ibm global finance - building strong it business cases in the new economic world
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How to get Your IT Projects Approved in the g j ppNew Economic WorldBrett VincentBrett VincentGeneral ManagerIBM Global Financing, ANZ
Make change work for youIBM Insight Forum 09®
A dAgenda
1 What is the ‘New Economic World’?1What’s important to the Finance Dept?2How to address financial imperatives3Conclusion and next steps4
A dAgenda
1 What is the ‘New Economic World’?1What’s important to the Finance Dept?2How to address financial imperatives3Conclusion and next steps4
The 2008 legacy : lack of liquidity
25 US banks and dozens more across the world failed during 2008. The IMF had to rescue 6 country economies
Financial markets turmoilFinancial
On average, stocks lost 42% of their value worldwide, erasing almost $30 trillion in market value
turmoilmarkets turmoil
NZ economy contracts for 6 successive quarters
Exports down 19% year-to-yearVolatile
consumer confidence
Stock market
International visitors down 4.2% year-to-year
Unemployment at nine-year high of 6%
confidence volatility
Unemployment at nine year high of 6%
As a result, credit markets continue to conserve cashconserve cash
Succeeding in uncertain times
Significant uncertainty among
Economic
Tightening credit
markets
businesses
Many corporations in cash conservation mode
Stock
Economic uncertainty Access to capital shrinking:
− Less credit available in the market and more restrictions
market turmoil − Credit lines being used for core
business needs− Pressure on IT spendingp g
What has not changed:What has not changed:The future success of an organization is still dependent on its ability to invest in
meeting client needs and improving its competitive position
Investment EconomicsMarket Volatility Raises Caution
Pre-crash:T i l t f it l 5 50% t 7 50%
Market Volatility Raises Caution
Typical cost of capital: 5.50% to 7.50%Typical investment threshold: 12.00% to 15.00% or 2x
Post-crash: Rates are normalizing; behaviour isn’t:g;Previous cost of capital: 5.50% to 7.50%New cost of capital: 6.50% to 8.50%CAUTION PREMIUM 250 bpNew investment thresholds: 18 00% to 20 00%New investment thresholds: 18.00% to 20.00%
Capital Planning Scenarios Will Assume Higher ROI Thresholds for the Next 36 MonthsHigher ROI Thresholds for the Next 36 Months
Source: IDC “IT Funding and Financing: Strategies in a Changed World”, July 2009
A dAgenda
1 What is the ‘New Economic World’?1What’s important to the Finance Dept?2How to address financial imperatives3Conclusion and next steps4
A dAgenda
1 What is the ‘New Economic World’?1What’s important to the Finance Dept?2How to address financial imperatives3Conclusion and next steps4
The new economy is more challenging than ever for CFOs
New Economic EnvironmentUnprecedented constraints on access to
Management ChallengesManage short term financial mattersUnprecedented constraints on access to
credit and capital; Unwinding of over-leverage
Falling demand, increased price
Manage short term financial matters
Review and validate or reset the company strategy
Reprioritize projects/investmentsa g de a d, c eased p cesensitivity as consumers and enterprises cut back
Disruptions in supply chains, partner and
Reprioritize projects/investments
Interact with the board to assure priorities are correct and are being followedp pp y p
customer arrangements
Restructuring of industries: Firms fail, sold off overnight
followed
Take decisive actions
New regulatory authorities
One result: More power now shifts to CFOs as they become key players, even leaders, in major decisionsplayers, even leaders, in major decisions
Refocus on short Power shifts to CFO Corporate actionsRefocus on short term financial matters
Cost Savings
Power shifts to CFO leadership
CFO becomes key player, even a leader in major
Corporate actionsReset the company strategy
Reprioritize projects/investmentsMeeting financial covenants
Cash Flow
Obtain/maintain access to
even a leader, in major decisions
Lead survival plan for the corporation
projects/investments
Inspect all significant business cases for rigor, payback, return and risk
financing Drive cost out of the business
Waste no capital
p y- Another check point…
another delay
Eliminate proposals that do t fit th i l l
Assure swift payback on investments
not fit the survival plan
Interact with the board to assure priorities are correct and are being followedg
Source: Jesse Green, Vice President of Financial Management, IBM
Enterprises and their CFOs need a three-pronged agenda
Act with Speed
Focus on Value
Exploit Opportunities
Do more with lessFocus on cash/capitalCreate flexibility
Capture shareDisrupt weak competitorsMake selective acquisitions
Manage changeCommunicate clear & simple goalsCreate flexibility
Focus on the coreReprioritize businessesRevisit initiatives
Make selective acquisitions
Build future capabilitiesProtect & acquire talentDevelop required assets
goalsSeek and leverage experience
Lead
Re-align relationshipsAssess financial stability of suppliers, partners and
t
Change your industryMake bold movesPosition globally
Get the information to actSet the agenda
Manage risk and improve customersRevisit/renegotiate
transparencyDrive performance management & analyticsManage risk
Source: IBM Global Business Services, Institute for Business Value
The CIO has a set of compelling questions to answer in p g qorder to support the enterprise in this environment
Act with Speed
Focus on Value
Exploit Opportunities
CIO Questions
How can I get more from my infrastructure while improving IT performance?
How do I help my IT staff be
How can I speed the full integration of acquisitions?
How can I extend the global reach of the enterprise?
How do I create a flexible and scalable IT infrastructure that support rapid business change?
How can IT help reduce ymore productive?
How can I leverage key vendor partnerships for more value?
How can I better align IT with business objectives?
business risk and improve stakeholder information access?
CIO Response
Improve operational efficiency and
Integrate systems and data to improve responsiveness
Exploit a dynamic infrastructure that is p y
effectiveness – cut costs to fund new business solutions
p pand drive new insights flexible, resilient and
secure
The CFO’s critical questions are not the same
Act with Speed
Focus on Value
Exploit Opportunities
CFO Questions
How do I do more with less or be more effective with the same within Finance and across the organization?
How can I leverage financial and non-financial data to generate timely, relevant insights?
How do I create a scalable and flexible information management framework and financial management model to navigate ever increasing change and
How do I rethink where capital is deployed
ever increasing change and provide the necessary control?
CFO Response
Manage costsand maximize capital
Enhance performance management
Integrate Finance
Source: IBM Global Business Services, Institute for Business Value
Selling to the CFO – three essential issues that must be addressedaddressed
ROI Clarity Execution
CFOs are looking for rapid ROI
In today’s environment they’re
CFOs are looking for clarity
They need to understand what the
CFOs will demand to see the execution plan
They need to be confident that theIn today’s environment, they’re expecting payback in less than 12 monthsCFOs are intensely focused on cash flow and the balance sheetThe key question CFOs are asking
They need to understand what the proposed solution will do and how it will deliver business valueGeneralities won’t do – the benefits promised need to be business-based and tangible
They need to be confident that the benefits promised will be realizedThey need specifics – if promising to cut costs, they’ll want to know how much, when, and mostly importantly –the plan for delivering savings (e.g. The key question CFOs are asking
is: “ … is this the right investment, right now.”
cutting equipment costs, network expense, or staff reductions)
Key point: The metrics for measuring the success of a project need to be clearly defined up front. If the project can’t be measured in a way that tracks the benefits todefined up front. If the project can t be measured in a way that tracks the benefits to the business, it won’t be approved in today’s environment
Source: IBM Global Business Services, Institute for Business Value
Projects to exploit your investments in SAP
Source: AMR Research, The Fast-Payback SAP Projects for Saving Money inSaving Money in2009: Detailed Data for Business Expense Projects, June 2009
A dAgenda
1 What is the ‘New Economic World’?1What’s important to the Finance Dept?2How to address financial imperatives3Conclusion and next steps4
A dAgenda
1 What is the ‘New Economic World’?1What’s important to the Finance Dept?2How to address financial imperatives3Conclusion and next steps4
CIOs can address CFO requirements in four ways
Cut costs
► Provide immediate ► Provide immediate savings and near-term return on investmentGet more from existing
infrastr ct re ► Defer or amortise capital expenditures
► M / iti t i k
infrastructure
► Manage/mitigate risk
► Meet changing business demands
Increase productivity
demands
Seek alternative financing
Some actions to build into business cases
Cut costsConduct an
assessment to identify cost
i
Get more from existing infrastr ct re
savings
infrastructureSimplify and consolidate
computing and Increase productivity
p gnetworking
Seek alternative financing
Virtualize IT to reduce costs and
enhance performanceperformance
Some actions to build into business cases
Ensure IT is
Cut costsresponsive to
changing business needs
Get more from existing infrastr ct re
Simplify and consolidate networking
infrastructure
Improve utilization and capacity through
Increase productivityvirtualization & grid
technologies
Seek alternative financing
Reduce expense associated with
downtime
Some actions to build into business cases
Cut costs
Get more from existing infrastr ct re
Improve the productivity of your
staff
infrastructure
Increase productivityReduce staffing
pressure … out task
Seek alternative financing
routine management
Some actions to build into business cases
Cut costsUse a specialist IT
financier
Get more from existing infrastr ct re
Defer/step payments to meet
IT budgetsinfrastructure
Sale/leaseback
IT budgets
Increase productivitySale/leaseback
existing infrastructure
Seek alternative financing
Structure project funding to align
costs and benefits
Financing can help you to justify your infrastructure projects and achieve a faster “time to value”
Costs are heaviest at the front end of a project, while benefits do not fully accrue until the project is implementedWhen the project is financed, replacing up-front costs with payments over time, costs and benefits track much more closely
SW Licence
Maintenance & Tech
ServicesMatch the Timing of Project Costs to Benefits
support
$ $ $Year
1 Year 1
Major cost / returnmismatch
ROIPhase Phase Phase
1Year
1
Y
ROIImproved cost / return alignment
Year 3
ROI
Costs more closely aligned
to returns
I II III
Year 2
Year 3
Year 1 Year 2 Year 3
Phases I - III Year 1 Year 2Year 3
Years Years YearsBusiness as Usual Using Term Financing Using IGF Structured Financing
A dAgenda
1 What is the ‘New Economic World’?1What’s important to the Finance Dept?2How to address financial imperatives3Conclusion and next steps4
A dAgenda
1 What is the ‘New Economic World’?1What’s important to the Finance Dept?2How to address financial imperatives3Conclusion and next steps4
“…a period of discontinuity is, for those with courage and vision, a period of opportunity. Over the next couple of , p pp y pyears, there will be winners, and there will be losers. And though it may not be easy to see now, I believe we will see new leaders emerge who win not by surviving the storm, but by changing the game.”
- Sam Palmisano, November, 2008
The CFO wants to know how your project enABLes
Alignment:Question: How are does your project align with your organisation’s key goals?Action: Develop a deeper understanding from a business and financial perspective as compared to only a technological onecompared to only a technological one
Business logic:Question: What is the business logic behind how your project improves performance?Question: What is the business logic behind how your project improves performance?Action: Translate a solution’s feature/function benefits into a practical explanation of how they help your organisation better manage the activities within business processes and, in turn, improve key performance indicators (KPIs)
Lasting benefits:Question: What are the lasting cash flow benefits and overall value to the enterprise? Action: Build a business case that includes quantitative analyses like the project’s investmentAction: Build a business case that includes quantitative analyses like the project s investment and TCO, the lasting benefits in the area directly affected by the project – and impact on other areas of the enterprise, payback, ROI and breakeven analysis – plus qualitative analysis like critical success factors and risk assessment
• Ask your vendor rep(s) to help you build the business case – it is as much a specialist skill as any technical role.
• Ask your rep(s) for assistance from someone with financial selling skills.
Leverage IBM’s financing capabilities
IBM Global Financing is the world’s largest IT financier, and provides financing for 91 of the 100 biggest U.S. corporations. We offer you financing specialists who talk
G
the same language as your CFO, and unlike banks, we focus primarily on solution and technology financing.
Working with IGF provides:Access to funding and cash to enable transformation in tight credit market
An alternative capital / funding sourceAllows your organisation to preserve cash and credit lines for other core business needsAllows your organisation to preserve cash and credit lines for other core business needs
Cash Flow ManagementPredictable and known costs over a fixed termPayments matched to solution benefits - a better alignment between the return on investment and the actual expenditurethe actual expenditure
Management of the entire technology lifecycleLeasing eliminates up front investment costs, keeps assets off balance sheet and mitigates the asset lifecycle management headacheManagement of IT hardware assets ensures the asset register is accurate and provides a hedge against technology obsolescence Asset recovery solutions can free up cash
Reduced costsUsed equipment provides access to reliable IBM technology at lower price points
For more information contactIBM Global Financing on
0800 408 035
or go to ib /fi i /www.ibm.com/finacing/au
or emailor email mloh@nz1.ibm.com
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