How to model RISE pricing scenarios for the board.

A board approves an RISE with SAP contract in fifteen minutes, not in an hour. The model that supports that fifteen minute conversation has to do two things at once. It has to be rigorous enough that the audit committee, the CFO, and the chair are satisfied that the numbers were stress tested. It has to be simple enough that a non technical board member can read the scenarios on one page and understand what each scenario means commercially. Most TCO models fail one of the two tests. They are either rigorous and unreadable, or readable and indefensible. This article describes the scenario structure that consistently produces a model the board can absorb and approve, and that the CFO can defend under questioning.

The four scenarios the board needs to see

The board needs four scenarios on the same page. A base case, which represents the most likely seven year outcome on the negotiated RISE proposal. A downside case, which represents the outcome if the assumptions that drive the base case prove pessimistic. An upside case, which represents the outcome if the assumptions prove optimistic. A comparison case, which represents the seven year outcome on the brownfield alternative, against which the RISE decision is being made. The four scenarios on one page show the board the range of outcomes, the sensitivity to assumption, and the comparison against the status quo. Each scenario is anchored to a clear narrative that explains what changes between the cases.

Building the base case

The base case is the central estimate. It reflects the negotiated RISE pricing, the most likely consumption profile across the term, the most likely hyperscaler infrastructure consumption, the expected migration cost, and the expected ongoing operating cost. The base case is built bottom up from the line items in the RISE proposal, with each line tested against a defensible assumption set. The base case is not a single number. It is a structured seven year cash flow that shows the subscription cost, the migration investment, the hyperscaler consumption pattern, and the operating cost evolution year by year.

The base case discount rate is the firm's weighted average cost of capital. The base case foreign exchange assumption is the corporate planning rate. The base case inflation assumption is the corporate planning rate. The base case is therefore consistent with the rest of the firm's financial planning, which makes it easier for the CFO to defend and easier for the board to accept. The base case is the anchor against which the other scenarios are measured. It is also the case that the negotiation team uses as the buyer side position against the SAP proposal.

Building the downside case

The downside case stresses the assumptions that have the largest impact on the outcome. The four assumptions that typically drive the downside are migration cost overrun, FUE drift, Digital Access growth, and hyperscaler infrastructure expansion. The downside case applies a defined stress to each. Migration cost increases by twenty to thirty percent over the base. FUE consumption grows by ten to fifteen percent over the contracted entitlement. Digital Access document volume grows by twenty to thirty percent over the contracted envelope. Hyperscaler infrastructure consumption grows by fifteen to twenty percent over the contracted capacity. The combined stress produces a downside case that is typically fifteen to twenty five percent higher than the base case at the seven year mark.

The downside case is not the worst conceivable outcome. It is the outcome that the board should expect if the controls described in the operating model fail to hold. The downside case is therefore a test of the operating discipline, not a test of the SAP contract. A buyer with strong operating discipline can credibly claim that the downside case is unlikely. A buyer with weak operating discipline cannot. The CFO needs to be honest with the board about which buyer the firm is.

Building the upside case

The upside case is the most often skipped of the four scenarios, and the most useful when presented well. The upside case reflects the outcome if the operating model works as designed and the optimization opportunities are captured. FUE reclassification reduces the user envelope by ten to fifteen percent within the first two years. Non production environments are retired and consolidated, reducing the hyperscaler footprint by fifteen to twenty percent. Digital Access exposure is managed through governance, holding the document volume below the contracted envelope. The combined effect produces an upside case that is typically eight to fifteen percent below the base case at the seven year mark.

The upside case is the prize that justifies the operating investment. It tells the board that the optimization discipline described in the operating model is worth the management attention it will require. It also tells the board that the base case is conservative, which strengthens the credibility of the overall model. A board that sees the upside case is more willing to approve the operating investment than a board that sees only the base and downside.

Building the comparison case

The comparison case is the seven year outcome on the brownfield alternative. It reflects the cost of remaining on the current SAP environment with the planned upgrade path, including the maintenance fees, the infrastructure cost, the operating cost, and any required migration to S/4HANA on premises. The comparison case is the case that the RISE decision is being made against. Without it, the board cannot evaluate whether the RISE proposal is worth approving. With it, the board can see the net seven year cost difference, the cash flow timing difference, and the strategic difference.

The comparison case is also the case that the board will return to in the next two years if the RISE decision is questioned. A clearly documented comparison case protects the board's decision because it shows what the alternative looked like at the point of decision. Boards that approve RISE without a documented comparison case are exposed when the optimization phase begins, because there is no baseline against which to evaluate progress. The comparison case is therefore both an analytical tool and a governance protection.

Presenting the four scenarios on one page

The four scenarios sit on one page in a small table with five columns. Year by year subscription cost, year by year hyperscaler consumption, year by year operating cost, seven year total, net present value at the corporate discount rate. Each row is a scenario. The page also carries a short narrative for each scenario, explaining what changes between cases. A second page carries the supporting detail, including the line items in each scenario and the assumption set behind each line. The board reads the first page. The audit committee reads both. The CFO defends the second page under questioning.

Conclusion

RISE with SAP pricing decisions are large enough that boards need clarity and rigorous enough that boards demand stress testing. The four scenario structure described above produces both. The base case anchors the decision. The downside case tests the operating discipline. The upside case identifies the prize. The comparison case protects the decision against the alternative. On one page, the four scenarios let the board absorb the commercial reality of the RISE proposal in the time available. Off the page, the supporting detail lets the CFO and the audit committee defend the model under scrutiny. Both audiences need to be served. The four scenario structure serves them both.