Value Assessment

 In order to understand whether it is cost beneficial to invest in a Microsoft Dynamics ERP product, IVK has to understand its tangible and intangible benefits and, when possible, try to quantify them to justify the investment in the ERP system. In a report published by McKinsey&Company, it is stated that if business needs are assessed properly, companies can have annual benefits of as much as $100 million in some cases. According to Microsoft Dynamics benefits calculator, Microsoft Dynamics GP offers many tangible benefits including (Microsoft, 2014):

·       User productivity. ERP systems can increase user productivity by 20-50%. If we assume that IVK can increase its user productivity by 20%, based on the number of employees at IVK (265) and the average total cost of each employee in a financial services industry which is about $95,000 (Financial Services Salary), IVK can save about $5,035,000 a year from just the benefit of increased productivity.    

·       Improved visibility. According to Microsoft, reduced time spent preparing financial reports was the primary quantifiable benefit of Microsoft Dynamics ERP which results in 70% of time savings. The monetary benefit from improved visibility is counted by applying this percentage to monthly hours spent on preparing reports (about 40 hours) and average annual salary of employees involved in reporting ($81,000 within the normal range) and is equal to $13,085.

·       Reduced administrative overhead. The ERP products can decrease administrative overhead by as much as 40%. Based on the number of administrative workers at IVK which can be estimated to be 50 based on the number of departments, and the average annual cost of each administrative employee which is $45,000, there will be $855,000 savings annually.

·       Improved expense management. Expenses are estimated to go down by 18% on average. Taking into consideration IVK operating expenses of $120,574,976 based on Year X financial statements (Austin, 2009), IVK can decrease their expenses by $21,600,000 which is the greatest quantifiable benefit of Microsoft Dynamics GP for IVK.  

            The table below summarizes the estimated dollar values of each tangible benefit of using Microsoft Dynamics GP at IVK as well provides the estimated annual savings total:

Tangible Benefit Type	$ Benefit
User productivity	$5,035,000
Improved visibility	$13,085
Reduced administrative overhead	$855,000
Improved expense management	$21,600,000
Total	$27,503,085

          The interactive tool to calculate the benefits for any company can be accessed here.

Besides the tangible benefits, Microsoft Dynamics GP can also give several intangible benefits to IVK. As it was mentioned in the system overview section, the ERP product can help IVK manage organizational growth by gaining better business insight and automate tasks in many accounting areas (e.g. overhead calculation which was done manually by Geisler (Austin, 2009)). Below is a summary of the intangible benefits of Microsoft Dynamics GP that are useful for IVK (“What are the tangible and intangible benefits of ERP system?”):

·       Increased organizational transparency,

·       Reliability,

·       Faster and more accurate access to data,

·       Improved customer response,

·       Huge time savings in data entry,

·       Strategic planning,

·       Accounting reporting according to accepted standards.

One of the most important benefits is certainly faster and more accurate access to data; in his article “ERP definitions and solutions” published on CIO.com Thomas Wailgum (2014) compares the order fulfillment process by ERP with lightning, “With luck, the order process moves like a bolt of lightning through the organization… .” Another important benefit for IVK is reliability, because currently IVK is experiencing security issues; therefore, using Microsoft Dynamics GP in hosted servers can help IVK get extra reliability because they will not have to worry about IT security of their systems rather they will rely on Microsoft to provide protection from problems such as denial-of-service (DoS) attacks. Because of security issues which they have not disclosed yet, IVK is facing a risk of a lawsuit, therefore it is also important for IVK to thoroughly follow the generally accepted accounting principles to do their financial reporting and disclosures which is integrated in Microsoft Dynamics GP.

          According to the Microsoft Dynamics ERP benefits calculator based on IVK data (e.g. number of employees, average annual salary, size of the administrative staff, total annual expenses, etc.), which estimates the potential annual savings a company can have using Microsoft Dynamics GP, overall, IVK can save $27,503,085 a year in operating expenses (about 23% of IVK’s current year operating expenses) which is a lot. In the cost analysis section, it was calculated that the first year total cost to use the system will be $1,097,400, out of which software license price and implementation costs are just a one-time fee of $487,500 constituting only about 1.7% of the total annual savings. There will also be yearly maintenance and deployment costs of about $609,900 which is a little bit more than 2.2% of the total annual savings. This is certainly a small expense in comparison with the huge savings that Microsoft Dynamics GP can offer each year if IVK decides to use the system.

 

References

Austin, R. (2009). The Adventures of an IT Leader. Boston, Massachusetts. Harvard Business Press.

Financial Services Salary. (n.d.). Financial Services Salaries, Average Salary & Jobs Pay. Retrieved June 1, 2014, from
http://www.salarylist.com/jobs/Financial-Services-Salary.htm?order=%24k

Microsoft Dynamics GP Benefits Calculator. (n.d.). Microsoft Dynamics GP Benefits Calculator. Retrieved June 1, 2014, from http://www.microsoft.com/global/dynamics/en/us/RichMedia/ErpBenefitsCalc/indexGP.html

Tech-Enabled Operations services from the Business Technology practice. (n.d.). Tech-Enabled Operations. Retrieved June 1, 2014, from http://www.mckinsey.com/Client_Service/Business_Technology/Expertise/Tech-Enabled_Operations

Wailgum, T. (n.d.). ERP Definition and Solutions. CIO. Retrieved June 1, 2014, from http://www.cio.com/article/40323/ERP_Definition_and_Solutions

What are the tangible and intangible benefits of ERP system? (n.d.). Tangible & Intangible Benefits of ERP Systems. Retrieved June 1, 2014, from http://www.eresourceerp.com/tangible-and-intangible-benefits-of-ERP-system.