Your tech solution should be delivering the benefits and ROI set out at the start of the agreement – but how do you prove this to your CFO?
Making a substantial investment in a technology solution is not something that any organisation takes lightly. Getting the green light to go ahead often involves significant stakeholder engagement, a comprehensive sourcing and supplier selection process and, of course, making the business case for the investment required.
Once you’ve gone live with your new tech, your C-suite will want you to report back and validate if the money they invested was well spent? Are you on track to achieve your projected return on investment – that essential ROI?
So, how do you prove your technology is providing the benefits outlined in the business case? How can you demonstrate that savings are actually being achieved? Ideally, you can go to a single savings tracker that contains all of your key metrics and ROI outputs.
But if you’re leaving things to the post-implementation phase to capture and easily report on that information, then you’ve probably left it too late. I’ve seen the inability to demonstrate and prove ROI being one of the key factors leading to a major tech fail.
1. Know What Your Organisation Requires in Terms of ROI
Your process of identifying and delivering on ROI needs to start at the inception of your tech implementation project. You need to be clear on what your organisation needs in terms of ROI.
Before preparing your presentation for project approval, make sure you know the answers to these key questions:
- What is your cost of capital?
- What does your organisation require in terms of payback?
- Over what period does your organisation measure Net Present Value(NPV)?
- What kind of return on capital expenditures does your organisation require?
- What projects were recently approved and what projects were recently rejected? Talk to those that were involved and see what lessons you can learn so you don’t make the same mistakes.
- What other projects are you competing with? How can you position your project as a bigger priority than the rest?
- Based on your project size, what is the process for obtaining approval?
- Who are the key players? Once you know the process, identify the key players who will be determining your project’s fate. What are their priorities and how can your project align? If possible, get introduced to them and start building a relationship.
This will help you eliminate any potential surprises you may encounter as you seek for approval of your business case.Key here is to not make assumptions on what goes into your business case and what will, or will not, be approved.
2. Know Your Numbers
Begin with knowing and owning every number in your business case. In order to deliver, you first need to have sufficient detail of your targets. If not, how will you ever know what you are aiming for and if you achieved them? I mention that because I find many business cases are template-driven and lack the defendable detail when it goes under the spotlight.
For example, many times I will see a blanket percentage applied to all spend. Or an efficiency savings applied across all POs and invoices. Basically, I see many organisations adopt a one size fits all approach to many of these business cases. That may work for some organisations, but it doesn’t for many of the CFOs we work with. They want to know specifics.
They also understand that each category of spend is different and should be treated as such. What is realistic to be achieved in one category, may not be realistic for another. What was achieved by one organisation does not inherently mean that you can experience the same result in your organisation.
There are a lot of factors and assumptions that must be considered in the process of creating the business case. . This includes being able to know how each category of savings was calculated, so when the time comes to present the business case for approval it is easily defended
We coach our clients to never go into a meeting with their CFO to get their project approved if they are not 100% clear on how each number in their business case was calculated. If they don’t know their numbers at the start of the project, they will have a really difficult time knowing how to realize those savings after go live.
You have to know and own your numbers better than anyone. Those that don’t, rarely succeed. If you don’t know how those savings will be realized and what the critical path and key performance indicators are to realize those savings, it will be very easy to get distracted during implementation and lose sight of what is most important.
If you want to be able to go into your CFO’s office and show off how you have over-delivered on your promise of savings and efficiency, then it would be wise to take the time to know and own your numbers before you kick off your next project.
3. Measure What Matters
Part of our success blueprint process is making sure we’re clear how to capture and report on the measurements that are going to demonstrate positive ROI. Being clear about cost baselines is an essential starting point. Making sure you are clear as to how you’re going to capture the following financial metrics can help ensure your ROI can be tracked throughout the life of the project:
Make sure to capture any REVENUE impacts:
- Are there back end supplier rebates that the project is improving?
- Are you enabling product innovation that can be tracked?
How will the project contribute to less spending:
- Operational Spend reductions, your plan to track future spend and compare your historical spend
- Where your project creates the opportunity to avoid historical spend altogether. Is that historical spend in an existing budget or is it leakage that needs to be tracked?
- And where are there reductions in capital expenditure or overall lower Total Cost of Ownership? As an example, are there license and hardware costs from retired systems that are removed from the budget?
- And lastly, resource utilization and efficiency: Are you doing things faster and better and thus requiring less resources?
The Right KPIs are going to drive the project ROI. They need to be presented and agreed upon during business case approval. From there, the path to monitoring the financial benefits are easier:
- Building Dashboards that can handle the data and calculations for your metrics.
- Capture the current state as well as your goals over time, and then track the advances throughout the implementation and rollout.
This will translate to easier benefit analysis.
In the absence of the right dashboards and savings tracking process, resistances within the organisation have stronger voices during any project setbacks. This ultimately can erode the confidence inside and outside the project team.
Soft benefits go alongside your financial benefits, though they are usually much harder to quantify accurately. They can be factors such as your employees having improved utility, skill, and even joy with their activities. That investment in your people should be measured and recognized continuously. It should be captured through periodic feedback surveys as well as activity audits.
Engaging with end-users and suppliers both at the outset and on an on-going basis will give up-to-date information and allow for changes to be tracked. Ensuring cross-function coordination is also necessary, as the tech solution will touch all areas of the business.
There is no single solution to providing a fully accurate ROI calculation. Take the time upfront to fully quantify costs, including those that may require more research to identify. Capture processes and work patterns so that efficiencies can be identified. And secure key stakeholder sign-off, so you’ll have consensus on what returns you expect and how it will be measured.
How Covid 19 Affects What Gets Measured
We cannot ignore the times we are in. CEOs and CFOs will be adjusting key KPI’s. Whether you are driving change or reacting to their changes, as Procurement and Supply Chain leaders, it is imperative that you are in synch with leadership.
In recent times, more and more companies are measuring their performance towards diverse, green and ethically compliant spend goals.
And now Covid-19 has forced risk avoidance into the front lines of KPI tracking.
The agility of your supply chain will become an essential measurement. For instance the percentage of your business that can be fulfilled through alternative distribution channels, modes and suppliers will be key to measure.
And all these primary and alternative options will come under more stringent risk criteria. Risks will be evaluated by geography, ethics, politics, as well as financial stability.
It’s a cliché, but what gets measured gets managed and what gets managed gets measured.
Whether you choose to implement a savings tracking module within Source to Pay or not, I feel that it is very important to create a standardized intake and validation process for each KPI. Pair that with a robust and flexible analytics solution to best monitor those KPIs that roll up to the overall project ROI.
Those that have followed these footsteps, are confident when they get the request to meet their CFO in a few hours to review how their project is tracking towards the business case. They are actually excited because this is what they have been waiting for – a great opportunity to not only prove the ROI, but to also advance their career.
To go deeper on how to find your perfect tech match, download our e-book ‘How To Select Source-To-Pay & Procure-To-Pay Systems That Deliver Results‘ and tune in to our series ‘Major Tech Fails.’