IBM Global Finance - Building strong IT Business Cases in the New Economic World

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

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


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


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


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


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


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


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


Virtualize IT to reduce costs and

enhance performanceperformance


Ensure IT is

Cut costsresponsive to

changing business needs


Simplify and consolidate networking

infrastructure

Improve utilization and capacity through

Increase productivityvirtualization & grid

technologies


Reduce expense associated with

downtime


Cut costs


Improve the productivity of your

staff

infrastructure

Increase productivityReduce staffing

pressure … out task


routine management


Cut costsUse a specialist IT

financier


Defer/step payments to meet

IT budgetsinfrastructure

Sale/leaseback

IT budgets

Increase productivitySale/leaseback

existing infrastructure


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


“…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 [email protected]

IBM Global Finance - Building strong IT Business Cases in the New Economic World

Technology

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