Achieving a 10X SAP ACS Warranty Project Payback
If you’re a CFO or CEO and are an existing SAP customer, you may be looking for a way to get more out of your warranty program. The SAP ACS Warranty Management solution delivered by Detering Consulting represents one of the SAP projects with the highest potential project ROI you should consider. In fact, it can often represent a project with a 10X or greater payback.
Why 10X?
As we practice value-based pricing, we typically look for projects that have at least a 10X forecasted return-on-investment or ROI, in the first year after Go-Live, which is a minimal payback period of time. Afterall, there are few business process improvements you can look at within a well-established manufacturing business that have the potential to yield such a financial payback with an impact directly on a firm’s profitability. All this while improving cash flows.
Flip the Payback Question on its Head
Though we like for a project to have at least a 10X payback potential, we also like to have a project that has a lot more upside than 10X. The basic question we set out to answer when we built the ACS Warranty Management Project Payback Savings ROI Calculator was:
- How much would a one tenth of one percent improvement (meaning reduction of warranty expenses) would improve a company’s bottom line in dollar terms?
We also wanted to be able to answer a couple of other questions:
- Given a rough cost estimate of an SAP ACS Warranty Management Project Implementation, what would any incremental improvement in warranty expense (reduction) mean from a project payback perspective.
- Given that projects ultimately have a lot of variability in their cost, what happens to the payback multiplier as well as payback period and breakeven point as project costs rise. In other words, how much could a client spend on a project and still achieve a positive project ROI. That’s why we designed the calculator to answer ‘what if’ questions.
ACS Warranty Management Business Case Payback Calculator
In Millions ($1,000,000)
Gross Income
?Warranty Cost
?Warranty Cost as a Percent of Revenue
Desired Warranty Cost Reduction in 0.1% Increments
?0.1
New Warranty Cost as a Percent of Revenue
?New Warranty Cost as a Percent of Revenue would be this amount after realizing the Desired Warranty Cost Reduction over the current amount. Submit the following information to see additional interactive analysis.
New Warranty Cost
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Current Warranty Cost
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Your Warranty Savings
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Warranty Improvement Project Cost
?Estimated Cost of Implementing an ACS Warranty Management Cost Improvement Project
Payback Analysis
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If 10X is your minimum payback threshold, you could invest up the the Improvement Project Cost above and still meet your project cost threshold.
All figures in the Business Case are in Millions except for this field. Here enter the actuals. For example, if a project cost $1 million to implement, enter as $1,000,000 in this field rather than $1.
By Reducing your Warranty Cost by the desired amount above you would realize a savings of this amount.
By reducing your Warranty as a Percentage of Revenue by the desired Warranty Cost Reduction Percentage above this would be your New Warranty Cost as a Percentage of Gross Revenue.
If you made an improvement today, that reduced your Warranty Cost obligations by this amount in Percentage of Gross Income, what would the impact be?
Input Warranty Cost from your Income Statement. It might also be listed as a Liability on the Balance Sheet.
Input Gross Income before warranty expense from your Income Statement.
Calculator Prerequisite Design Goal(s)
Every project that we do has a solid, detailed business case to back it up. This final business case is often developed during the project scoping phase, which we call Quickscan, a highly productized approach to scoping out an SAP ACS Warranty Management project. However, these business case development exercises take considerable effort. Often our prospects ask us for a quick business case initially, which can subsequently be further developed during the Quickscan scoping exercise.
Build on the Income Statement
In order to achieve the desired result of being able to build a solid preliminary business case based on real-world data, our value engineering team decided that the best way to approach the problem was to look at the Income Statement of publicly traded companies, most of which report Warranty Cost on a separate line item of the income statement, with detailed accompanying notes.
Warranty Cost as a Percent of Gross-Income
Though we have extensive warranty cost data as a percent of gross income information available from projects we’ve completed in the past, we thought it would make more sense to rely on publicly available documents, such as the 10 K Annual Report. As it happens, we pulled up the General Motors 2020 Annual Report and used it to provide the baseline numbers for the calculator.
10 K Annual Report
You can pull up annual reports for any publicly traded company from both the SEC and normally, you can also download it from a company’s website. If you take the time to pull up many years' worth of 10 K Reports on a specific company, you can also see if this “warranty cost” has changed much over time.
Of course, many companies are not publicly traded. However, they usually produce the three standard financial statements (IS, CF, BS - definition below) for their own internal use. Thus, if you’re a privately owned company, the CFO is going to know the annual warranty cost from all of the warranty claims their company has experience.
- IS (Income Statement)
- CF (Cash Flows)
- BS (Balance Sheet)
Go From Top Level to Detail Level
Though this calculator is designed to produce a quick, high-level business case, most of our clients want to know the details of just where the solution will impact their operation and what the payback period will be. That's why we also offer the SAP Warranty Management Value Calculator, which is what we use to develop a more detailed business case.
SAP ACS Warranty Cost Project Evaluation
Detering Consulting provides specialized consulting and project management services focused on improving a company’s Warranty Management processes.
In addition, we’ve developed a number of add-on software solutions that greatly enhance and expand the functionality of SAP ACS Warranty Management. They also can greatly improve your cash flow while reducing project cost.
Request Your First Free One Hour Consultation
If you would like to discuss how we can help you lower your warranty costs, please click the button to schedule a meeting.
