. The prcurement and surcing mdule within Supply Chain Management has been heavily integrated int ther custm prductin systems. Frrester als surveyed 22 ther rganizatins that are currently using Micrsft Dynamics. These cmpanies varied in size (with a third ver 20,000 emplyees) and represent a variety f industries. The number f users n Micrsft Dynamics varied frm less than 100 (abut 23% f respndents) t ver 15,000 users (abut 18% f respndents), with an average number f users arund 6,800. Sixty percent f respndents had at least ne legacy ERP slutin prir t investing in Micrsft Dynamics. Figure 3 belw shws which Micrsft Dynamics cmpnents are being used by the survey respndents. Page 7

9 Figure 3 Respndents Use The Financial Management And Prject Management Cmpnents The Mst Which cmpnents f Dynamics AX 2012 are yu currently using r planning t use within the next 12 mnths? Surce: Frrester Research, Inc. Base: Survey f 22 IT decisin makers, US mid-size rganizatins The interviews and surveys uncvered the fllwing salient pints: Respndents chse Micrsft Dynamics ver the cmpetitr slutins because it was a gd fit, was easy t implement, and prvided excellent value: In 2010 we undertk a frmal search fr an ERP prvider. We judged Micrsft Dynamics t be the easiest slutin t implement and perate. We have a small IT team, and they all have a lt f preexisting knwledge f Micrsft prducts as a.net shp. That made Dynamics the lgical chice fr us. Dynamics gives us the pssibility t develp in a language similar t what we already use. It is very gd in terms f simplicity t install and manage. Page 8

10 Many f the ther slutins we lked at were either t expensive r a pr fit fr ur industry. The ttal cst f implementatin, licensing, cnsulting, etc., was much less than the thers. Micrsft Dynamics was critical t supprting grwth and expansin: In 2007 ur cmpany was nt s big. We wanted t expand t India and China, and Micrsft Dynamics helped us d that. Our previus ERP slutins culd nt scale t supprt ur planned grwth. We are frecasting 3x grwth in the next few years. With Micrsft Dynamics we can nw achieve that. Micrsft Dynamics prvides much better supprt fr ur internatinal peratins and expansin. Cnslidating ERP slutins int a single ne was very imprtant t the interviewed cmpanies: We decided that a tp pririty fr the cmpany was t have a single system that hused all custmer and prduct data. Previusly, a custmer culd exist in multiple systems, and we did nt have a hlistic view f them. Different ERP systems als meant different business prcesses arund the wrld. We needed t harmnize acrss the entire cmpany. Cnsistency was very imprtant t us. The degree f flexibility that Micrsft Dynamics prvides was viewed as very favrable: We have a lt f custm-built systems. Dynamics AX has a service mdel that is easy fr us t prgram against. We can tie all f these custm systems directly int AX instead f having t reverseengineer the business lgic. We can use custm business lgic in Dynamics. The alternative apprach f reverse-prgramming the lgic wuld have been t much wrk fr ur small IT team. What we really wanted frm an ERP system was custmizability and prgrammability int external systems. AX fit the bill. It als had a gd ecsystem fr extra sftware such as business intelligence and internatinal supprt. Micrsft Dynamics fits int the interviewed cmpanies clud strategies: In the future, we plan t hst mre in the clud. Dynamics will make this much easier t d. Clud cmputing is part f the directin we are ging in. Micrsft Dynamics fits nicely int this rad map. Cmpsite Organizatin Based n ne cmpany interview and 22 survey respndents frm cmpanies currently using Micrsft Dynamics, Frrester cnstructed a cmpsite rganizatin that encmpasses characteristics heard acrss the Page 9

11 interviews. Our cmpsite rganizatin has benefited frm replacing fur previus ERP slutins, alng with ther pint slutins, with Micrsft Dynamics. Frrester then created a TEI financial framewrk and an assciated ROI analysis fr this cmpsite cmpany. This Frrester study illustrates the financial impact f using Micrsft Dynamics fr a typical enterprise custmer. Frrester named the cmpsite rganizatin Acme Flw Cntrl (Acme). Acme designs, manufactures, and sells cntrl valves and seals fr industrial uses. The cmpany is headquartered in the United States and has manufacturing facilities in the US, Mexic, Pland, and China. Mst manufacturing is still dne in the US. It has sales ffices in the UK, Japan, and Sa Paul. Acme has a ttal f 4,000 emplyees. The internal IT develpment and peratins rganizatin has 20 team members. They supprt the ERP systems and ther cre business systems. A separate, specialized IT department handles prductin systems n the factry flr. Acme deplyed Micrsft Dynamics acrss the entire rganizatin. The Financial Management, Supply Chain Management, and Business Intelligence and Reprting mdules were implemented. The vast majrity f emplyees are assembly-line wrkers wh d nt directly use Micrsft Dynamics. This leaves apprximately 500 emplyees wh use Micrsft Dynamics n a daily basis. See Appendix A fr a mre cmplete cmpsite rganizatin descriptin. Framewrk Assumptins Table 2 prvides the mdel assumptins that Frrester used in this analysis. Table 2 Mdel Assumptins Ref. Metric Value A1 Annual blended fully burdened cst* IT emplyees $130,000 A2 Annual blended fully burdened cst* business emplyees $110,500 A3 Annual blended fully burdened cst* warehuse emplyees $45,500 *Fully burdened cst includes insurance, paid vacatin, and any ther cst brne by the rganizatin. Surce: Frrester Research, Inc. The discunt rate used in the PV and NPV calculatins is 10%, and time hrizn used fr the financial mdeling is three years. Organizatins typically use discunt rates between 8% and 16% based n their current envirnment. Readers are urged t cnsult with their respective cmpany s finance department t determine the mst apprpriate discunt rate t use within their wn rganizatin. Page 10

12 Sme dllar values presented in this study have been runded t the nearest whle cent r dllar. Therefre, sme f the calculatin results in the subsequent tables may nt exactly match the results if the reader fllws the frmulas and values presented. Csts This sectin describes the csts assciated with implementatin and nging management f Micrsft Dynamics. Implementatin Internal Labr There was a wide range f implementatin times, depending n the size f the rganizatin and Micrsft Dynamics cmpnents being added. See Figure 4 belw fr the distributin f duratin times. Fr Acme, the prject lasted 11 mnths, starting frm when Micrsft Dynamics was chsen. This was split int tw phases. The first phase cnsisted f planning, cre develpment, and rllut in the United States. Phase 2 cnsisted f further rllut t internatinal lcatins. Bth phases are included in the initial perid in rder t shw three full years f related benefits. Frm the IT teams, there were fur FTEs wrking n the prject. This included prject management, develpment, database, infrastructure, and business analyst resurces. There was als representatin frm the varius business grups, bth functinal and gegraphic. Nine business representatives wrked n the prject fr 30% f the time. Table 3 Implementatin Internal Labr Ref. Metric Calculatin Initial B1 Number f mnths phase 1 7 B2 Number f mnths phase 2 4 B3 Number f IT FTEs 4.0 B4 IT mnthly fully burdened cst A1/12 mnths $10,833 B5 Number f business FTEs 9 resurces * 30% 2.7 B6 Business fully burdened cst A2/12 mnths $9, Bt Implementatin internal labr (B1+B2)*(B3*B4+B5*B6) $750,154 Surce: Frrester Research, Inc. Page 11

13 Figure 4 Implementatin Time Variatin Is Mainly A Factr Of Cmpany Size Rughly hw lng did it take t implement Micrsft Dynamics AX within yur envirnment? Surce: Frrester Research, Inc. Base: Survey f 22 IT decisin makers, US mid-size rganizatins Prfessinal Services The level f prfessinal services required by the interviewed cmpanies, and therefre, Acme, was nt particularly nerus. The level f effrt was higher early in the prject when designing and deplying the technlgies and defining business prcesses. Mst f the migratin and develpment effrts were dne by internal resurces. There was a small spike in the number f cnsultants leading up t the prductin launch t d final testing and trubleshting. There were fur FTE cnsultants wrking thrughut bth phases f the implementatin. There are sme nging prfessinal services t help deply new features and implement new prjects. Neither the nging csts nr the incremental benefits frm subsequent wrk are included in the ROI analysis. There is discussin f these cmpnents in the Flexibility sectin f this study. Page 12

14 Table 4 Prfessinal Services Ref. Metric Calculatin Initial C1 Number f cnsultant FTEs 4 C2 Number f weeks phase 1 B1*4.2 weeks 29 C3 Number f weeks phase 2 B2*4.2 weeks 17 C4 Average daily rate $1,200*5 days $6,000 Ct Prfessinal services C1*(C2+C3)*C4 $1,108,800 Surce: Frrester Research, Inc. Sftware Licenses Micrsft Dynamics licenses are primarily based n the number f users. The Client Access License cst varies depending n that user s rle. 2 License csts are als impacted by the number f server licenses, verall size f the deplyment, and any ther existing enterprise agreements. Fr Acme, there were 500 CALs, cnsisting f the Enterprise, Functinal, and Task rles. Mst emplyees wrking in manufacturing d nt require direct access t Micrsft Dynamics. In additin t the initial licenses csts, there is a 16% annual maintenance/supprt cntract that is required fr the first year. In fllwing years it is ptinal, but mst cmpanies cntinue t pay fr this. Readers are strngly encuraged t wrk with their Micrsft accunt manager t understand their unique licensing csts. Table 5 Sftware Licenses Ref. Metric Calculatin Initial Year 1 Year 2 Year 3 D1 Micrsft Dynamics licenses $750,000 D2 Maintenance and supprt D1*16% $120,000 $120,000 $120,000 Dt Sftware licenses D1+D2 $750,000 $120,000 $120,000 $120,000 Surce: Frrester Research, Inc. Page 13

15 Hardware The hardware requirements fr Micrsft Dynamics are very small. Each f the interviewed cmpanies bught a single physical server. This server was virtualized t prvide the necessary applicatin and database servers. Failver/backup prtectin was cmpleted using existing disaster recvery (DR) hardware in a secndary facility. Table 6 Hardware Ref. Metric Calculatin Initial Year 1 Year 2 Year 3 E1 Hardware csts $25,000 E2 Maintenance E1*15% $3,750 $3,750 $3,750 Et Hardware E1+E2 $25,000 $3,750 $3,750 $3,750 Surce: Frrester Research, Inc. Training Training fr the IT rganizatin was prvided by the external cnsultants. Acme trained internal business resurces t prvide user training t the 500 Micrsft Dynamics users. This was dne during the initial perid and Year 1 f the study. Only these trainers csts are included in the ROI analysis, but nt any dwntime fr when the individual users were ging thrugh training sessins. Table 7 Training Ref. Metric Calculatin Initial Year 1 F1 Number f end user trainers F2 Trainer fully burdened cst =A2 $110,500 $110,500 Ft Training F1*F2 $27,625 $165,750 Surce: Frrester Research, Inc. Page 14

16 Ttal Csts Table 8 summarizes csts assciated with the implementatin f Micrsft Dynamics. Table 8 Ttal Csts Nn-Risk-Adjusted Ref. Cst categry Initial Year 1 Year 2 Year 3 Ttal Bt ($750,154) ($750,154) ($750,154) Ct ($1,108,800) ($1,108,800) ($1,108,800) Dt ($750,000) ($120,000) ($120,000) ($120,000) ($1,110,000) ($750,000) Et ($25,000) ($3,750) ($3,750) ($3,750) ($36,250) ($25,000) Ft ($27,625) ($165,750) ($193,375) ($27,625) ($2,661,579) ($289,500) ($123,750) ($123,750) ($3,198,579) ($2,661,579) Surce: Frrester Research, Inc. Page 15

17 Benefits The interviewed and surveyed cmpanies realized many benefits frm implementing Micrsft Dynamics. Figure 5 belw shws the breadth f benefits reprted in the survey. This sectin fcuses n a selected subset f benefits that were especially imprtant t the interviewed cmpanies, the first three f which are included in the ROI analysis. Readers are encuraged t cnsider all benefits, whether r nt they have been quantified, when determining the ttal ROI fr their wn rganizatin. Figure 5 Client Benefit Expectatins Fr Dynamics AX 2012 At a high level, please describe the types f business and technlgical benefits yu have realized/expect t realize. Yu may wish t refer t these capabilities f Dynamics AX 2012 fr yur respnse. (Select all that apply.) Surce: Frrester Research, Inc. Base: Survey f 22 IT decisin makers, US mid-size rganizatins Eliminated System Licenses And Maintenance On average, the interviewed and surveyed cmpanies replaced six systems with Micrsft Dynamics. Acme replaced fur systems. These multiple systems were a by-prduct f acquisitins and autnmus, rganic grwth in different cuntries. In additin t license and maintenance savings, nt having t supprt multiple systems reduces IT team effrt. Fr ROI analysis purpses, nly eliminated nging maintenance csts are included in this benefit. This is based n an 18% annual maintenance charge n $2 millin in licenses fr retired legacy systems. There may have been additinal, new licenses required fr added features, grwth, and new versins in the retired systems which are nt factred int the analysis. They were nt included because f the very large variatin frm ne cmpany t the next. The reader shuld cnsider any future license csts that can be avided by retiring legacy systems. Page 16

18 Table 9 Eliminated System Licenses And Maintenance Ref. Metric Calculatin Year 1 Year 2 Year 3 G1 License cst f eliminated systems $2,000,000 $2,000,000 $2,000,000 Gt Eliminated systems licenses and maintenance G1*18% $360,000 $360,000 $360,000 Surce: Frrester Research, Inc. Reduced IT Team Size Transitining t Micrsft Dynamics has resulted in a smaller, mre-flexible IT rganizatin. One interviewee said, We can nw mve mre quickly and are mre agile. Dynamics has made supprting peratins much easier. The team size was able t be reduced because it n lnger needs t supprt multiple systems, can centralize mre peratins and supprt, and can autmate mre activities. Acme was able t reassign existing resurces and avid additinal hires n the central IT team. Additinally, the level f supprt required at the large, remte lcatins was significantly reduced. Each f the eight lcatins had ne FTE, and that effrt culd be reduced by 25%, n average. The smaller team is able t d mre than the previus, larger team and fcus mre effrt n activities that make the cmpany unique. Table 10 Reduced IT Team Size Ref. Metric Calculatin Year 1 Year 2 Year 3 H1 Number f central IT team resurces redeplyed H2 Number f avided additinal hires H3 Number f lcal IT supprt resurces (lcatins) redeplyed 8*25% H4 Ttal IT FTE psitins eliminated H1+H2+H H5 Average IT fully burdened cst =A1 $130,000 $130,000 $130,000 Ht Reduced IT team size H4*H5 $520,000 $780,000 $910,000 Surce: Frrester Research, Inc. Page 17

19 Increased Business User Prductivity The cmpanies interviewed and surveyed described hw Micrsft Dynamics has made business users mre prductive. One cmpany said that it is much easier t scale than in the past. Instead f adding 30 emplyees in custmer service and accunting, we were able t achieve the same grwth with 10 new emplyees. Anther interviewee described hw lgistics staff culd be decreased 25% t 50% in different facilities. This is achieved by prviding business users with the tls they need t d their jbs mre efficiently and by increasing prcess autmatin. Table 11 Increased Business User Prductivity Ref. Metric Calculatin Year 1 Year 2 Year 3 I1 Number f business FTEs eliminated/avided I2 Average business user salary =A2 $110,500 $110,500 $110,500 I3 Number f lgistics FTEs eliminated I4 Average warehuse fully burdened cst =A3 $45,500 $45,500 $45,500 It Increased business user prductivity I1*I2+I3*I4 $689,000 $1,787,500 $3,347,500 Surce: Frrester Research, Inc. There are a wide variety f ways in which a cmpany can achieve increased business user prductivity and peratinal effectiveness. The quantified examples prvided in this study are a cuple f ways the tw interviewed cmpanies achieved this. Table 12 shws several mre examples f peratinal efficiency reprted by survey respndents. Readers are highly encuraged t cnsider their wn rganizatin and ptential ERP deplyment t identify all pprtunities t imprve business user prductivity and peratinal effectiveness Page 18

20 Table 12 Efficiency Imprvements Fr Specific Use Cases Fr each peratinal efficiency imprvement area yu identified, what has been the percent efficiency imprvement since implementing Micrsft Dynamics AX? % imprvement Planning/ frecast reprting Financial management Inventry management Manufacturing peratins Less than 10% Between 10% and 20% Between 21% and 30% Between 31% and 40% 1 Between 41% and 50% Between 51% and 60% 1 1 Between 61% and 70% 1 Between 71% and 80% 1 Surce: Frrester Research, Inc. Base: Survey f 22 IT decisin makers, US mid-size rganizatins Ttal Benefits Table 13 summarizes the ttal quantitative benefits assciated with implementing Micrsft Dynamics. Table 13 Ttal Benefits Nn-Risk-Adjusted Ref. Benefit categry Year 1 Year 2 Year 3 Ttal Gt Eliminated systems licenses and maintenance $360,000 $360,000 $360,000 $1,080,000 Ht Reduced IT team size $520,000 $780,000 $910,000 $2,210,000 It Increased business user prductivity $689,000 $1,787,500 $3,347,500 $5,824,000 Ttal benefits $1,569,000 $2,927,500 $4,617,500 $9,114,000 Surce: Frrester Research, Inc. Page 19

21 Imprved System Reliability And Uptime (Nn-Quantified) Sme f the interviewed and surveyed cmpanies reprted that the legacy systems replaced with Micrsft Dynamics were unstable and ften suffered utages. This can further impact business user prductivity, damage custmer perceptins, and cause additinal IT effrt t get systems back up. One cmpany described the issues very well. Our ld ERP system was crashing a cuple f times a day. When that happened, ur frnt ffice came t a cmplete halt. Our IT team spent a lt f time putting in place cntingencies s that the ERP system being dwn wuld nt shut dwn prductin. These utages impacted a cuple f hundred emplyees. Sme f them had t cme in n weekends t cmplete their wrk. Since implementing Micrsft Dynamics, the utage prblems have gne away. Better Access T Infrmatin And Decisin-Making (Nn-Quantified) Micrsft Dynamics flexibility t integrate with systems and data repsitries can make data mre accessible t business users. This cntributes t the business prductivity benefit quantified abve, and is als wrth highlighting separately. One respndent said, We nw have mre-timely access t data. Als, we n lnger need t spend time creating manual spreadsheets. We nw knw where inventry is in real time, and that is incredibly valuable t us. Anther said that we can tuch the data directly, which speeds things up. In the past we did nt have real-time access t data. Readers shuld cnsider the ways better and timelier access t data by the end users delivers benefits t the rganizatin. Imprved business intelligence is especially imprtant fr glbal cmpanies. Increased Business Perfrmance (Nn-Quantified) Many f the previusly described benefits tuch n verall imprved business perfrmance. A rbust and easyt-use ERP slutin such as Micrsft Dynamics can radically change a cmpany in terms f time-t-market, IT and business emplyee effectiveness, and grwth ptential. Figure 6 utlines sme f the benefits mentined by the survey respndents. Page 20

22 Figure 6 Impact Of Micrsft Dynamics n Tp Line Grwth Yu nted that yur cmpany uses Micrsft Dynamics AX t supprt grwth and business transfrmatin. Thinking abut this, what are sme f the ways Micrsft Dynamics AX has had a psitive tp line impact n yur rganizatin? Surce: Frrester Research, Inc. Base: Survey f 22 IT decisin makers, US mid-size rganizatins Flexibility Flexibility, as defined by TEI, represents an investment in additinal capacity r capability that culd be turned int business benefit fr sme future additinal investment. This prvides an rganizatin with the right r the ability t engage in future initiatives but nt the bligatin t d s. There are multiple scenaris in which a custmer might chse t implement Micrsft Dynamics and later realize additinal uses and business pprtunities. Flexibility wuld als be quantified when evaluated as part f a specific prject (described in mre detail in Appendix B). Micrsft Dynamics makes rganizatins inherently mre agile by reducing time-t-market fr new services and prducts dependent n data and infrmatin technlgy. Greater standardizatin f business prcesses enables increased interperability and faster rlluts. A previus investment in Micrsft Dynamics can als create additinal, future benefits by adding new mdules and rlling ut t ther parts f the rganizatin. All f the interviewed cmpanies are lking t add features and integrate mre data repsitries. These flexibility benefits were nt included in the ROI analysis. Risk Frrester defines tw types f risk assciated with this analysis: implementatin risk and impact risk. Implementatin risk is the risk that a prpsed investment in Micrsft Dynamics may deviate frm the riginal r expected requirements, resulting in higher csts than anticipated. Impact risk refers t the risk that the business r technlgy needs f the rganizatin may nt be met by the investment in Micrsft Dynamics, Page 21

23 resulting in lwer verall ttal benefits. The greater the uncertainty, the wider the ptential range f utcmes fr cst and benefit estimates. Quantitatively capturing investment risk and impact risk by directly adjusting the financial estimates results in mre meaningful and accurate estimates and a mre accurate prjectin f the ROI. In general, risks affect csts by raising the riginal estimates, and they affect benefits by reducing the riginal estimates. The risk-adjusted numbers shuld be taken as realistic expectatins since they represent the expected values cnsidering risk. The fllwing implementatin risks that affect csts are identified as part f this analysis: The implementatin csts culd vary based n the level f Micrsft prgramming skills, e.g.,.net, that the IT rganizatin already has. The implementatin csts culd take lnger than anticipated based n the cmplexity f business prcesses and features included in legacy systems being replaced. The fllwing impact risks that affect benefits are identified as part f the analysis: Business user prductivity gains are dependent n the types f business functins that are being redeplyed in Micrsft Dynamics. IT rganizatin prductivity gains can vary based n the existing team size and spare capacity. If a cmpany is nt replacing legacy slutin, there will nt be an pprtunity t eliminate license csts. Hwever, business-related benefits shuld be much higher. Table 14 shws the values used t adjust fr risk and uncertainty in the cst and benefit estimates. The TEI mdel uses a triangular distributin methd t calculate risk-adjusted values. T cnstruct the distributin, it is necessary t first estimate the lw, mst likely, and high values that culd ccur within the current envirnment. The risk-adjusted value is the mean f the distributin f thse pints. Readers are urged t apply their wn risk ranges based n their wn degree f cnfidence in the cst and benefit estimates. Page 22

24 Table 14 Cst And Benefit Risk Adjustments Csts Lw Mst likely High Mean Implementatin internal labr (lw risk) 98% 100% 110% 103% Prfessinal services (lw risk) 98% 100% 110% 103% Sftware licenses (medium risk) 100% 100% 125% 108% Hardware (n risk) 100% 100% 100% 100% Training (n risk) 100% 100% 100% 100% Benefits Lw Mst likely High Mean Eliminated systems licenses and maintenance (high risk) 50% 100% 100% 83% Reduced IT team size (medium risk) 80% 100% 103% 94% Increased business user prductivity (high risk) 50% 100% 100% 83% Surce: Frrester Research, Inc. Page 23

25 Financial Summary The financial results calculated in the Csts and Benefits sectins can be used t determine the return n investment, net present value, and payback perid fr the rganizatin s investment in Micrsft Dynamics. These are shwn in Table 15 belw. Table 15 Cash Flw Nn-Risk-Adjusted Categries Initial Year 1 Year 2 Year 3 Ttal PV Csts ($2,661,579) ($289,500) ($123,750) ($123,750) ($3,198,579) ($3,120,009) Benefits $0 $1,569,000 $2,927,500 $4,617,500 $9,114,000 $7,314,981 Net benefits ($2,661,579) $1,279,500 $2,803,750 $4,493,750 $5,915,421 $4,194,972 ROI 134% IRR 69% Payback perid 19 mnths Surce: Frrester Research, Inc. Table 16 belw shws the risk-adjusted ROI, NPV, and payback perid values. These values are determined by applying the risk-adjustment values frm Table 14 in the Risk sectin t the cst and benefits numbers in Tables 8 and 13. Table 16 Cash Flw Risk-Adjusted Categries Initial Year 1 Year 2 Year 3 Ttal PV Csts ($2,777,348) ($299,100) ($133,350) ($133,350) ($3,343,148) ($3,259,651) Benefits $0 $1,359,470 $2,515,625 $3,932,625 $7,807,720 $6,269,550 Net benefits ($2,777,348) $1,060,370 $2,382,275 $3,799,275 $4,464,572 $3,009,899 ROI 92% IRR 53% Payback perid 21 mnths Surce: Frrester Research, Inc. Page 24

26 Figure 7 Cmpsite Organizatin Three-Year Risk-Adjusted ROI Surce: Frrester Research, Inc. Page 25

27 Micrsft Dynamics AX 2012: Overview Accrding t Micrsft, Micrsft Dynamics AX 2012 is a business slutin fr glbal enterprises that supprts industry-specific and peratinal business prcesses, alng with cmprehensive, cre enterprise resurce planning (ERP) functinality fr financial and human resurces management. It is a business slutin that supprts bth peratinal and administrative prcesses f rganizatins; this single slutin cmes with lcalizatins, in the bx, fr 36 cuntries. With a specialized fcus n manufacturing, retail, service industries, and public sectr, Micrsft Dynamics AX includes capabilities such as: Financial management. Human capital management. Manufacturing. Supply chain management. Prject management and accunting. Retail. Business intelligence and reprting. Page 26

28 Appendix A: Cmpsite Organizatin Descriptin Based n tw cmpany interviews and 22 survey respndents frm cmpanies currently using the Micrsft Dynamics AX 2012, Frrester cnstructed a cmpsite rganizatin that encmpasses characteristics heard acrss the interviews. Frrester then created a TEI financial framewrk and an assciated ROI analysis fr this cmpsite cmpany. By aggregating the findings frm the custmer interviews and prtraying a cmpsite rganizatin that has benefited frm replacing fur previus enterprise resurce planning (ERP) slutins, alng with ther pint slutins, with Micrsft Dynamics AX 2012, this Frrester study illustrates the financial impact f using Micrsft Dynamics fr a typical enterprise custmer. Frrester named the cmpsite rganizatin Acme Flw Cntrl (Acme). Acme designs, manufactures, and sells cntrl valves and seals fr industrial uses. The cmpany sells thrugh its wn sales frce as well as a glbal netwrk f distributrs and resellers. The cmpany is headquartered in the United States and has manufacturing facilities in the US, Mexic, Pland, and China. Mst manufacturing is still dne in the US. It has sales ffices in the UK, Japan, and Sa Paul. Acme has extensive sales supprt and service activities. The latter is a prfit center fr the cmpany. Seventy percent f its custmers are in the United States. Acme has a ttal f 4,000 emplyees. The internal IT develpment and peratins rganizatin has 20 team members. They supprt the ERP systems and ther cre business systems. A separate, specialized IT department handles prductin systems n the factry flr. Ttal revenues in 2013 were $750 millin. Acme decided t implement Micrsft ALM slutins because the previus ERP slutin has perfrmance prblems and did nt supprt future needs. There were frequent system utages that impacted user prductivity and prductin utput. Additinally, Acme is lking t pen multiple new sales ffices arund the wrld, and expanding the prir ERP slutin t these gegraphies was prving very challenging. Acme deplyed Micrsft Dynamics AX 2012 acrss the entire rganizatin. The Financial Management, Supply Chain Management, and Business Intelligence and Reprting mdules were implemented. The vast majrity f emplyees are assembly-line wrkers wh d nt directly use Micrsft Dynamics. This leaves apprximately 500 emplyees wh use Micrsft Dynamics n a daily basis. Appendix B: Ttal Ecnmic Impact Overview Ttal Ecnmic Impact is a methdlgy develped by Frrester Research that enhances a cmpany s technlgy decisin-making prcesses and assists vendrs in cmmunicating the value prpsitin f their prducts and services t clients. The TEI methdlgy helps cmpanies demnstrate, justify, and realize the tangible value f IT initiatives t bth senir management and ther key business stakehlders. The TEI methdlgy cnsists f fur cmpnents t evaluate investment value: benefits, csts, risks, and flexibility. Page 27

29 Benefits Benefits represent the value delivered t the user rganizatin IT and/r business units by the prpsed prduct r prject. Often prduct r prject justificatin exercises fcus just n IT cst and cst reductin, leaving little rm t analyze the effect f the technlgy n the entire rganizatin. The TEI methdlgy and the resulting financial mdel place equal weight n the measure f benefits and the measure f csts, allwing fr a full examinatin f the effect f the technlgy n the entire rganizatin. Calculatin f benefit estimates invlves a clear dialgue with the user rganizatin t understand the specific value that is created. In additin, Frrester als requires that there be a clear line f accuntability established between the measurement and justificatin f benefit estimates after the prject has been cmpleted. This ensures that benefit estimates tie back directly t the bttm line. Csts Csts represent the investment necessary t capture the value, r benefits, f the prpsed prject. IT r the business units may incur csts in the frm f fully burdened labr, subcntractrs, r materials. Csts cnsider all the investments and expenses necessary t deliver the prpsed value. In additin, the cst categry within TEI captures any incremental csts ver the existing envirnment fr nging csts assciated with the slutin. All csts must be tied t the benefits that are created. Risk Risk measures the uncertainty f benefit and cst estimates cntained within the investment. Uncertainty is measured in tw ways: 1) the likelihd that the cst and benefit estimates will meet the riginal prjectins, and 2) the likelihd that the estimates will be measured and tracked ver time. TEI applies a prbability density functin knwn as triangular distributin t the values entered. At minimum, three values are calculated t estimate the underlying range arund each cst and benefit. Flexibility Within the TEI methdlgy, direct benefits represent ne part f the investment value. While direct benefits can typically be the primary way t justify a prject, Frrester believes that rganizatins shuld be able t measure the strategic value f an investment. Flexibility represents the value that can be btained fr sme future additinal investment building n tp f the initial investment already made. Fr instance, an investment in an enterprisewide upgrade f an ffice prductivity suite can ptentially increase standardizatin (t increase efficiency) and reduce licensing csts. Hwever, an embedded cllabratin feature may translate t greater wrker prductivity if activated. The cllabratin can nly be used with additinal investment in training at sme future pint in time. Hwever, having the ability t capture that benefit has a present value that can be estimated. The flexibility cmpnent f TEI captures that value. Appendix C: Glssary Discunt rate: The interest rate used in cash flw analysis t take int accunt the time value f mney. Althugh the Federal Reserve Bank sets a discunt rate, cmpanies ften set a discunt rate based n their business and Page 28

30 investment envirnment. Frrester assumes a yearly discunt rate f 10% fr this analysis. Organizatins typically use discunt rates between 8% and 16% based n their current envirnment. Readers are urged t cnsult their respective rganizatin t determine the mst apprpriate discunt rate t use in their wn envirnment. Net present value (NPV): The present r current value f (discunted) future net cash flws given an interest rate (the discunt rate). A psitive prject NPV nrmally indicates that the investment shuld be made, unless ther prjects have higher NPVs. Present value (PV): The present r current value f (discunted) cst and benefit estimates given at an interest rate (the discunt rate). The PV f csts and benefits feed int the ttal net present value f cash flws. Payback perid: The breakeven pint fr an investment. The pint in time at which net benefits (benefits minus csts) equal initial investment r cst. Return n investment (ROI): A measure f a prject s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus csts) by csts. A Nte On Cash Flw Tables The fllwing is a nte n the cash flw tables used in this study (see the example table belw). The initial investment clumn cntains csts incurred at time 0 r at the beginning f Year 1. Thse csts are nt discunted. All ther cash flws in Years 1 thrugh 3 are discunted using the discunt rate (shwn in Framewrk Assumptins sectin) at the end f the year. Present value (PV) calculatins are calculated fr each ttal cst and benefit estimate. Net present value (NPV) calculatins are nt calculated until the summary tables and are the sum f the initial investment and the discunted cash flws in each year. Appendix D: Endntes 1 Frrester risk-adjusts the summary financial metrics t take int accunt the ptential uncertainty f the cst and benefit estimates. Fr mre infrmatin n Risk, please see page Surce: Micrsft ( B41CD63FC021/Micrsft_Dynamics_AX_2012_R2_Licensing_Quick_Reference_Guide- CustmerEditinDec2012.pdf). Page 29