The Business Case: A Central Management Tool in ERP Projects

To succeed with an ERP project, it is crucial to prepare a business case and incorporate it as a natural part of the project’s governance tools. The project management and steering committee must understand the project’s objectives and continuously manage the project with the aim of achieving these goals. Many companies do not gain sufficient value from their ERP investments simply because they lack experience in executing ERP projects and place too little focus on realizing the potential benefits.

The business case is important to ensure that the right expectations and governance targets are established for the project. What do we want to gain from the investment? Who will ensure it? When can the objectives be realized?

When developing the business case, it can be useful to divide the improvement potential into four main categories:

• Cost savings
• Process efficiency
• Strategic benefits
• Decision support

Cost savings are the savings that can be directly measured on the bottom line. These may include reduced costs for IT, personnel, and external consultants. It is important to note that cost reductions do not necessarily mean layoffs—they may also involve reallocating resources to more value-creating activities or avoiding future “cost-to-come” expenses.

An example is a company that purchases equipment and spare parts for approx. DKK 5 billion per year. The company is growing rapidly on a global scale and, before implementing the ERP system, lacked tools to ensure compliance with its common procurement agreements. This resulted in lost discounts and a weakened negotiating position with suppliers. Today, the company has implemented a unified procurement system and is in a much stronger position with suppliers, with only minimal discount losses

Process efficiency refers to process improvements that cannot be directly measured in monetary terms, but instead through KPIs such as time savings or improved quality metrics. Examples include faster month-end closing or simpler processing of supplier invoices. Even if, across the organization, you save 20 minutes per supplier invoice and process 20,000 invoices per year, this does not automatically mean you can save 400,000 minutes per year—equivalent to four full-time employees. Some companies nonetheless choose to convert such efficiencies into monetary values, commonly referred to as “funny money.”

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Strategic benefits concern more long-term improvements, including areas typically related to employees or customers. Strategic benefits can include aspects such as increased flexibility and adaptability, enhanced value in connection with corporate divestments, as well as greater mobility and employee satisfaction resulting from having unified and more efficient systems. Furthermore, ERP systems will often free up employee time within the organization, which can then be redirected toward more customer-facing activities. Strategic benefits are often difficult to measure due to their nature. However, our experience shows that it is possible to get closer to a comprehensive quantification of these benefits.

Decision support encompasses all benefits related to improved operational and managerial decision-making enabled by better data and a stronger foundation for decisions. One of the key areas where ERP systems drive improvements is on the information side, through their ability to provide better information at all levels of the organization. Numerous books have been written about the advantages of enhanced decision-support systems, and we will not add further suggestions here. It is, however, indisputable that better information leads to better decisions, which in one way or another can be translated into monetary value.

Developing the business case does not need to be a lengthy or expensive consulting exercise. By assembling the right management representatives in a structured process, it is typically possible—over the course of a few half-day sessions—to identify the key drivers for the project’s execution.

It is crucial that the business case is constructed in a way that provides the company with an operational tool, both during the design phase and in the subsequent follow-up. Therefore, it is important that each business-case element includes aspects such as:

• Which business process does the improvement relate to?
• What is the system-related foundation for achieving the improvement (the “enabler”)?
• What exactly does the improvement consist of?
• Which type of benefit does it represent (cf. the categories above)?
• Does the improvement relate to a specific part of the organization?
• How is the improvement measured (unit, KPIs)?
• What is the potential gain (low/high)?
• When can the improvement be realized?
• How accurate is the data?
• What is the level of complexity?
• How certain is the realization?

As most ERP customers have likely experienced, ERP investments rarely end with the implementation of the ERP solution. New projects and investments will continuously arise. Therefore, it is important to learn from previous efforts so that objectives for future projects become more realistic and support more accurate prioritization and decision-making by senior management. By preparing a business case, adhering to it throughout the project, and ensuring a follow-up on whether the objectives were achieved after implementation, companies become better equipped for their next project. The key is to learn from projects to improve future performance—rather than the current tendency to set the business case aside once the project has been approved.