Of course, in reality, there are other, more complicated questions – and a compelling business case must be made for an expensive, potentially risky and definitely disruptive overhaul of your core business processes and enterprise management system.

Thirty years ago, companies justified a new ERP system mainly on its ability to improve the balance sheet and, hopefully, the bottom line. Back then, “modern” enterprise applications delivered return-on-investment (ROI) primarily by making it possible to reduce inventory costs, improve days sales outstanding (DSO) and improve margins.

But today’s “post-modern” ERP solutions (as Gartner calls them) are broader and more flexible – and deliver ROI in dozens of direct and indirect ways.

The challenge, for many manufacturing and distribution organizations, is sorting through the mountain of available information, compiling current operational data, predicting future performance metrics and determining ROI, and then, using that insight, build the business case. It’s hard work.

It’s necessary work, too. No ERP initiative should go forward without detailed analysis to ensure that its scope is well-defined, that its budget is accurate and complete, and that its goals are clearly aligned to the company objectives. And no approval should come without determining and understanding ROI and the payback period.

Still, many organizations skip building a complete business case because they view it as simply justification for an investment in the technology. But a business case adds additional value beyond confirmation of a clear need: It is a critical vision- and goal-setting exercise. And, most important, it forces you to make a detailed plan that sets expectations, guides your project and drives your business transformation.

Step by Step: Building a Business Case

Identify Current Problems and Reasons for Change

• What are your pain points?
• Which processes do you want to fix?

Examine and evaluate all your important business processes. Look at the big-picture pain points and for critical issues such as…

• Time-consuming manual processes and workarounds
• Error-prone processes that require date re-entry
• System and software limitations that are preventing growth
• Data access and inconsistency problems that prevent analysis
• Inefficiencies and disconnects that erode customer satisfaction
• Lack of accurate, real-time data that makes decisions difficult
• Extra costs related to operating the current system
• Inefficiencies created by siloed systems

You can’t make improvements if you don’t know which processes are slow, bad or broken – and without identifying any obstacles to change and growth.

Determine and Analyze Opportunity

• How can your organization benefit from process improvements?
• What are the solutions to your pain points?

The majority of ERP benefits come from the interconnectedness of functions and processes – and the integration and accessibility of data across all departments.

Integrated and optimized business processes offer many benefits that follow this formula: When you have X, you get Y. Like these:

• Improved planning and forecasting → optimized inventory levels
• Centralized data improved modeling → more effective workforce management
• Faster, more efficient invoicing → shorter payment cycle and improved cash flow
• Greater productivity and accelerated processes → improved revenue, reduced costs and improved profitability
• Greater visibility and faster response times → better customer service
• Process automation → higher efficiency and productivity in multiple functions
• Real-time data and comprehensive data access → faster and better decision-making
• Shorter order-to-shipment cycles → improved on-time delivery

It’s important to understand what your key processes are, know what is keeping you from achieving your vision, and identify which processes are related versus those that are system-constrained.

Determine Focus and Define Goals

• What does your organization want to accomplish?
  
• What is your vision for your future state?

With the potential benefits identified, the next step is to know which ones are critical to achieving your organization’s future state and aligned with its transformational vision.

Your management team should determine the most critical, big-picture changes for the business. Functional managers must define the specific process improvements they want to achieve. And then the organization needs to translate this vision into detailed goals.

The best practice: SMART goals (specific, measurable, achievable, realistic, time-based). To put it a different way, “Better” and “More efficient” are not SMART. But “Increase revenue 12%” and “Reduce inventory costs 8%” are.