ROI Case Study: HP Project & Portfolio Management Center February 2007 Solution Payback Assessment One of the nation's largest food retailers and food distributors, this company s success stems from its progressive and creative view of a grocery store chain. While the IT organization has consistently supported the company s growth, it recognized a need to improve operations. A major concern for IT was the allocation of its resources to non-strategic projects to the detriment of other strategic projects that would have far greater impact on the business bottom line. Solving this problem became a key focus for the IT organization. In just 2 years since HP Project and Portfolio Management software deployment, the company has recognized a two-year ROI of $15.9 million (NPV). Food Retailer & Distributor Top Value Delivery By the second year of HP Project and Portfolio Management software deployment, the company achieved the following financial and efficiency returns: Funding of non-strategic projects dropped to 25%, representing a 50% improvement and an $18.8 million annual IT budget savings. IT budget overruns were alleviated entirely, recouping 2% of the annual IT budget, or $1.5 million. IT labor cost attributed to unnecessary design change orders decreased from 60% to 50% a 10% labor efficiency improvement that yielded a $1.27 million cost savings. Project management project load increased by 12% due to increased visibility into project schedule, status and critical project interdependencies; 75% of the $299,250 in project management labor costs savings was directly attributed to HP Project and Portfolio Management software. IT labor staff costs were reduced by improving resource management processes, allowing IT to do more with current resources. This saved the company $320,000 in Year 1 and $252,000 in Year 2. IT project change orders dropped by 57%. IT budget accuracy improved 100%: planned budget exactly tied to actual IT expenditures for the year. Time spent by IT managers on project status reporting decreased by 66.7%. The IT demand queue reduced by 67.1%. 2007 The Gantry Group, LLC 1 www.gantrygroup.com
Company Profile As one of the nation's largest and most recognized food retailers and food distributors, the company s success stems from its progressive and creative view of a grocery store chain. In addition to a wide regional variety of the freshest and highest quality produce, meat and seafood, its customers enjoy a full complement of products and services, ranging from convenience stores and fuel stations to dry cleaning, and onsite supervised child learning and activity centers. The company also offers other convenient services including video rental, in-store banking, onsite film laboratories and floral shops. With approximately $5.5 billion in annual sales and 36,000 employees, this supermarket retailer has established 200 stores and 5 distribution centers, and is supported by an IT team of 200 people. This retailer has grown rapidly in unison with its business success. To accommodate this growth, the company has adopted a new organizational structure. Matrix groups now govern program offices to holistically oversee both business and IT aspects of entire corporate initiatives. These new offices rely upon IT governance to successfully manage the execution of critical technology infrastructure upgrades and expansions. Key Pain Points Prior to HP Project & Portfolio Management The company s top corporate initiatives all revolve around improving supply chain management efficiency, and reworking warehouse management processes and systems. Currently executing on an enterprise-wide initiative to develop new warehouse management systems, all obsolete, legacy systems must now be replaced. The IT group is heavily involved in all aspects of this ambitious corporate charter. Lack of IT Project Visibility In light of the sizable work docket created by a revamping of warehouse management technology infrastructure, the IT group recognized that it required increased visibility into precisely what IT is really doing with its time, resources and budget. Alignment of IT projects to particular business goals became critical. The company tried to accomplish IT project management using a manual, paper-based approach; however, paper did not enable the desired real-time visibility into IT activities and progress. Recognizing its inability to communicate accurate status of decisions taken regarding new and existing IT initiatives, the IT group knew it need to adopt a new approach to IT planning and project management. Misalignment of IT Investments to Corporate Strategy The IT group grappled with the problem of working on non-strategic projects to the detriment of other strategic projects that would have far greater impact on the business bottom line. Projects were formerly prioritized by IT with little business guidance. The IT group lacked a visible, corporate process to review IT projects solely based on each project s merits. The net result was a misalignment of IT investments to corporate strategy. The wrong IT projects were too often engaged and IT worked on activities not aligned to corporate objectives. The company concluded that it was investing in incorrect IT initiatives due to poor portfolio prioritization and lack of clarity around the strategic impact of each IT initiative. 2
No Visibility into IT Service Request Impact IT projects poured into the IT group s demand queue for consideration without an analysis of the time, resource and cost impact the project would have on the IT group. Without visibility into the cost versus business impact analysis, the company was hampered from making prudent IT investment decisions for the business. Inconsistent Project Methodology Prior to HP Project and Portfolio Management, the IT group did not have a project methodology that was consistently understood or followed by the organization. The result is that accurate project status was rare and late project delivery all too frequent. The IT group struggled with a semi-manual project management process that depended upon Microsoft Project. The IT group found Microsoft Project to be difficult to use. The company wanted a simpler project management solution that tied to both a centralized repository and the Demand Management component. Broken IT Budgeting Process Managing the IT budget and the financials overall was difficult. Since the IT projects were not clearly identified, reviewed and specified, the IT annual fiscal budgets were at best rough estimates simply impressions of what IT managers thought was probably desired by the business groups. IT budgets went through many rounds of modification and reduction, causing complete misalignment of project scope and allocated budget for each IT project. In short, the IT budgetary forecasting process was broken. New projects that were not identified during the budgetary planning cycle, streamed in throughout the year. The IT group was routinely over budget, impacting the predictability of corporate financial reporting. The IT group required improved visibility into IT spend and resource allocation. Investing in HP Project & Portfolio Management Center The company turned to HP for a solution that would help them focus on IT initiatives that generate the most cost savings or revenue opportunity i.e. directly contribute to business outcomes. In October 2004, the company made the case for the HP Project and Portfolio Management solution solely based on the need for strong IT Demand and Portfolio Management. Impressed with the benefits of the HP solution after one year of deployment, the company expanded its HP solution investment to adopt additional modules including HP Project Management, Program Management and Resource Management. The IT group measured the success of its HP Project and Portfolio deployment by the business ability to: prioritize its own projects with IT input proactively manage the demand for IT services have confidence in the IT group s ability to deliver ROI Case Study Methodology Gantry Group performed the ROI Case Study project for HP Software to inventory and to quantify the value and cost drivers that contributed to the solution s bottom line. Gantry Group conducted interviews with four separate HP Project and Portfolio Management customers, all executives who directly dealt with the HP Project and Portfolio Management 3
solution. Applying the findings, Gantry Group created a custom ROI worksheet that modeled each value and cost driver. This ROI worksheet, an Excel-based tool, was segmented into multiple worksheets: tangible value drivers, intangible value drivers, investment data, and the ROI scorecard. The ROI worksheet was configured to capture metrics data for a period of three years from the signing of the contract. The costs of implementation and the length of implementation are included in the measured time period. The ROI worksheet generates total annual benefits by taking the sum of the net incremental changes in the business metrics that are included; annual costs are similarly a summation of all charges and fees associated with the implementation and operation of HP Project and Portfolio Management Center. The annual ROI for each year of the three-year period is calculated by subtracting Total Investment Costs from Total Tangible Benefits. Using the ROI worksheet, Gantry Group contacted the company profiled in this case study to capture specific business metrics to benchmark the environment prior to and after solution deployment; this ROI worksheet was also used to document capital, ongoing support and maintenance costs associated with HP Project and Portfolio Management software and its implementation. Gantry Group and HP then presented and reviewed the ROI profile with the case customer to confirm and validate data accuracy. ROI Profile Tangible Value Drivers: Reduced/Avoided Costs Year 1 Year 2 2-Year NPV Reduced Budget Overruns $ 0 $ 1,500,000 $1,239,669 Avoidance of IT Expense on Non-Strategic IT Projects $ 0 $18,750,000 $15,495,868 Reduced IT Labor Expense thru Change Request Reduction $ 0 $ 1,266,627 $1,046,799 Reduced Quality Intervention Costs for IT Software Releases ($ 11,714) ($2,094,762) ($1,741,858) Reduced IT Project Management Cost $ 0 $ 224,438 $185,486 Reduced IT Labor Costs $ 320,000 $ 252,000 $499,174 Avoidance of Extended Software License Renewal Fees for Retired Software $ 28,074 $ 28,074 $48,723 TOTAL TANGIBLE BENEFIT: $ 336,360 $19,926,376 $16,773,861 TOTAL INVESTMENT: $ 706,310 $ 256,172 $ 853,812 ROI ($) ($369,950) $19,670,204 $15,920,048 Intangible Value Drivers Year 1 Year 2 Reduction of IT Project Change Order Requests 23% 57% Improved Budget Accuracy 0% 100% Improved IT Project Execution Efficiency 10% 19% Reduced IT Management Time Spent on Project Status Reporting 0% 13% Reduced Time to Generation IT Labor Capitalization Reports 0% 90% Increased Financial Sign-off Process Efficiency for IT Project Approval 58% 83% Reduction in IT Demand Queue 23% 67% 4
ROI Analysis Tangible Benefits Tangible Benefits can be directly tracked and connected to bottom line financial impact. Reduced IT Budget Overruns IT Budget Overruns IT Budget Overrun At Deployment: $57M (2%) End Year 1: $62M (2%) End Year 2: $75M (0%) Budget overruns were inevitable due to the lack of visibility to expose what IT is really doing with their time, resources and budget. IT projects were not scrutinized to assure clear understanding of project scope and required resources. Lack of clarity around IT projects increased the need for change orders, redesign and inefficient time management. This situation was further exacerbated by complex IT projects with inter-team dependencies. Therefore IT budgets could only be at best swags: approximations of what it would take for the IT group to accomplish its annual work docket. Various HP Project and Portfolio management modules were deployed to address different issues, for example HP Demand Management and Portfolio Management modules instituted a formal review and definition process for all new IT projects under consideration. HP Project and Resource Management modules provided the IT group with historical IT trends and insights as to the resources and time required. By the second year of HP Project and Portfolio Management deployment, the IT group had alleviated IT budget overruns entirely, recouping 2% of the annual IT budget, or $1.5 million. The company attributed 100% of this savings to the HPsolution. Avoidance of IT Expense on Non-Strategic Projects Annual Non-Strategic IT Project Cost Total % Non-Strategic Change Budget IT Funded At Deployment: $57.0M 50% End Year 1: $62.0M 50% 0% End Year 2: $76.0M 25% -50% Prior to deployment of the HP Demand and Portfolio Management modules, the company lacked a formal process to evaluate and prioritize IT projects based on the greatest business benefit. Lack of visibility into this situation handicapped management from preventing the engagement of such non-strategic projects. IT expenditures on such non-strategic IT projects were a wasteful use of IT budget and a net cost to the company. The unfortunate net result was that 50% of the company s IT activities were expended on non-strategic projects that were not aligned to business goals. By the second year of HP Project and Portfolio Management deployment, the company s adoption of a process to scrutinize the IT demand portfolio, guided and enforced by the HP solution, began to take hold; funding of non-strategic projects dropped to 25%, representing a 50% improvement and a $18.8 million annual IT budget savings. The company attributed 100% of this savings to HP Project and Portfolio Management. Absent from this analysis is the positive business impact that a strategic IT project might yield to the company, including staff savings through process automation, increased revenue, reduced liability, etc. Reduced IT Labor Expense thru Change Request Reduction Annual IT Labor Attributed to Change Orders Labor Allocated to Change Budget Change Orders At Deployment: $12.2M 60% -- End Year 1: $10.8M 60% 0% End Year 2: $12.7M 50% -16.7% Because the IT group did not have visibility into the IT project portfolio to understand when an initiated project was related to another project activity, such project dependencies were often discovered after the project design phase was completed. The unfortunate side effect of this 5
ongoing discovery process was the need to continually adjust the design specification. Further, issue management could not be addressed at the project level. HP Project and Portfolio Management brought the company the required visibility to thoroughly design IT projects with full consideration to other project needs and dependencies. With issues now visible, the IT group can now assign resolution responsibility across projects easily. By the second year of HP Project and Portfolio Management deployment, the IT group decreased IT labor cost attributed to unnecessary design change orders from 60% to 50% a 16.7% labor efficiency improvement that yielded a $1.27 million cost savings. The company attributed 100% of this savings to HP Project and Portfolio Management. Reduced Quality Intervention Costs for IT Software Releases Annual Post-Deployment Priority 1 SPRs P1 Deployed IT Change SPRs Components At Deployment: 38,000 240 End Year 1: 38,481 241-1% End Year 2: 47,506 241-24% Prior to HP Project and Portfolio Management, the IT group did not have the means to accurately track post-deployment quality issues for all the software created by its IT group. The HP solution exposed these quality issues so that the organization for the first time could identify and remedy the problems. This is a situation where gaining a full extent of the quality problems makes the situation to appear worse until corrective action is undertaken. Once process improvements were instilled, quality improvements and associated cost reductions could be achieved on a consistent basis. HP Project and Portfolio Management improved quality tracking of the 240 IT components deployed throughout the company. Using the number of opened Priority 1 Software Problem Reports (SPRs) as the metric for quality, opened P1 SPRs increased per deployed IT component by 1% after the first year of HP Project and Portfolio Management deployment and 24% the second year. The IT group credited the HP solution for 10% of this increase in year 1 and 50% in year 2. With the cost to resolve a P1 SPR averaging $360, this represented an added cost to the company of $11,714 the first year and $2.01 million the second year after HP solution deployment. Although the company expended additional costs on SPR resolution for deployed software, the company improved the overall quality of its software through improved tracking of reported quality problems and exposure of inconsistencies between the component s design specification and actual implementation. With this exposure, the company is already beginning to experience significant cost savings due to the reduction of the number of P1 SPRs and the time to fix them. Reduced IT Project Management Cost Project Manager (PM) Load Average per Project Manager Total Total Projects/ Projects PMs PM Change At Deployment: 50 20 2.5 -- End Year 1: 50 20 2.5 0% End Year 2: 70 25 2.8 12% At the time of the HP Project and Portfolio Management deployment, the IT group employed 20 project managers for 50 IT projects. Tracking project status and updating schedules was difficult using Microsoft Project particularly for complex project with multiple project teams. The active IT project docket grew 40% to 70 projects over the next two years. However, because the HP solution facilitated project status visibility, critical project interdependencies and the schedule update process, it proved necessary to only grow project management by 28% to 25 staff members. Through HP Project and Portfolio Management, the IT group standardized the project 6
management function. The combined efficiency improvements saved the company $299,250 in project management labor costs in year 2 of deployment; the company attributes 75% of this staff savings directly to the HP solution. Reduced IT Labor Costs Annual IT Labor Savings IT Staff Cost Reduction Savings End Year 1: 4 $320,000 End Year 2: 3 $252,000 IT management had no means to view IT staff members workloads to assure that the IT workforce was being fully utilized until the deployment of the HP solution. Now management at a glance can ascertain if a staff member has the bandwidth to take on additional work assignments. In addition, HP Project and Portfolio Management has enforced a standardized IT work process in which projects are fully specified, project dependencies are identified, re-design work is minimized, and realistic project status is tracked. Today, IT uses its resources much more efficiently. As the direct result of deployment, the company reduced its IT staff by four people in year 1 and three people in year 2, saving the company $320,000 and $252,000 in annual IT budget respectively. Avoidance of Extended Software License Renewal Fees Because IT projects are now completed faster, the IT group was able to avoid extending application licenses of retired applications and tools slated to be retired and turned off. Late IT projects translated into unnecessarily incurred license/service fee extensions. The IT group recouped $28,074 annually after HP solution deployment. ROI Analysis Intangible Benefits While intangible benefits are not included in the ROI calculation, they are important metrics that further support and drive the bottom line impact of the HP solution. Not measured are the qualitative benefits of increased employee satisfaction that also minimize employee turnover. Reduction of IT Project Change Order Requests IT Project Change Order Request Summary Annual Change Changes Orders/ Orders Project Change At Deployment: 1,300 26 End Year 1: 1,000 20-23% End Year 2: 780 11-57% The IT group often did not understand when IT projects were launched and how each related to other project activities. Such cross-project considerations frequently surfaced after the design phase was complete. The unfortunate result was the need to continually adjust the project design through a journey of progressive discovery. The year prior to HP Project and Portfolio Management deployment, the IT group processed 1,300 change orders for 50 active projects. Change orders dropped by 23% in year 1 and by 57% in year 2 following the HP solution deployment. The company attributes 100% of this decease in change order requests to the HP solution due to the project dependency visibility enabled by the solution. 7
Improved Budget Accuracy Annual IT Budget Planned vs. Actual Planned Actual Change in Budget Budget Accuracy At Deployment: $57.0M $58.1M End Year 1: $62.0M $63.2M 0% End Year 2: $75.0M $75.0M 100% Prior to HP Project and Portfolio Management, budgets were no more than guesses. IT budgets typically went through many rounds of slashing, causing complete misalignment of project scope and allocated budget for each IT project. The IT budgetary forecasting process was broken and therefore IT was routinely over budget. Projects streamed in throughout the year that had not been identified during the budgetary planning cycle. To alleviate the shortfall, IT would take money out of different budgetary buckets throughout the company to shore up the shortfall. By the second year of the HP deployment, IT budget accuracy improved 100%: planned budget exactly tied to actual IT expenditures for the year. The company attributes 100% of this improvement in budget accuracy to the HP solution. Improved IT Project Execution Efficiency IT Project Timeliness Total Projects Projects On Time Change At Deployment: 50 60% End Year 1: 50 70% 16.7% End Year 2: 70 71.4 19.1% HP Project and Portfolio Management encourages better definition around the entire IT program so that it can be subdivided into discrete projects. Increased visibility into the scope and needs of these projects enabled the company to better assure that each IT initiative was fully scoped and staffed. Prior to the HP solution, issue management could not be addressed at the project level. With issues now visible, the company can now easily assign issue resolution responsibility across projects. As a result, IT project completion timeliness improved by 16.7% after the first year of deployment and 19.1% after the second year of deployment. The company attributes 60% of year 1 and 100% of year 2 project timeliness improvement to HP Project and Portfolio Management. Reduced IT Management Time Spent on Project Status Reporting IT Project Status Reporting Time Total IT Hours/Week Managers /Manager Change At Deployment: 15 3 -- End Year 1: 15 3 0% End Year 2: 18 1-66.7% Communicating IT project status was time consuming for the IT management team. On average, each IT manager invested three hours weekly on IT project status reporting. Business users relied on these reports as their only insight into IT progress. Since the HP solution was deployed, the use of defined workflows have improved communications regarding IT projects throughout the company. The company is now able to include specific roles in the workflow attributed to business users. Business users are included in the process with required actions and their feedback is documented. Business group sign-off is acquired and tracked throughout the project. Custom portlet views facilitate communication of real-time IT activity. Business users can now view an executive dashboard, instead of opening up and delving into each project plan. Customer MS PowerPoint presentations on IT project status are no longer necessary. Business users have the power in their hands at any time to get accurate IT status without reliance on phone calls or meetings. By the second year of HP Project and Portfolio Management deployment, each IT manager was spending only one hour per week on IT project status reporting, representing a 66.7% 8
efficiency improvement. The company credits the HP solution 100% for the 176 IT manager days that are now recouped annually. Reduced Time to Generation IT Labor Capitalization Reports Monthly IT labor capitalization reporting to the company s finance group was time consuming. The IT group s manual project management process made it difficult to pinpoint exactly which resources spent how much time on which IT project(s) for the given month. With the Time Management module within HP Project and Portfolio Management Center, IT labor capitalization reports are now generated much more quickly and accurately. Whereas it used to take 10 hours of manager s time to create such a report, the HP Time Management module made it possible to generate the report in just one hour a 90% reporting efficiency improvement. The IT group credits its HP solution for 100% of this reporting time improvement. Increased IT Project Financial Sign-off Process Efficiency IT Project Financial Sign-off Per IT Project (Days) Approval/ Times Change At Deployment: 12 End Year 1: 5 58.3% End Year 2: 2 83.3% HP Project and Portfolio Management has introduced automated workflow into IT projects, enabling IT project deliverables to be captured within the tool. IT project funding is treated as just another routed workflow, enabling financial sign-off to now be completely automated. Over the two year post deployment period, the average time to acquire IT project financial sign-off has decreased from 12 to 2 days per project. The company attributes 100% of this improvement to the HP solution. Reduction in IT Demand Queue Annual IT Demand Queue Size Queue Change At Deployment: 2,000 End Year 1: 1,544 22.8% End Year 2: 659 67.1% Annual IT Project Submissions Submitted Change At Deployment: 2,000 End Year 1: 1,948 2.6% End Year 2: 743 62.3% In the absence of a formal demand process for IT project requests, IT projects requests were submitted for consideration without reservation or justification. Since HP Project and Portfolio Management was deployed two years ago, IT project submissions have dropped by 62.3%. The company is now fully aware of the total IT demand queue and has established a structured funnel process for all incoming IT requests. IT project submissions are reviewed annually. Business users, knowing that their management will see their IT requests and are instructed by the C- Suite to stop non-strategic requests, now refrain from making frivolous, unjustified IT project requests. The bottom line: the Demand queue has decreased by 67.1% since the HP solution was deployed just two years ago. The company attributes 100% of this IT project demand reduction to HP Project and Portfolio Management. 9
Conclusion The biggest impact HP Project and Portfolio Management has made at the IT level is that people are more apt to execute on what they say they are going to do. Status out of HP Project and Portfolio Management is far more tethered to reality! The right people know which projects are being engaged and why. IT Governance Office Manager In just 2 years since HP Project and Portfolio Management deployment, the company has recognized a 2-year ROI of $15.9 million (NPV). Most importantly, the IT group is now in a position to ascertain how much financial impact it has brought to the company over a given year. Through the HP solution, the company visibly knows: the alignment of every IT project to corporate strategic objectives how much work is being taken on in a given year a standard project management methodology is followed precisely what IT is really doing with its time, resources and budget the accurate status of any IT project in real-time the interdependencies between IT projects annual IT budget assessments are accurate About Gantry Group The Gantry Group is a research and consulting firm specializing in technology ROI. With over 300 technology clients, 4,000 business process interviews and profiles in our knowledgebase, and more than 1,000 ROI business processes and value drivers modeled, we offer our clients the greatest depth and breadth of ROI experience and invaluable objectivity. The Gantry Group uses analysis drawn from practiced operational experience, supported by custom primary research, to help IT vendors and enterprises forecast accurate ROI and TCO. Gantry Group translates the business process enhancements that result from IT solutions into enterprise bottom-line impact. This analysis helps vendors to sell their solutions more persuasively and enterprises to make more informed buying decisions. Through a rigorous interview approach, Gantry Group profiles real enterprises with solution deployments to isolate and capture actual business performance metrics before and after implementation. Gantry Group develops predictive ROI tools that measure and quantify the effect of the technology on business performance prior to investment. Using these results, technology vendors can substantiate their solutions real ROI and expected payback horizons to increase revenue. Enterprises can realistically evaluate and forecast the likelihood of net financial benefit derived from a technology solution. For more information about Gantry Group, visit www.gantrygroup.com or call 978-371- 7557. 10