For companies that are considering SAP’s next generation of enterprise resource planning software, S/4HANA which is run on its new in-memory database and enabled for the cloud, the path to move forward may still be unclear. Even for companies who spend a large portion of their budget on IT innovation, it is always a good idea to create a robust business case for a decision of this magnitude. After all, a S/4HANA implementation can be expensive and there may be hidden costs of a large-scale implementation which may not be identified without a formal business case process. So, how do you build the S/4HANA business case?

For companies in the consumer products and life sciences industries, SAP is a dominant software player. With core software competencies in manufacturing and supply chain management, SAP’s latest ERP platform can offer a lot of security to companies who rely heavily on supply chain efficiency as a key component to the customer, consumer, and patient satisfaction.

Any good S/4HANA business case should be comprised of four key elements: scenario sessions, a cloud versus on-premise evaluation, a cost/benefits summary, and a return on investment summary.

Scenario sessions for S/4HANA Business Case

The objective of the fit to standard sessions or the scenario sessions is a walkthrough of the key, best practices scenarios delivered by SAP S/4HANA. Companies considering implementation or upgrade should look across their core business functions such as a plan to produce, procurement to pay, order to cash, plant maintenance, and finance and analytics to determine what key scenarios apply to their business. The next step is to evaluate the fit for the business and determine where the software can meet their needs with standard functionality and identify any gaps. This will be a critical input into the cost model, where a configuration is required and a key input into the determination of where to host the software.

Cloud versus On-Premise

Where does on-premise (or even private cloud) hold an advantage over a public cloud (and vice versa) when compared to your business model? In addition to key functions, companies should look at master data processes and warehouse needs. The on-premise or private cloud option typically has a higher cost associated with the implementation and ongoing support, but it may still be the best option for your business. This decision is a critical determinant and many factors should be taken into account such as the impact to security management, ability to configure, time to implement, scalability, accessibility/mobility, and the impact to the business from updates and bug fixes. Many of my clients have a hybrid structure which works out really well, leveraging the best of both worlds.

Cost/Benefits Analysis

A key success driver for an ERP implementation is the ability to tie business benefits to technology enablers. This is done via a business case that is a living document throughout the lifetime of the implementation. Benefits should be determined by first developing a baseline of the organization’s performance in terms of both financial and operational metrics, e.g., labor/material financial costs and production capacity operational metrics. The right implementation partner will use their technology and business acumen to determine which S/4HANA technology enablers can drive improvements in those metrics and to what extent typical business benefit buckets include enhanced revenues, decreased material, labor and overhead costs, and increased asset efficiency, i.e., reduced inventories and capital expenditures.

There are also many different factors that impact your costs. Choosing the right implementation partner, who will do the job right the first time and doesn’t bombard you with unexpected change orders throughout the process, will factor significantly into the cost of your project. Lastly, you should consider the costs of not acting or delaying. No decision is also a decision. How much business benefit are you leaving on the table, and what new obstacles might emerge if you wait?

ROI Analysis

As with any good business case, the final decision really should include a look at the return on your investment. Can you get a better return by investing similar funds somewhere else? What is a reasonable time horizon for investors to expect to see a return on a S/4HANA investment? How are the one-time benefits and recurring benefits going to impact your ability to leverage your workforce in the next 3, 5, or 10 years?

The decision to implement a new ERP solution is never easy.  Even if your project is approved internally with a simple business case, you should start by building a robust S/4HANA business case that sufficiently covers the key aspects of your project. If you are working with an outside partner on your business case, ensure these key aspects are clearly evaluated in the final recommendation.

Co-author and contributions by Robert Spector