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A Plan for the Implementation of Enterprise Resource Planning (ERP) for the State of Texas

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Exhibit B – Independent Business Case Study Executive Summary
© Salvaggio, Teal & Associates

Section 1. Executive Summary

Business Case Analysis Results, cont.

Alternative 2 is much less attractive than Alternative 3 from a financial-analytical perspective. We estimated that it would cost $930.3 million to implement and operate a new ERP system under Alternative 2 over the 11-year planning timeframe of this BCA. As illustrated below, the Net Present Value (NPV) for Alternative 2 is – $295.9 million, assuming a discount rate of 5% per annum, or – $266.4 million, assuming a discount rate of 8% per annum. The investment would be far from breaking even during the 11-year analysis period of the BCA (-$352.8 million – see the “Cumulative Net after Process-Improvement Benefits” row in the table below).

Schedule of Estimated Net Costs and Benefits/Savings from Implementing ERP Alternative 2 ($ millions)
Cost and Benefits/Savings Categories Acquire Fin/Proc/HR/Pay   Total
Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10
False FYE 2010 FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019
ERP Costs (implementation &operation) (2.6) (4.0) (162.9) (163.3) (100.4) (77.6) (70.9) (150.9) (60.8) (96.6) (40.4) (930.3)
Avoided System Costs – Agencies - 122.0 0.9 1.0 30.1 24.3 28.7 40.4 43.0 44.7 46.0 381.2
Avoided System Costs – HE - - - - - 4.4 8.5 11.7 13.8 19.6 20.1 78.2
Net before Process Improvement Benefits (2.6) 118.0 (161.9) (162.3) (70.4) (48.9) (33.6) (98.7) (4.1) (32.3) 25.8 (471.0)
Cumulative Net before Process Improvement Benefits (2.6) 115.5 (46.5) (208.8) (279.1) (328.0) (361.6) (460.3) (464.4) (496.7) (471.0)  
Process Improvement Benefits – Agencies (Value Pockets) - - - 2.0 2.1 3.7 15.4 22.1 23.4 24.4 25.1 118.2
Process Improvement Benefits – Higher Ed (Value Pockets) - - - - - - - - - - - -
Net after Process Improvement Benefits (2.6) 118.0 (161.9) (160.3) (68.3) (45.1) (18.3) (76.6) 19.4 (7.9) 50.9 (352.8)
Cumulative Net after Process Improvement Benefits (2.6) 115.5 (46.5) (206.8) (275.1) (320.2) (338.5) (415.0) (395.7) (403.6) (352.8)  
PV of Net after Process Improvement Benefits (2.6) 112.4 (146.9) (138.5) (56.2) (35.4) (13.6) (54.4) 13.1 (5.1) 31.2 (295.9)
Cumulative PV of Net after Process Improvement Benefits (2.6) 109.8 (37.0) (175.5) (231.7) (267.1) (280.7) (335.1) (332.0) (327.1) (295.9)  
NPV (Yr 0 through Yr 10) @ 5% per annum (295.9)  
NPV (Yr 0 through Yr 10) @ 5% per annum (266.4)  

Please note that the totals in the schedule above may reflect variances due to rounding.

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