The Total Economic Impact™ Of Microsoft Dynamics 365 ERP

Cost Savings And Business Benefits Enabled By Dynamics 365 ERP

A Forrester Total Economic Impact Study Commissioned By Microsoft, March 2024

Organizations grappling with fragmented operations and suboptimal decision-support mechanisms increasingly can turn towards implementing a cloud-based ERP system and the integration of finance and supply chain functions to strategically address these issues. This approach promotes efficiency and scalability while transcending departmental, geographical, and divisional boundaries. A solution that consolidates data, automates workflows, reduces reliance on disparate systems, and provides instant access to essential insights is indispensable for companies seeking to navigate market fluctuations, streamline processes, achieve additional growth, and enhance overall success.

Microsoft Dynamics 365 offers a cloud-based ERP solution with Dynamics 365 Finance and Dynamics 365 Supply Chain Management in an integrated platform that offers significant benefits by centralizing and streamlining data and processes, enhancing efficiency, and improving decision-making through real-time insights. Specifically, Dynamics 365 optimizes supply chain and financial workflows, improves the accuracy of analyses and reports, and enhances productivity across various departments. Furthermore, it diminishes the need for extensive IT infrastructure and support directed toward legacy on-premises systems as well as reliance on internal data centers and disaster recovery solutions, and it lowers costs associated with overhead. The agility afforded by Dynamics 365 may allow businesses to respond more effectively to market changes and customer demands, which can foster increased profitability and competitive advantage.

Microsoft commissioned Forrester Consulting to conduct a Total Economic Impact™ (TEI) study and examine the potential return on investment (ROI) enterprises may realize by deploying Dynamics 365.1 The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of Dynamics 365 on their organizations.

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Return on investment (ROI)

106%

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Net present value (NPV)

$8.09M

To better understand the benefits, costs, and risks associated with this investment, Forrester interviewed five IT leaders at four organizations and surveyed another 320 professionals with experience using Dynamics 365. For the purposes of this study, Forrester aggregated the interviewees’ experiences and combined the results into a single composite organization that has 5,000 employees and generates $1 billion in annual revenue.

Interviewees said that prior to using Dynamics 365, their organizations struggled with siloed data scattered across multiple, disparate legacy systems. This required excessive manual efforts to collect, process, analyze, and report accurate and timely analytics and results, which created companywide drags on performance. Inflexible legacy systems also constrained projected savings in growth opportunities and raised cybersecurity vulnerabilities with multiple systems and solutions that were not always kept up to date with adequate maintenance. Prior attempts to address these challenges often resulted in additional costs for more services or solutions attempting to create bespoke, half-baked integrations that only yielded ineffective stopgaps.

The interviewees and survey respondents reported that after the investment in Dynamics 365, their organizations saw widespread improvements that impacted finance and supply chain processes and beyond.

Key Findings

Quantified benefits. Three-year, risk-adjusted present value (PV) quantified benefits for the composite organization include:

  • Increased profitability from real-time visibility and enhanced decision-making. Dynamics 365 fosters greater operational agility and improvements for the composite organization in accounts receivable, collections inventory, inventory turnover, order accuracy, on-time delivery, and the management of accounts payable. This pushes the value of this benefit for the composite to more than $1.2 million over three years.
  • Increased productivity from unified data access, streamlined processes, automated workflows, and other gained efficiencies. The composite organization’s key personnel working in finance, accounting, supply chain, logistics, and other roles save between seven and 15 hours per week with Dynamics 365. This benefit is worth $8.9 million to the composite over three years.
  • Reduced infrastructure and IT operations spend from cloud migration. The composite organization offloads or significantly reduces numerous cost centers associated with on-premises legacy solutions including IT support, disaster recovery, data center, hardware, maintenance, and third-party software along with internet-of-things (IoT), scanner, and mobile devices. This benefit is worth $3.9 million to the composite over three years.
  • Cost savings from organizational simplification. By deploying Dynamics 365, the composite organization sees impact to other cost centers including overhead and professional services. It also enables substantial savings from the unification of offices, regions, subsidiaries, or acquisitions. In total, this benefit is worth $1.8 million to the composite over three years.

Three-year productivity improvements in finance/accounting, supply chain/logistics, and other personnel

$8.9 million

Unquantified benefits. Benefits that provide value for the composite organization but are not quantified for this study include:

  • Enhanced employee experience. Dynamics 365 offers the composite greater stability and better performance than legacy solutions, and it lessens the amount of mundane and tedious work required of end users.  
  • Improved cybersecurity posture. Having fewer on-premises systems and shifting management and maintenance duties to Microsoft decreases the amount and severity of cybersecurity vulnerabilities the composite sees.

Costs. Three-year, risk-adjusted PV costs for the composite organization include:

  • Subscription fees. The composite pays a total of $4.4 million over three years for user subscriptions that are based on per-user, per-month fees.
  • Implementation and ongoing administration. To implement Dynamics 365, the composite utilizes internal effort from IT and business personnel as well as assistance from a systems integrator that also provides ongoing support. These costs total $3.2 million for the composite over three years.

The representative interviews, survey, and financial analysis found that a composite organization experiences benefits of $15.8 million over three years versus costs of $7.7 million, adding up to a net present value (NPV) of $8.1 million and an ROI of 106%.

“Finance and operations now can make tangible decisions that are data-driven based on the tools and feedback that Dynamics 365 … [has] provided.”

Senior director of IT, healthcare/life sciences

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Key Statistics

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    Return on investment (ROI)

    106%
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    Benefits PV

    $15.77M
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    Net present value (NPV)

    $8.10M
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    Payback

    17 months
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Benefits (Three-Year)

Increased profitability Increased productivity Reduced infrastructure and IT operations spend from cloud migration Cost savings from organizational simplification

TEI Framework And Methodology

From the information provided in the interviews, Forrester constructed a Total Economic Impact™ framework for those organizations considering an investment Dynamics 365.

The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision. Forrester took a multistep approach to evaluate the impact that Dynamics 365 can have on an organization.

  1. Due Diligence

    Interviewed Microsoft stakeholders and Forrester analysts to gather data relative to Dynamics 365.

  2. Interviews And Survey

    Interviewed five IT leaders at four organizations and surveyed 320 other professionals at organizations using Dynamics 365 to obtain data about costs, benefits, and risks.

  3. Composite Organization

    Designed a composite organization based on characteristics of the interviewees’ and survey respondents’ organizations.

  4. Financial Model Framework

    Constructed a financial model representative of the interviews using the TEI methodology and risk-adjusted the financial model based on issues and concerns of the interviewees and survey respondents.

  5. Case Study

    Employed four fundamental elements of TEI in modeling the investment impact: benefits, costs, flexibility, and risks. Given the increasing sophistication of ROI analyses related to IT investments, Forrester’s TEI methodology provides a complete picture of the total economic impact of purchase decisions. Please see Appendix A for additional information on the TEI methodology.

Disclosures

Readers should be aware of the following:

This study is commissioned by Microsoft and delivered by Forrester Consulting. It is not meant to be used as a competitive analysis.

Forrester makes no assumptions as to the potential ROI that other organizations will receive. Forrester strongly advises that readers use their own estimates within the framework provided in the study to determine the appropriateness of an investment in Dynamics 365.

Microsoft reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester’s findings or obscure the meaning of the study.

Microsoft provided the customer names for the interviews but did not participate in the interviews.

Consulting Team:

Kris Peterson

Nahida Nisa

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