Learn to talk to your CFO in their language – Part 2

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Hi, there.

It’s been a while since my last post but the whole issue of having a life and earning money kind of got in the way. In addition I have been procrastinating a little, because writing about technical and programming type issues for me are a lot easier to write, compared to governance, strategy and financial matters.

To recap on my last post, I wrote about a common technique used to assess the value of an investment. I discussed the time effect on money, the concept discount cash-flow and some of the related calculations like Net Present Value (NPV) and Internal Rate of Return (IRR). If you have not read that article, I strongly suggest that you do so before continuing.

But I did say in part 1 of this series, that I would present some SharePoint scenarios for you and apply a discount cash flow to it so we can do some financial analysis. Before I do that however, we have to cover off two things.

  • Firstly, I’ll explain how I came up with the three scenarios that I will do a basic financial analysis of.
  • Secondly, it is difficult to value up a scenario without having a methodology to do it. So, I will also spend a little bit of time explaining this.

The SharePoint scenarios

Microsoft has a pretty good diagram that sums up the various capabilities of the SharePoint platform. I’ve pasted it below.

So, although that is a pretty easy-to-understand diagram and it’s probably popular on business development managers’ PowerPoint presentations, I do not think that you can realistically pick ‘content management’ or ‘portal’ as a SharePoint application scenario. Any given scenario is a combination of some or all of the above capabilities, with different weightings to the above capabilities depending on the scenario.

From the SharePoint implementations I have been involved with, there are three main areas that SharePoint has so far been deployed.

  1. Web Content Management (internet and extranet sites);
  2. Collaborative intranets and extranets; and
  3. Web application development platform

Web Content Management

WCM is the easiest to explain. This is your typical medium to large internet site scenarios. It serves up web content such as HTML and multimedia with feature requirements such as version control, publishing and rollback, approval workflows, granular security permissions and search/retrieval. In addition, a template-based approach where much of the content is separated from the formatting. For example, the CMS may automatically set default colour, fonts, or layouts.

Collaborative Intranet and Extranet

Collaborative Intranet/Extranet scenario is all about document and form libraries, lists, workflows and MS-Office integration. Branding is less important than the functionality provided by the system. The aim in these type of scenarios is to improve business process, and make it easier to “find stuff”. Enterprise search is a biggie. Custom development tends to revolve around workflow coding and event handlers. ‘Folder hell’ from unmanageable shared network drives is also a large motivation in this category. This is the scenario where I spend most of my time and where most of this blog is centered upon.

Web Application Development Platform

Finally, the “Web Application development platform” scenario leverages SharePoint capabilities to speed up the development of sophisticated web-based applications. SharePoint provides a framework that allows many application components to be developed with no code. I recommend the presentation “Beyond Web Parts: Rapid Web Application Development using Windows SharePoint Services 3.0” written by Nadeem Mitha. In his presentation, Nadeem discusses how built-in SharePoint features can save time/cost by facilitating no-code methods for performing:

  • Create, Retrieve, Update and Delete (CRUD) functionality and search w/o code
  • Security model and auditing without code
  • Inheritance, item-level ACLs, security groups with ability to designate owners, draft item security, limit user to modifying only items they create
  • Web services and RSS without code
  • Recovery support via recycle bin without code
  • Content approval, version history, alert notifications and workflow without code
  • Support for creating and saving personal views without code
  • Integration with Excel without code

So, now I have listed the scenarios that I will cover, let’s look at how we will go about doing this.

The methodology

“With great power comes great responsibility” – Peter Parker (2002)

Spiderman was definitely on to something when he uttered the above quote. He, of course, was referring to his spidey powers. But guess what readers, us mere mortals also have spidey senses that tingle too. Are you tuned in to yours?

Whether it’s SharePoint, Exchange, Linux, SAN, or some critical line of business application using all of those, there are some sites that I have visited where my spider senses were activated. Ever had the feeling that some IT environments are a ticking time bomb? Maybe I should rephrase that! Ever been to an IT site where you haven’t had your spider senses tingling? ๐Ÿ™‚

For me, that spider sense is simply an implicit acceptance that governance is incomplete or missing at that site, so my financial methodology is governance heavy because I believe it is probably a higher cost than the licensing for the product. In addition, the governance exercise tends to reveal deficiencies in other areas within IT that need to be rectified (both infrastructure and business process).

Fortunately for me, Microsoft have published some good governance material. Their governance checklist is a pretty good document that you can use to ‘tick the boxes’ to ensure you have covered off all of the main areas of your planning process. Microsoft’s governance checklist divides governance up across nine categories.

  • Information Architecture
  • Project & Operational Management
  • Development & Configuration
  • Infrastructure
  • Testing & Provisioning
  • Operational Concerns
  • Education & Training
  • Taxonomy & Navigation
  • Enterprise Search

So, this, in combination with Microsoft’s pretty diagram listing SharePoint capabilities, gives me a framework that I can use.

My methodology is pretty straightforward. I will examine our three scenarios, using the above categories of this governance guide document as well as the six core capabilities. For each scenario, I will (completely subjectively,of course) apply weightings to areas within those categories and capabilities that I feel are of greater or lesser importance to that scenario.

For example: Let’s look at “Operational Concerns” from the list above. Microsoft suggest you cover off these areas in your governance plan.

  • Monitoring Uptime and DownTime
  • Disaster Recovery
  • Data and Document Recovery
  • Quotas and Reporting

Specifically, under “data and document recovery”, it is suggested that you:

  • Codify corporate records management requirements into SharePoint
  • Define rules for archive of sites including warnings and approvals

In the case of a WCM scenario, records management requirements are unlikely to come into it compared to a collaborative intranet scenario. Thus, I would assign this a lesser weighting and as a result, estimate a smaller timeframe here than for a collaborative intranet.

Other Assumptions

Just remember that, above all, the purpose of this exercise is to learn the basics of financial modeling for non financial people. I need to make it perfectly clear that the costs used in the scenarios in no way, reflect your (my readers’) particular circumstances. If you are actually stupid enough to put these forthcoming scenarios in front of your boss and try and use them, then you deserve what you get. I feel I’m going to have to put a big disclaimer on the scenarios for this reason.

So ,before we even get into the nuts and bolts, here are some cost assumptions that I am going to use to analyse each scenario. We will stick to the these assumptions for all three scenario’s.

  1. All costs are in Australian Dollars. I leave it to the reader to make their local currency adjustments.
  2. I make no provision for tax
  3. Unless I specify otherwise, we will assume that all human capital work will be performed by 75% staff and 25% external consultants.
  4. We will assume that an internal staff member costs $100 per hour, and an external consultant costs $150 per hour.
  5. We will assume that the average payroll cost is $75000 for each employee.
  6. Microsoft licensing costs will be based on Australian figures reported from the Microsoft Licensing Advisor site.  I will deliberately be ambiguous with the figures from this site, because Microsoft have several license programs and license options. You will have to run these numbers yourself.
  7. Estimates of capital costs for hardware, software or other projects will be RRP where available and best guesses where they are not ๐Ÿ™‚ (I will do my best to explain cost estimates).
  8. Each scenario will be based around a medium sized Australian organisation with 1000 staff. It will consist of a metropolitan head office containing 60% of staff and the remaining 40% scattered around several regional offices.
  9. ‘Road Warrior’ mobile portion of workforce in our example will be 20% of all staff.
  10. Time estimates are subjective and simply based on my previous experience.

So, in the next post of this series, we will look at a “Collaborative Intranet/Extranet” scenario, and see what the numbers tell us ๐Ÿ™‚

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