ROI CASE STUDY KOFAX SUFFOLK CONSTRUCTION

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1 ROI CASE STUDY KOFAX SUFFOLK CONSTRUCTION THE BOTTOM LINE Suffolk Construction used Kofax s MarkView Financial Suite to improve productivity and reduce costs by taking better advantage of its vendors early payment terms. ROI: 20 Payback: 6 months Average annual benefit: $1,634,250 THE COMPANY Suffolk Construction is one of the leading privately held building contracting firms in the country, with offices in the Northeast, Mid-Atlantic, Southeast and West Coast regions of the country. Suffolk provides preconstruction, construction management, design/build and general contracting services and has customers in the assisted living, commercial, education, entertainment, federal government, healthcare, hospitality, residential and retail sectors. THE CHALLENGE Between 2000 and 2005, Suffolk Construction grew rapidly, almost doubling in revenues as a result of both organic growth and geographic expansion. Unfortunately, this rapid growth strained some of the company s systems and workflows. Deploying Oracle E-Business Suite corrected many of the workflows for general accounting, but the company still saw problems related to its management of accounts payable (AP) that it wanted to correct. Suffolk s size and the distributed nature of its operations posed the following challenges in the management of AP: Complexity. AP-related documents and workflows were dispersed across its project sites which average 80 at any given time the various regional offices, and its headquarters. Additionally, project managers could process invoices only at their regional offices, which meant that days could pass between the receipt of an invoice and its approval by a project manager. Because invoices were delivered to so many different locations, it was difficult and labor intensive for AP accountants to complete their workflows or answer cost-related inquiries. Speed. Because AP-related workflows were labor intensive and inconsistent, invoices were paid more slowly than Suffolk wanted, which had the potential to strain vendor relations. Corporate Headquarters Nucleus Research Inc. 100 State Street Boston, MA Phone: Fax: Nucleus Research Inc.

2 TOPICS Enterprise Applications Cost. Inconsistent and lengthy workflows meant that Suffolk did not always identify on a timely basis invoices that included terms granting cost discounts in return for early payment. Accuracy. Because AP invoicing was used as the basis to calculate the percentage of a project that was complete, revenue recognition often lagged actual project progress. THE STRATEGY In order to adopt a solution that would complement its Oracle deployment by automating AP-related workflows, Suffolk first circulated an RFP and received responses from IBM, All Star Software Systems, and Kofax (then 170 Systems). Kofax was chosen for a number of reasons, including: References. Suffolk s VP of ERP completed a combination of site visits and interviews with reference customers most of which had similarly projectfocused business models and determined that the solution could both process the volume of invoices Suffolk would require and enable offsite employees to perform invoice approvals over the Web. Prior experience. One of the selection team members had used IBM s FileNet solution in a previous job and found it difficult to integrate and set up workflows for. Integration. The references involved in the process were all Oracle shops that encountered minimal problems integrating MarkView with Oracle during their deployments. Suffolk began deploying MarkView in April 2005 and the system was fully operational in July The deployment involved the following: Design. Suffolk s vice president in charge of ERP performed focus-group meetings with AP accountants, project managers, and other employees involved with AP. These meetings were used to identify existing workflows and determine how they should be modified after automation. Configuration. Once optimal workflows were designed, they were configured in the system with consultants from Kofax. Additionally, some customization was required for Suffolk s project-centric approach, since the application is optimized for shared service centers. Testing. For two months, MarkView was tested on seven projects. During this period, Suffolk fine tuned how workflows would be completed by accountants and project managers, as well as how workflows were configured in the application. During this period, the deployment team also identified reporting tools in the application that could help end users automate analytical projects and decision making. Training. Prior to the go-live date, 200 project managers and 50 accountants attended a 3-hour training sessions. Project manager training focused on accessing, evaluating, and approving invoices. Accountant training focused on MarkView tools, the application s reporting capabilities, how to process invoices, identification of invoices with discounted payment terms, and how to perform research in order to handle inquiries from other accountants, project managers, the finance department, and vendors. 2

3 KEY BENEFIT AREAS Deploying MarkView has enabled Suffolk to take better advantage of early payment terms offered by some of its vendors and improve productivity. Key benefits from the solution include: Reduced costs of goods sold. Because invoices are now scanned and processed centrally with standardization, Suffolk has workflows in place that identify invoices that include early payment terms. As a result, Suffolk has increased the percentage of invoices for which it takes advantage of early payment terms from 10 percent to 20 percent. BENEFITS Direct Indirect 93% TOTAL: $4,902,750 Improved productivity. Suffolk s 200 project managers are more productive because the workflows to view and approve invoices are both quicker and can be completed over the Web. This means they can take care of this task not only more rapidly, but also anywhere they can connect to the Web, without spending time returning to their office. Suffolk s 25 AP accountants are also more productive, because they spend far less time manually processing invoices, filing them, scanning them, and conducting labor intensive research in order to answer inquiries from project managers, vendors, and other members of the accounting department. Additionally, the managers to whom project managers report are also more productive because they can perform project cost analyses far more quickly with the reporting from MarkView. KEY COST AREAS Key cost areas for the deployment included software, consulting, personnel, hardware, and training. MarkView was deployed over a 5-month period by a team consisting of both Suffolk employees including a project lead, a technical lead, a trainer and two testers and three Kofax consultants, who assisted with system configuration, workflow automation, and training. Training was provided for 250 project managers and accountants who each attended a 3-hour training session. Software costs consisted of the initial cost of MarkView and ongoing license maintenance. The deployment also required 20 dual monitors as well as six scanners and desktops to support scanning workflows. 3

4 COSTS Personnel Training 5% Software 46% Consulting 35% Hardware TOTAL: $658,766 BEST PRACTICES One of the reasons the deployment was so successful was the creation of rolespecific responsibilities aimed at maximizing adoption by project managers. Suffolk knew that success of the deployment would rely heavily on adoption by its project managers, who are key to the invoice approval process and spend most of their time in the field at construction sites. Suffolk was concerned that because of the remote and mobile nature of their work, the project managers would either reject or adopt inconsistently MarkView and the new workflows. In order to prevent this, the deployment team added support activities to the roles of Suffolk s AP accountants. Whenever a project manager is in the field and has a question because they are off the network or don t have enough information with them, they can phone one of the AP accountants and receive help. Because provision of this help is part of their job description, they are able to spend time on it. Not requiring project managers to be experts in MarkView was a significant success factor in causing virtually all project invoices to be processed through the application. CALCULATING THE ROI Nucleus calculated the costs of software, consulting, hardware, personnel, and training over a 3-year period to quantify Suffolk s total investment in MarkView. Direct benefits calculated included consisted of the reduction to cost of goods sold. This was based on the total number of invoices processed by MarkView, an estimate of the portion that include early payment terms, the average discount, and the increase to the percentage of invoices that had early payment terms where a discount was eventually received as the result of early payment by Suffolk. Productivity benefits were based on employees average fully loaded annual cost and an estimation of the amount of time they save as a result of the deployment. Productivity benefits were reduced by a correction factor in order to take into account the fact that not all time saved will be converted by employees into time spent on new tasks. 4

5 DETAILED FINANCIAL ANALYSIS SUFFOLK CONSTRUCTION SUMMARY Project: Kofax's MarkView Financial Suite Annual return on investment (ROI) 20 Payback period (years) 0.48 Average annual benefit 1,634,250 Average annual total cost of ownership 219,589 ANNUAL BENEFITS Pre-start Year 1 Year 2 Year 3 Direct 0 115, , ,500 Indirect 0 1,518,750 1,518,750 1,518,750 Total Benefits Per Period 0 1,634,250 1,634,250 1,634,250 DEPRECIATED ASSETS Pre-start Year 1 Year 2 Year 3 Software 195, Hardware 47, Total Per Period 242, DEPRECIATION SCHEDULE Pre-start Year 1 Year 2 Year 3 Software 0 39,000 39,000 39,000 Hardware 0 9,400 9,400 9,400 Total Per Period 0 48,400 48,400 48,400 EXPENSED COSTS Pre-start Year 1 Year 2 Year 3 Software 0 35,000 35,000 35,000 Hardware Consulting 230, Personnel 45, Training 36, Other Total Per Period 311,766 35,000 35,000 35,000 FINANCIAL ANALYSIS Pre-start Year 1 Year 2 Year 3 Net cash flow before taxes (553,766) 1,599,250 1,599,250 1,599,250 Net cash flow after taxes (397,883) 823, , ,825 Annual ROI - direct and indirect benefits Annual ROI - direct benefits only 16% 16% 16% Net present value (NPV) (397,883) 318, ,417 1,483,095 Payback (years) 0.48 Average annual cost of ownership 553, , , ,589 3-year IRR 199% 199% FINANCIAL ASSUMPTIONS All government taxes 50% Discount rate 15% All calculations are based on Nucleus Research's independent analysis of the expected costs and benefits associated with the solution. www. 5