The Total Economic Impact Of Aspera SmartTrack

Transcription

1 A Forrester Total Economic Impact Study Commissioned By Aspera Project Director: Sarah Musto October 2016 The Total Economic Impact Of Aspera SmartTrack Cost Savings And Business Benefits Enabled By SmartTrack

2 Table of Contents Executive Summary... 3 Disclosures... 4 TEI Framework And Methodology... 5 Analysis... 6 Financial Summary Aspera SmartTrack: Overview Appendix A: Total Economic Impact Overview Appendix B: Glossary ABOUT FORRESTER CONSULTING Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting. 2016, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to

3 3 Executive Summary Aspera commissioned Forrester Consulting to conduct a Total Economic Impact (TEI) study and examine the potential return on investment (ROI) enterprises may realize by deploying SmartTrack. The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of SmartTrack on their organizations. To better understand the benefits, costs, and risks associated with a SmartTrack implementation, Forrester interviewed an existing customer with multiple years of experience using SmartTrack. Aspera SmartTrack is a license management platform that enables large corporations to optimize software asset management (SAM) processes. SmartTrack has all the reporting built in and it s easily configurable, almost like an Excel spreadsheet except so much smarter, and you can easily customize your views. Most of the software asset management work is ad hoc, looking for data on partial information, so SmartTrack is a tremendous help and it s so userfriendly with the UI. SAM manager for global corporation Prior to using SmartTrack, the customer had used several different tools for license management. These tools required significant manual effort to track software licenses and were not user-friendly, resulting in time-consuming software delivery processes, inaccurate data requiring manual reconciliation efforts, and significant time spent on ad hoc tasks like performing simple searches. Due to these inefficiencies, the organization couldn t ensure the optimization of all software licenses, leaving cost savings on the table. With SmartTrack, the customer is able to automate many SAM processes, reducing the time spent on these tasks and ensuring data is up to date. SmartTrack s user-friendly interface improves reporting, provides real-time data, and allows for quick ad hoc searches for any type of information. Along with process efficiencies, the organization is able to easily prove and ensure compliance for all publishers and vendors. SmartTrack also provides license cost savings by enabling automated license harvesting via real-time scans of available licenses, ensuring the organization only pays for licenses it needs. ASPERA ENABLES LICENSE MANAGEMENT AND AUDIT EFFICIENCIES, LICENSE COST SAVINGS Our interview with an existing customer and subsequent financial analysis found that the interviewed organization experienced the risk-adjusted ROI and benefits shown in Figure 1. The analysis points to benefits of over $7 million over three years versus costs of slightly under $3.2 million, adding up to a net present value (NPV) of almost $4 million. FIGURE 1 Financial Summary Showing Three-Year Risk-Adjusted Results ROI: 124% NPV: $3,968,037 Payback: 8 months

4 4 Disclosures The reader should be aware of the following: The study is commissioned by Aspera 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 report to determine the appropriateness of an investment in Aspera SmartTrack. Aspera 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. Aspera provided the customer name for the interview but did not participate in the interview.

5 5 TEI Framework And Methodology INTRODUCTION From the information provided in the interviews, Forrester has constructed a Total Economic Impact (TEI) framework for those organizations considering implementing Aspera SmartTrack. The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision, to help organizations understand how to take advantage of specific benefits, reduce costs, and improve the overall business goals of winning, serving, and retaining customers. APPROACH AND METHODOLOGY Forrester took a multistep approach to evaluate the impact that Aspera SmartTrack can have on an organization (see Figure 2). Specifically, we: Interviewed Aspera marketing, sales, and consulting personnel, along with Forrester analysts, to gather data relative to SmartTrack and the marketplace for SmartTrack. Interviewed one organization currently using SmartTrack to obtain data with respect to costs, benefits, and risks. Constructed a financial model representative of the interview using the TEI methodology. The financial model is populated with the cost and benefit data obtained from the interview. Risk-adjusted the financial model based on issues and concerns the interviewed organization highlighted in the interview. Risk adjustment is a key part of the TEI methodology. While the interviewed organization provided cost and benefit estimates, some categories included a broad range of responses or had a number of outside forces that might have affected the results. For that reason, some cost and benefit totals have been risk-adjusted and are detailed in each relevant section. Forrester employed four fundamental elements of TEI in modeling SmartTrack s impact: benefits, costs, flexibility, and risks. Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester s TEI methodology serves to provide a complete picture of the total economic impact of purchase decisions. Please see Appendix A for additional information on the TEI methodology. FIGURE 2 TEI Approach Perform due diligence Conduct customer interview Construct financial model using TEI framework Write case study

6 6 Analysis INTERVIEWED ORGANIZATION For this study, Forrester conducted an interview with a representative from the following company: It is a multinational corporation headquartered in the United States with over 70,000 employees and contractors. The organization has used Aspera SmartTrack for two years and uses SmartTrack to manage all of the software in its environment, including freeware. The organization manages licenses from approximately 2,000 software vendors. Based on the interview, Forrester constructed a TEI framework and an associated ROI analysis that illustrates the areas financially affected. INTERVIEW HIGHLIGHTS Situation The organization used a few different tools prior to migrating to SmartTrack and experienced a number of challenges with these tools, including that: The previous systems were very manual. The organization manages all of the software in its environment, including freeware, so manual SAM processes could not keep software license data accurate and up to date throughout the year. At the end of each year, the organization would need to manually reconcile license data. This manual audit was extremely timeconsuming and therefore the organization could only apply the process to a few applications. The previous systems were so difficult to use that the organization had to build an external reporting system to perform simple searches. This meant that a lot of software asset management time was spent on searching for data. It was not possible to automate SAM processes with the previous systems. The organization sought to automate processes across its environment to streamline tasks and reduce errors, but it could not find a way to do this with its prior tools. We had a strong collaboration with Aspera. We could tell right from the start that they knew what they were talking about. It was apparent to us that they know their business, and they know software licensing. ~ SAM manager for global corporation Solution The organization selected SmartTrack for its ability to consolidate data and provide up-to-date tracking. It found that the SmartTrack software is very user-friendly, has robust reporting and search functionality, and enables automation of some SAM processes.

7 7 Results The interview revealed that: The organization s SAM processes benefit from the automation and real-time capability of SmartTrack. Before using SmartTrack, the organization was unable to automate processes using prior tools, necessitating significant manual effort to deliver software, track licenses, and reconcile data. By automating many software delivery processes with SmartTrack, the organization is able to save full-time employee (FTE) time and reduce data errors. The organization is able to access accurate, real-time license data and ensure it is only paying for the licenses it needs. SmartTrack s user-friendly interface allows the organization to have better reporting and to search for any data point easily. Prior tools were not user-friendly, making even simple searches difficult and time-consuming. SmartTrack is significantly easier to use and provides more functionality, making standard reporting more useful and ad hoc data searches much faster. The organization no longer uses developers to develop custom reports because the software asset management team can quickly and flexibly find the information it needs. This allows the organization to immediately prepare for true-ups and audits for all publishers and vendors. The benefits for compliance are twofold. First, when you get an audit letter, you are able to quickly identify your exposure and deployment. Second, you are no longer apprehensive about an audit because you are prepared. ~ SAM manager for global corporation

8 8 BENEFITS The interviewed organization experienced a number of quantified benefits in this case study. IT Support Team Efficiencies The organization was able to realize efficiencies for the IT support team through automation with SmartTrack. The organization automated approximately 50% of its software requests, reducing the number of tickets that analysts would have had to manually process in the prior environment. The organization estimates that it processes more than 100,000 software requests per year, so a 50% reduction in manual processing resulted in significant time savings. One result of these savings is that analysts can focus and spend time on more important and complex requests. The organization was also able to reduce the IT support team size by approximately 25 FTEs due to SmartTrack, resulting in $1.8 million in cost savings. An additional benefit from automating software requests is that average delivery time to users was also reduced by about 50%. For many of the software requests, a user can submit a request and then install and use the software after just a few minutes. It can be difficult to accurately measure and attribute time savings for a particular technology solution. To compensate, this benefit was risk-adjusted and reduced by 5%. The risk-adjusted total benefit resulting from IT support efficiencies over the three years was $4.4 million. See the section on Risks for more detail. TABLE 1 IT Support Team Efficiencies Ref. Metric Calculation Year 1 Year 2 Year 3 A1 FTEs saved due to Aspera Forrester estimate A2 Average annual fully loaded compensation Forrester assumption $75,000 $75,000 $75,000 At IT support team efficiencies A1*A2 $1,875,000 $1,875,000 $1,875,000 Atr Risk adjustment 5% IT support team efficiencies (riskadjusted) $1,781,250 $1,781,250 $1,781,250 Compliance Team Efficiencies The organization also noted efficiencies on the compliance team due to SmartTrack. Approximately 10 FTEs on the compliance team were responsible for once- or twice-a-year reconciliations for a small subset of applications in the prior environment. The team had to focus on just the most sensitive or biggest applications due to time constraints from manual processes and couldn t review the entire environment. With SmartTrack, the compliance team reduced the time spent on reconciliations by 50% due to real-time, accurate license data, saving approximately one-third of its overall time. It repurposed this time into refining information and achieving a full compliance picture across all applications. The compliance team was also able to achieve time savings on responses to audits. The organization estimates that there are, on average, approximately 20 audit events or true-ups each year where the compliance team is able to collect and verify license data much more quickly with SmartTrack. For this subset of events, the organization estimates it saves 5 hours per event due to SmartTrack. As an additional benefit, the organization notes that it no longer worries about being audited because it is now confident that it has accurate data to prove compliance.

9 9 Time savings benefits can be difficult to accurately estimate, and the number of relevant audit or true-up events can fluctuate year to year. The organization provided a range for the number of relevant events, and Forrester used this to calculate an average over three years. To compensate, this benefit was risk-adjusted and reduced by 5%. The risk-adjusted total benefit resulting from compliance efficiencies over the three years was $444,920. See the section on Risks for more detail. TABLE 2 Compliance Team Efficiencies Ref. Metric Calculation Year 1 Year 2 Year 3 B1 Approximate number of FTEs Forrester estimate based on on compliance team interview Total time saved on B2 reconciliation for largest Interview 33% 33% 33% applications B3 Average annual fully loaded compensation Forrester assumption $75,000 $75,000 $75,000 B4 B5 B6 B7 Approximate number of audit and true-up events per year Time savings per event with Aspera (hours) Average hourly fully loaded compensation Productivity reclaimed for value-added work Forrester estimate based on interview Interview Forrester assumption $36 $36 $36 Forrester assumption 75% 75% 75% Bt Compliance team efficiencies ((B1*B2*B3)+(B4*B5*B6))*B7 $188,325 $188,325 $188,325 Btr Risk adjustment 5% Compliance team efficiencies (risk-adjusted) $178,909 $178,909 $178,909 Software License Cost Savings SmartTrack also enabled license cost savings compared with the prior environment. The organization was able to build an automated license harvesting system that tracked software licenses for products that employees request frequently and actively manage licenses for those products. In the first year of using this active harvesting system, the organization is able to save approximately $2 million, as many employees are not using these applications. In subsequent years, the organization saves $1 million per year managing more active users of these products. While some of this system could be built by using just SCCM data, SmartTrack enabled additional applications to be harvested and provided data in the right format much more easily, allowing for additional cost savings. The organization estimates that approximately 50% of these license cost savings are due to SmartTrack s contribution to this system. In addition to this active harvesting program, the organization has passive harvesting efforts. Entitlements are removed when employees leave the organization, employees uninstall programs from their machines, or employees don t reinstall programs on new machines. This passive harvesting savings amounts to approximately $1 million in Year 1 and $500,000 in subsequent years. The organization estimates that approximately 50% of these license cost savings are due to contributions from customizations the organization made to SmartTrack.

10 10 The organization provided a range of software cost savings from the harvesting initiatives, from which Forrester choose a conservative value. These cost savings can be difficult to accurately attribute to a particular component or contribution to the system. To compensate, this benefit was risk-adjusted and reduced by 10%. The riskadjusted total benefit resulting from software license cost savings over the three years was almost $2.3 million. See the section on Risks for more detail. TABLE 3 Software License Cost Savings Ref. Metric Calculation Year 1 Year 2 Year 3 C1 C2 Cost savings from active automated license harvesting Cost savings from passive license harvesting Forrester estimate based on interview $2,000,000 $1,000,000 $1,000,000 Forrester estimate based on interview $1,000,000 $500,000 $500,000 C3 Savings attributable to SmartTrack Interview 50% 50% 50% Ct Software license cost savings (C1+C2)*C3 $1,500,000 $750,000 $750,000 Ctr Risk adjustment 10% Software license cost savings (risk-adjusted) $1,350,000 $675,000 $675,000 Total Benefits Table 4 shows the total of all benefits across the three areas listed above, as well as present values (PVs) discounted at 10%. Over three years, the organization expects risk-adjusted total benefits to be a PV of more than $7 million. TABLE 4 Total Benefits (Risk-Adjusted) Ref. Benefit Year 1 Year 2 Year 3 Total Present Value Atr IT support team efficiencies $1,781,250 $1,781,250 $1,781,250 $5,343,750 $4,429,705 Btr Ctr Compliance team efficiencies Software license cost savings Total benefits (riskadjusted) $178,909 $178,909 $178,909 $536,726 $444,920 $1,350,000 $675,000 $675,000 $2,700,000 $2,292,261 $3,310,159 $2,635,159 $2,635,159 $8,580,476 $7,166,886

11 11 COSTS The interviewed organization experienced a number of costs associated with the SmartTrack investment. These represent the mix of internal and external costs experienced by the interviewed organization for implementation and ongoing management associated with the solution. Aspera SmartTrack Costs The organization has two hard costs for the SmartTrack investment: 1) SmartTrack license and maintenance costs and 2) Aspera services costs. A deployment similar in size to the organization s results in approximately $600,000 in upfront license costs for SmartTrack and $120,000 per year for annual maintenance. The organization also noted that it required application server and database server capacity to support SmartTrack. However, the organization used existing capacity and therefore could not estimate the cost of this additional hardware and software. Additionally, the organization implemented over 150 vendors in about six months. While some organizations may choose to spread out the implementation over several years, the interviewed organization chose to implement SmartTrack very quickly upfront. An implementation of this size and speed results in approximately $425,000 in upfront services costs. The organization pays $100,000 in Year 1 and $40,000 in Year 2 in ongoing services costs. Software license and services costs can vary based on volume and other discounts. The costs included in this table are approximations based on the size and speed of the organization s deployment. To compensate, this cost was risk-adjusted up by 5%. The risk-adjusted SmartTrack costs over the three years were $1.5 million. See the section on Risks for more detail. TABLE 5 Aspera SmartTrack Costs Ref. Metric Calculation Initial Year 1 Year 2 Year 3 D1 Aspera license costs $600,000 $120,000 $120,000 $120,000 D2 Aspera services costs $425,000 $100,000 $40,000 Dt SmartTrack costs D1+D2 $1,025,000 $220,000 $160,000 $120,000 Risk adjustment 5% Dtr SmartTrack costs (risk-adjusted) $1,076,250 $231,000 $168,000 $126,000 Implementation And Management Time The organization focused the SmartTrack implementation initially on the main software applications being used. This initial implementation took about six months to complete, and the organization relied on both internal FTEs and Aspera services to implement over 150 vendors. The organization had two FTEs dedicated to the implementation full time. Several other FTEs spent between 30% and 80% of their time on the implementation, including project managers, technical experts, SAM subject matter experts, and database managers. In total, this initial effort required approximately 11,300 FTE hours. On an ongoing basis, four FTEs spend between 15% and 25% of their time on additional smaller implementations and ongoing management of SmartTrack. The organization also has a team of four FTEs who are verifying coverage of its installations and managing the database on an ongoing basis. This team spends about 80% of its time on database management in the first two years in order to verify almost 100% coverage, and then in the third year it is able to start spending less time on

12 12 these tasks. Additionally, a total of 1.5 FTEs are responsible for preparing software products for automated uninstalls and maintaining the list of products tracked with the automated harvesting program. Implementation and management time can be difficult to accurately estimate, especially when many teams are involved and several FTEs are not dedicated to the project. To compensate, this cost was risk-adjusted up by 5%. The risk-adjusted cost of implementation and management time over the three years was $1.68 million. See the section on Risks for more detail. TABLE 6 Implementation And Management Time Ref. Metric Calculation Initial Year 1 Year 2 Year 3 E1 Total FTE hours spent on implementation and 11,300 1,500 1,500 1,500 management E2 Total FTE hours spent on database management 3,300 6,600 6,600 5,000 E3 Total FTE hours spent on automated harvesting initiative 3,120 3,120 3,120 3,120 E4 Average hourly fully loaded compensation $36 $36 $36 $36 Et Implementation and management time (E1+E2+E3)*E4 $637,920 $403,920 $403,920 $346,320 Risk adjustment 5% Etr Implementation and management time (riskadjusted) $669,816 $424,116 $424,116 $363,636 Total Costs Table 7 shows the total of all costs as well as associated present values (PVs), discounted at 10%. Over three years, the organization expects risk-adjusted total costs to be a PV of slightly less than $3.2 million. TABLE 7 Total Costs (Risk-Adjusted) Ref. Cost Category Initial Year 1 Year 2 Year 3 Total Present Value Dtr SmartTrack costs $1,076,250 $231,000 $168,000 $126,000 $1,601,250 $1,519,759 Etr Implementation and management $669,816 $424,116 $424,116 $363,636 $1,881,684 $1,679,090 time Total costs (risk-adjusted) $1,746,066 $655,116 $592,116 $489,636 $3,482,934 $3,198,849

13 13 RISKS Forrester defines two types of risk associated with this analysis: implementation risk and impact risk. Implementation risk is the risk that a proposed investment in SmartTrack may deviate from the original or expected requirements, resulting in higher costs than anticipated. Impact risk refers to the risk that the business or technology needs of the organization may not be met by the investment in SmartTrack, resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefit estimates. TABLE 8 Benefit And Cost Risk Adjustments Benefits Adjustment IT support team efficiencies 5% Compliance team efficiencies 5% Software license cost savings 10% Costs Adjustment SmartTrack costs 5% Implementation and management time 5% Quantitatively capturing implementation risk and impact risk by directly adjusting the financial estimates results provides more meaningful and accurate estimates and a more accurate projection of the ROI. In general, risks affect costs by raising the original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should be taken as realistic expectations since they represent the expected values considering risk. The following impact risks that affect benefits are identified as part of the analysis: Time savings and FTE savings benefits can be difficult for organizations to accurately measure and accurately attribute to a particular technology investment. SmartTrack is a significant part of an end-to-end solution built by the organization, making attribution slightly more difficult. While the organization provided an estimate of this savings, it also noted that there could be slight variability from the approximate numbers provided. The organization provided a range for the number of audit or true-up events affected by SmartTrack, and this number can fluctuate year to year. Forrester provided an average figure over the three years; this figure is risk-adjusted to compensate for variability in this estimate. The organization provided a range for the license cost savings from its automated harvesting program, from which Forrester chose a conservative estimate. Additionally, while the organization estimates that 50% of these savings are enabled by the use of SmartTrack in this system, it can be difficult to accurately estimate the contribution of a single technology solution. The following implementation risks that affect costs are identified as part of this analysis: Software license costs can be variable based on the software features used, volume discounts, and other factors. The cost figures included in this study are estimates based on the organization s deployment size and speed.

14 14 Implementation and management time estimates can be difficult to accurately measure, especially given a diverse set of FTEs involved in the project and that several FTEs are not dedicated to the project full-time. Table 8 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates for the interviewed organization. Readers are urged to apply their own risk ranges based on their own degree of confidence in the cost and benefit estimates.

15 15 Financial Summary The financial results calculated in the Benefits and Costs sections can be used to determine the ROI, NPV, and payback period for the interviewed organization s investment in SmartTrack. Table 9 below shows the risk-adjusted ROI, NPV, and payback period values. These values are determined by applying the risk-adjustment values from Table 8 in the Risks section to the unadjusted results in each relevant cost and benefit section. FIGURE 3 Cash Flow Chart (Risk-Adjusted) $6,000,000 $5,000,000 $4,000,000 Financial Analysis (risk-adjusted) Cash flows $3,000,000 $2,000,000 $1,000,000 $0 ($1,000,000) ($2,000,000) ($3,000,000) Initial Year 1 Year 2 Year 3 Total costs Total benefits Cumulative total TABLE 9 Cash Flow (Risk-Adjusted) Initial Year 1 Year 2 Year 3 Total Present Value Costs ($1,746,066) ($655,116) ($592,116) ($489,636) ($3,482,934) ($3,198,849) Benefits $0 $3,310,159 $2,635,159 $2,635,159 $8,580,476 $7,166,886 Net benefits ($1,746,066) $2,655,043 $2,043,043 $2,145,523 $5,097,542 $3,968,037 ROI 124% Payback period 7.9 months

16 16 Aspera SmartTrack: Overview The following information is provided by Aspera. Forrester has not validated any claims and does not endorse Aspera or its offerings. ASPERA SMARTTRACK: THE GOLD STANDARD FOR SAM Aspera SmartTrack is a SAM technology for large enterprises, enabling faster, simpler license management for great cost savings. Since 2000, Aspera has built SmartTrack with a rock-solid foundation, as a single system and user interface that covers all license types and software vendors. The platform accurately calculates complex metrics for every device servers, clients, mobile, and cloud and excels at reducing the costs in an ever-changing data center. Aspera supports customers along their SAM maturity path with advanced capabilities for finance, reporting, optimization, and simulation. By taking a strategic approach to license management, companies get complete compliance while making informed decisions about their software licenses and their IT infrastructure as a whole. SMARTTRACK CORE FEATURES Track 500,000-plus entitlements automatically Built-in integration for 40- plus systems Discovery agnostic, results focused Industry s only integrated product catalog Instantly know the licenses you need Dashboard KPIs for daily reports SmartTrack ships with automatic tracking of over 500,000 product use rights from every essential vendor, including Microsoft, IBM, Oracle, SAP, Adobe, and VMware. SmartTrack fully integrates with over 40 popular discovery and endpoint management systems, including ServiceNow, Altiris, BMC, HP, ILMT, SCCM, and VMWare. SmartTrack works seamlessly with data from the discovery, inventory, and device management systems that you already have, because one source tool isn t enough. SmartTrack is the only SAM solution with a fully integrated product database as a centralized and automated source for all of your license data. SmartTrack s Metric Engine technology compares the licenses you own with the software you actually use, to decide exactly the licenses you really need. SmartTrack easily measures your day-to-day license activities with 13 key performance indicators (KPIs) that are built into the customizable dashboard. 100% online, 100% secure SmartTrack operates through your local web browser, with no installation on the user side, while providing complete security and access control. SMARTTRACK SIMULATION: THE FUTURE OF SAM Every SAM team talks about cost savings and cost avoidance. SmartTrack Simulation 4 delivers it. Its new capabilities are a breakthrough in financial forecasting, enabling your company to stage potential server architectures that will maximize cost savings. The Simulation goes deepest where the best savings are in the data center to endlessly analyze licensing possibilities for server topologies, virtualization, hybrid, and cloud environments. By moving databases around between different server topologies, with no impact on the live systems, you will quickly find a huge potential for savings. Now companies can make informed infrastructure decisions that have long-term cost effects.

17 17 Appendix A: Total Economic Impact Overview Total Economic Impact is a methodology developed by Forrester Research that enhances a company s technology decisionmaking processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and other key business stakeholders. TEI assists technology vendors in winning, serving, and retaining customers. The TEI methodology consists of four components to evaluate investment value: benefits, costs, flexibility, and risks. BENEFITS Benefits represent the value delivered to the user organization IT and/or business units by the proposed product or project. Often, product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line. COSTS Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created. FLEXIBILITY Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the initial investment already made. For instance, an investment in an enterprise-wide upgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated. The collaboration can only be used with additional investment in training at some future point. However, having the ability to capture that benefit has a PV that can be estimated. The flexibility component of TEI captures that value. RISKS Risks measure the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections and 2) the likelihood that the estimates will be measured and tracked over time. TEI risk factors are based on a probability density function known as triangular distribution to the values entered. At a minimum, three values are calculated to estimate the risk factor around each cost and benefit. FRAMEWORK ASSUMPTIONS Table 10 provides the model assumptions that Forrester used in this analysis.

18 18 The discount rate used in the PV and NPV calculations is 10% and time horizon used for the financial modeling is three years. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult with their respective company s finance department to determine the most appropriate discount rate to use within their own organizations. TABLE 10 Model Assumptions Ref. Metric Calculation Value X1 Hours per week 40 X2 Weeks per year 52 X3 Hours per year (M-F, 9-5) 2,080 X4 Hours per year (24x7) 8,736 X5 Average fully loaded annual compensation $75,000 X6 Hourly (X5/X3) $36

19 19 Appendix B: Glossary Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Companies set their own discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their respective organizations to determine the most appropriate discount rate to use in their own environment. Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs. Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total NPV of cash flows. Payback period: The breakeven point for an investment. This is the point in time at which net benefits (benefits minus costs) equal initial investment or cost. Return on investment (ROI): A measure of a project s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs. A NOTE ON CASH FLOW TABLES The following is a note on the cash flow tables used in this study (see the example table below). The initial investment column contains costs incurred at time 0 or at the beginning of Year 1. Those costs are not discounted. All other cash flows in years 1 through 3 are discounted using the discount rate (shown in the Framework Assumptions section) at the end of the year. PV calculations are calculated for each total cost and benefit estimate. NPV calculations are not calculated until the summary tables are the sum of the initial investment and the discounted cash flows in each year. Sums and present value calculations of the Total Benefits, Total Costs, and Cash Flow tables may not exactly add up, as some rounding may occur. TABLE [EXAMPLE] Example Table Ref. Metric Calculation Year 1 Year 2 Year 3