The Total Economic Impact Of Dimension Data s Uptime Services

Transcription

1 A Forrester Total Economic Impact Study Prepared For Dimension Data The Total Economic Impact Of Dimension Data s Uptime Services For Organizations With Offices Within A Single Country Project Director: Sebastian Selhorst December 2012

2 Table Of Contents Executive Summary...2 Companies Rely On Dimension Data s Skilled Resources To Ensure Their Nationwide Network Availability And Reliability...2 Factors Affecting Benefits And Costs...4 Disclosures...5 TEI Framework And Methodology...6 Analysis... 7 Interview Highlights... 7 Costs...10 Benefits...12 Flexibility...16 Risk...17 Financial Summary...19 Dimension Data Uptime Services: Overview...20 Appendix A: Composite Organization Description...21 Appendix B: Total Economic Impact Overview...21 Appendix C: Glossary...22 Appendix D: Related Forrester Research...23 Appendix E: Endnotes , 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 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 Page 1

3 Executive Summary Organizations of all sizes are adopting networking and telecommunications technology solutions pretty much at the same pace, and network infrastructure plays an equally important role in each business. Even a relatively short network outage can have substantial consequences for any type of organization. Ensuring the reliability of the underlying network infrastructure therefore is one of the top priorities for today s IT departments. IT does its best in trying to reduce the amount of downtime planned or unplanned as it can result in immediate revenue losses for the company, loss of productivity, potential compliance or reporting penalties, loss of employees confidence in IT s capabilities, and even reputational damage. But maintaining a heterogeneous IT and network infrastructure and ensuring its uptime with a limited number of staff are big challenges for many organizations. Outsourcing network maintenance and support to an external service provider might thus make a lot of sense. In March 2012, Dimension Data commissioned Forrester Consulting to examine the total economic impact and potential return on investment (ROI) medium-size to large organizations may realize by using Dimension Data s Uptime Services. The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of the Uptime Services on their organizations. Dimension Data is a leading partner to major IT manufacturers for services across networking, security, unified communications, data centers and contact centers. The firm maintains a life-cycle IT services approach: thorough planning and integration to support and manage IT environments. Dimension Data provides Uptime Maintenance and Uptime Support services for IT and network assets from multiple vendors to medium-size and large organizations around the world, restores failed devices to working order within agreed response times, and provides expertise to help clients more proactively support their IT environment. For a more detailed overview of Dimension Data s Uptime Services, please refer to page 20. Companies Rely On Dimension Data s Skilled Resources To Ensure Their Nationwide Network Availability And Reliability Our interviews with three existing customers and subsequent financial analysis found that a composite organization based on the companies we interviewed experienced the risk-adjusted ROI, costs, and benefits shown in Table 1. See Appendix A for a description of the composite organization. Table 1 Composite Organization Three-Year Risk-Adjusted ROI 1 ROI Payback period Total benefits (PV) Total costs (PV) Net present value 116% Within 12 months $822,132 ($381,279) $440,854 Page 2

4 Benefits. The organization used in this analysis is a combination of the multiple interviews Forrester conducted to delve deeper into the operational impact of Dimension Data s Uptime Services. This composite organization is a manufacturing company based in Australia. It employs 5,000 people, including 20 within the IT department, and has annual revenue of close to $1 billion. To protect the network against hardware failures and Our relationship with Dimension Data helps us enhance the credibility of our IT organization to provide reliable network and IT infrastructure. It also frees up internal resources to provide more value add services to the organization. (Operation services manager, public university) serious outages, the company outsourced the break-fix maintenance and support of 300 network chassis to Dimension Data. The composite organization realized the following benefits, which are representative of those experienced by the interviewed companies (see Figure 1): o o o o Labor cost savings. By outsourcing the maintenance and support of its network infrastructure to Dimension Data, the composite organization avoids hiring close to one full-time and one half-time senior network engineer. This benefit has an estimated three-year risk-adjusted PV of approximately $473,000 for the composite organization. Reduced revenue losses. While the impact of network downtime varies by company, in this analysis we conservatively estimate the impact of increased uptime on the composite organization s revenue. An increase of 0.1% in uptime for the composite organization results in a reduction of lost revenue of about $248,000 (risk-adjusted PV) over the three years of the analysis. Reduced spares. The composite organization now relies on Dimension Data to provide spare assets to a site when required and was therefore able to get rid of the stock of spares that it previously kept at major locations and to save the office space associated with the spares. These related cost savings have an estimated three-year risk-adjusted PV of approximately $52,000. Procurement cost savings. For renewing its network infrastructure by replacing end-of-life assets, the composite organization leverages the purchasing power of Dimension Data. It realizes cost savings due to a better discount structure that Dimension Data has with various vendors. In this case, these cost savings have an estimated three-year risk-adjusted PV of approximately $49,000 for the composite organization. Page 3

5 Figure 1 Three-Year Risk-Adjusted Benefits Reduced spares 6% Procurement cost savings 6% Increased uptime 30% Labor cost savings 58% Costs. To achieve the above benefits, the composite organization invests approximately $381,000 over a threeyear period. Costs included: o o o Uptime Services fee. These costs include the fees for the Uptime Maintenance and Uptime Support services. Uptime Maintenance covers the break-fix of 300 network chassis spread over 15 locations in Australia with defined service-level agreements (SLAs). Uptime Support services include 60 on-site MACDs per year and an annual assessment of the group s environment. These costs have a three-year risk-adjusted PV of approximately $358,000 for the composite organization. Setup costs. These costs include the internal efforts to establish the correct operational processes with Dimension Data at the beginning of the contract. They have a three-year risk-adjusted PV of approximately $7,000 in this case. Governance costs. These costs take into account the ongoing internal efforts for ensuring the services delivered and have an estimated three-year risk-adjusted PV of approximately $16,000. Factors Affecting Benefits And Costs Table 1 illustrates the risk-adjusted financial results that were achieved by the composite organization. The riskadjusted values take into account any potential uncertainty or variance that exists in estimating the costs and benefits, which produces more conservative estimates. The following factors may affect the financial results that an organization may experience: Page 4

6 Industrial sector and business model. One hour of downtime poses different risks to and has different impacts on any two organizations, depending on factors such as the industrial sector the company works in or the business model under which it operates. Companies whose business model and processes rely strongly on the availability of network infrastructure, such as financial institutions, are likely to benefit more from Uptime Services than organizations that do not need to be constantly connected. Number and expertise of internal IT staff. Outsourcing the maintenance and support of the network infrastructure to a service provider such as Dimension Data means that a company may leverage the provider s own resources. Companies with limited internal resources and network skills are likely to benefit more from Uptime Services than organizations that have the right number and type or resources in place. Disclosures The reader should be aware of the following: The study is commissioned by Dimension Data and delivered by the Forrester Consulting group. Forrester makes no assumptions as to the potential return on investment 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 Dimension Data s Uptime Services. Dimension Data 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. The customer names for the interviews were provided by Dimension Data. Page 5

7 TEI Framework And Methodology Introduction From the information provided in the interviews, Forrester has constructed a Total Economic Impact framework for those organizations considering implementing Dimension Data s Uptime Services. The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision. Approach And Methodology Forrester took a multistep approach to evaluate the impact that Dimension Data s Uptime Services can have on an organization (see Figure 2). Specifically, we: Interviewed Dimension Data marketing and sales personnel and Forrester analysts to gather data relative to Uptime Services and the marketplace for infrastructure services. Interviewed three organizations currently using Dimension Data s Uptime Services to obtain data with respect to costs, benefits, and risks. Designed a composite organization based on characteristics of the interviewed organizations (see Appendix A). Constructed a financial model representative of the interviews using the TEI methodology. The financial model is populated with the cost and benefit data obtained from the interviews as applied to the composite organization. Figure 2 TEI Approach Perform due diligence Conduct customer interviews Design composite organization Construct financial model using TEI framework Write case study Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester s TEI methodology serves the purpose of providing a complete picture of the total economic impact of purchase decisions. Please see Appendix B for additional information on the TEI methodology. Page 6

8 Analysis Interview Highlights A total of three interviews were conducted for this study involving representatives from the following Dimension Data s customers: 1. A public university based in Australia with about 350 network devices covered by an Uptime Services contract. 2. A country branch of a global financial institution in Western Europe with about 2,000 network devices covered by an Uptime Services contract. 3. A South African subsidiary of a large manufacturing group with about 20 network devices covered by an Uptime Services contract. These interviews uncovered a number of facts and insights that apply to the composite organization (see Appendix A) and may also apply to other companies that consider using Dimension Data s Uptime Services, including the following: Companies have limited in-house IT resources. Network infrastructure is a critical asset for all of the interviewed organizations, which also had similar challenges with regard to its maintenance and support. IT departments operate with a limited number of resources and find it hard to keep up with constant technology evolutions. Our operations team is so small and limited that we have to find strategic partners that can help us prioritize and deal with any kind of problems we encounter in the network environment. We have fixed service levels with our internal customers and when you look at the limited in-house resources that we have, we obviously cannot support those kind of uptime SLAs without looking externally. (IT operations team leader, manufacturing company) Companies have limited IT budgets. Providing the required network maintenance and support skills and activities with in-house resources seemed cost-prohibitive. Traditionally, we tried to do everything internally. But we slowly realized that we can do a lot of things a bit cheaper going to an external partner that has the capabilities and the experience with this kind of environment. (IT operations team leader, manufacturing company) We can t pay the same salaries financial institutions can. We recently lost a very skilled certified network engineer to a bank who literally paid him double. But we know that we can rely on Dimension Data and their highly trained resources. (Operation services manager, public university) Companies have built a good working relationship with Dimension Data. All of the interviewed organizations decided to outsource network maintenance and support to Dimension Data and have been using its Uptime Services for more than three years. During these years, they have established trusting working relationships with Dimension Data and its employees. Page 7

9 We have a good, trusting, partnering relationship with Dimension Data. (Operation services manager, public university) We trust Dimension Data engineers as much as we do our own employees. (IT director, financial institution) Companies find it easier to deal with a single provider. The interviewees reported that they very much appreciate the fact that Dimension Data supports multiple vendors and technologies and that having a single point of contact makes their lives easier. Dimension Data brings a level of obstruction from the vendors. We definitely appreciate their multivendor, multitechnology support capabilities. For instance, our videoconferencing equipment comes from different vendors and they can deal with all of it. One number to call makes life a bit easier for us. (Operation services manager at a public university) Keeping it within one vendor does make it a bit simpler. It avoids blaming and pointing fingers at other vendors. (IT operations team leader, manufacturing company) Companies value Dimension Data s expertise and consistent performance. In general, the interviewed organizations told us how much they value Dimension Data s skills and the services it delivers. Having access to highly qualified engineers via Dimension Data obviously has a lot of value for us. (IT operations team leader, manufacturing company) Dimension Data took away our concerns with regard to hardware replacements. We now have the assurance that if a device is broken it will be replaced within an acceptable timeframe and this without a big investment of our own crew. (IT director, financial institution) Companies see improved network reliability. Even if they don t necessarily measure it, the interviewed organizations agree that they experience less network downtime since they started using Dimension Data s Uptime Services. With Dimension Data, our network problems are now solved more quickly. It gives me and my organization a safer feeling we now know that everything will be running again within 4 hours, something we could not guarantee before. Also, in the case of multiple incidents, we are confident that Dimension Data can resolve them all at the same time. (IT director at a financial institution) Companies realize cost savings on labor and spare parts. All in all, the interviewed organizations estimate that they save on the cost of labor and spares. If we did not have the Uptime Maintenance contract, we would need to invest in spares and hire at least one person per remote location. (Operation services manager at a public university) Composite Organization Based on the interviews with the three existing customers provided by Dimension Data, Forrester constructed a TEI framework, a composite company, and an associated ROI analysis that illustrates the areas financially affected. The composite organization that Forrester synthesized from these results is a manufacturing company based in Australia. Page 8

10 The company develops, manufactures, and distributes stainless steel products. It employs 5,000 people across 15 locations and generates annual revenues of close to $1 billion. The organization s IT department of 20 staff is rather small. Due to budget constraints, the department cannot afford to hire fully certified and highly skilled network engineers. However, as the network is a critical asset for the manufacturer, the company wanted to ensure that the network is appropriately protected against hardware failures and serious outages. The organization wanted to get predictable service, but knew that it could not support the required service levels with its limited in-house resources. Therefore, the decision was made to outsource the break-fix maintenance and support of network devices to Dimension Data. Now, the 300 network chassis mainly Cisco routers and switches are covered by the Uptime Services contract. The most critical assets have a restore SLA of 4 hours; less critical devices will be replaced the next business day. The achievement of service levels is examined regularly in service management reports and during service management reviews. The company also prepurchases about 60 onsite MACDs per year that are used for various configuration changes; Dimension Data conducts an annual assessment to help the company control its network infrastructure health and life cycle. See Appendix A for more details on the composite organization. Framework Assumptions Table 2 provides the model assumptions including the average fully loaded salary rates that Forrester used in this analysis. Table 2 Model Assumptions Ref. Metric Calculation Value A1 Annual revenue of the composite organization $1 billion A2 Number of network chassis outsourced to Dimension Data 300 A3 Hours worked per day 8 A4 Average number of working days per year 230 A5 Average fully loaded annual salary rate (internal IT) $80,000 A6 Average fully loaded hourly salary rate (internal IT) A5/(A4*A3) $43 A7 Average fully loaded annual salary rate (fully certified senior network engineer) $150,000 A8 Average fully loaded hourly salary rate (fully certified senior network engineer) A7/(A4*A3) $82 Page 9

11 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. Costs This section describes and lists the incremental costs incurred by the composite organization for using Dimension Data s Uptime Services over a three-year period. Uptime Services Fee The composite organization outsourced the break-fix maintenance and uptime support of 300 network chassis to Dimension Data. For this analysis, we assume that 70% of the chassis are small, 20% are medium-size, and 10% are large. The most critical assets have a restore SLA of 4 hours; less critical devices will be replaced the next business day. The contract also includes 60 prepurchased MACDs per year for onsite changes and an initial assessment of the organization s network environment. The initial contract is for three years. Based on these assumptions, Dimension Data provided the equivalent Uptime Services fees for the composite organization. These costs are indicated in Table 3 below. Table 3 Uptime Services Fee Ref. Costs Value/ calculation Initial Year 1 Year 2 Year 3 Total Bt Uptime Services fee $10,000 $133,200 $133,200 $133,200 $409,600 Initial Setup Costs The initial setup costs in Table 4 below take into account the internal efforts for defining and putting in place the right operational processes with Dimension Data. Page 10

12 Table 4 Initial Setup Costs Ref. Costs Value/ calculation Initial Year 1 Year 2 Year 3 Total C1 Number of people involved 1 C2 Number of months 1 C3 C4 Average fully loaded annual salary rate Average fully loaded monthly salary rate $80,000 (see A5, Table 2) C3/12 (rounded) $6,700 Ct Setup costs C1*C2*C4 $6,700 $0 $0 $0 $6,700 Governance Costs The governance costs in Table 5 below take into account the internal ongoing efforts for liaising with Dimension Data on daily operations and attend regular service delivery reviews. Table 5 Governance Costs Ref. Costs Value/ calculation Initial Year 1 Year 2 Year 3 Total D1 Number of internal staff involved 1 D2 Average number of hours per person per year 150 D3 Average fully loaded hourly salary rate $43 (see A6, Table 2) Dt Governance costs D1*D2*D3 $0 $6,450 $6,450 $6,450 $19,350 Page 11

13 Total Costs Table 6 summarizes the incremental costs incurred by the composite organization for using Dimension Data s Uptime Services over a three-year period. In total, the composite organization spent $435,650 over three years. Table 6 Total Costs (Non-Risk-Adjusted) Ref. Costs Initial Year 1 Year 2 Year 3 Total PV Bt Uptime Services fee $10,000 $133,200 $133,200 $133,200 $409,600 $341,249 Ct Initial setup costs $6,700 $0 $0 $0 $6,700 $6,700 Dt Governance costs $0 $6,450 $6,450 $6,450 $19,350 $16,040 Et Total costs $16,700 $139,650 $139,650 $139,650 $435,650 $363,989 Benefits The Dimension Data customers who were interviewed for this study described a range of benefits resulting from their use of Uptime Services. The most significant benefits described to Forrester were around avoiding labor costs, increasing network uptime, saving procurement costs, and reducing the costs of spares. Each of these benefit categories is discussed below. Labor Cost Savings All of the interviewed companies had limited IT resources and found it challenging to build and retain the necessary network technology expertise in-house. By outsourcing the maintenance and support of the network infrastructure to Dimension Data, the composite organization can leverage Dimension Data s resources. In this analysis, we assume that it avoids hiring the equivalent of 1.35 full-time senior network engineers. The assumptions and calculation used are indicated in Table 7 below. Page 12

14 Table 7 Labor Cost Savings Ref. Metric Value/ calculation Year 1 Year 2 Year 3 Total F1 Number of small sites (0-5 network assets) 10 F2 Number of medium sites (5-250 network assets) 5 F3 Number of large sites (more than 250 network assets) 0 F4 Number of network engineers avoided hiring for a small site (in FTE) 0.01 F5 Number of network engineers avoided hiring for a medium site (in FTE) 0.25 F6 Number of network engineers avoided hiring for a large site (in FTE) 1.00 F7 Number of network engineers avoided hiring 1.35 (= F1*F4 + F2*F5 + F3*F6) F8 Average fully loaded annual salary rate $150,000 (see A7, Table 2) Ft Labor cost savings F7*F8 $202,500 $202,500 $202,500 $607,500 Reduced Revenue Losses The impact that network downtime has on an organization and its business is highly variable. Among other things, it depends on the company s industry and business model, what systems and processes are affected, and the time, location, and duration of the outage. The effect can take multiple forms. Downtime can, for example, result in direct revenue losses; affect the company s cash flow; result in employee productivity losses; expose the company to compliance penalties; have a negative impact on partners, suppliers, and employees; or damage its reputation. For the sake of this analysis, we conservatively estimate the impact of increased uptime in terms of reduced revenue losses for the composite organization. However, readers should evaluate the impact of downtime on their own organizations. In this case, we assume that the overall network uptime was increased by 0.1%. In our case, this represents a reduction of 3.04 production hours of downtime per year. Assuming an hourly generated revenue of $329,000 and a 12% net margin, the composite organization saves $360,000 over the three years of the analysis, as indicated in Table 8 below. 2 Page 13

15 Table 8 Reduced Revenue Losses Ref. Metric Value/calculation Year 1 Year 2 Year 3 Total G1 Production hours per year 253 production days per year*12 hours/day 3,036 3,036 3,036 G2 Annual revenue $1 billion (see A1, Table 2) G3 Revenue generated per hour $329,381 (= G2/G1) G4 Uptime improvement 0.1% G5 G6 Increase in the number of hours of uptime Assumed net margin for the composite organization G1*G % Gt Reduced revenue losses G3*G5*G6 $120,000 $120,000 $120,000 $360,000 Reduced Spares Interviewed companies reported that,due to the uptime services contract with Dimension Data, they abandoned the spares that they had previously kept at several sites. We assume that the composite organization avoids investing in four spare assets at each of its two most important locations. Moreover, the company saves on the rental of some office space. The associated assumptions and calculation of this benefit are indicated in Table 9 below. Page 14

16 Table 9 Reduced Spares Ref. Metric Value/calculation Year 1 Year 2 Year 3 Total H1 Number of locations that kept spare devices previously 2 H2 Average number of spare devices at each location 4 H3 Average cost of a network device $3,500 H4 Number of square meters saved 40 H5 Average annual rental cost per square meter $300 Ht Reduced spares Year 1: H1*H2*H3+H4*H5 Years 2 and 3: H4*H5 $40,000 $12,000 $12,000 $64,000 Procurement Cost Savings As a secondary benefit, the composite organization leverages the purchasing power of Dimension Data and its prenegotiated rates with major vendors. The group therefore benefits from an incremental discount when procuring new hardware assets. Based on a five-year replacement schedule, we assume that on average 20% of the network devices are replaced every year. The resulting estimated cost savings are indicated in Table 10 below. While the company s procurement professionals might also save some time due to the fact that Dimension Data takes care of the procurement of assets, we consider that the related productivity gains are minor and have therefore not taken them into account in this business case. Page 15

17 Table 10 Procurement Cost Savings Ref. Metric Value/ calculation Year 1 Year 2 Year 3 Total I1 Average number of end-of-life network devices replaced per year 20%*300 (see A2, Table 2) I2 Average cost of a network device $3,500 I3 Average incremental discount due to Dimension Data 10% It Procurement cost savings I1*I2*I3 $21,000 $21,000 $21,000 $63,000 Total Benefits Table 11 shows the total benefits for the composite organization that were quantifiable for this study. Table 11 Total Benefits (Non-Risk-Adjusted) Ref. Metric Year 1 Year 2 Year 3 Total PV Ft Labor cost savings $202,500 $202,500 $202,500 $607,500 $503,588 Gt Reduced revenue losses $120,000 $120,000 $120,000 $360,000 $298,422 Ht Reduced spares $21,000 $21,000 $21,000 $63,000 $52,224 It Procurement cost savings $40,000 $12,000 $12,000 $64,000 $55,297 Jt Total benefits $383,500 $355,500 $355,500 $1,094,500 $909,531 Flexibility Flexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned into business benefit for some future additional investment. This provides an organization with the right or the ability to engage in future initiatives but not the obligation to do so. There are multiple scenarios in which a customer might choose to use Dimension Data s Uptime Services and later realize additional uses and business opportunities. Flexibility would also be quantified when evaluated as part of a specific project (described in more detail in Appendix B). Page 16

18 While Forrester believes organizations can take advantage of these flexibility options, quantification (using the financial industry standard Black-Scholes or the binomial option pricing models) of the additional value associated with these options for the composite organization would require scenario development and forward-looking analysis, which is not available at this time. Risk 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 Uptime Services 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 Uptime Services, resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefit estimates. Quantitatively capturing implementation and impact risk by directly adjusting the financial estimates, results in 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 implementation risks that affect costs are identified as part of this analysis: The annual Uptime Services fee is based on high-level assumptions about the geographical and technical scope covered and might be higher than originally estimated. The amount of internal effort required to establish the initial inventory and define the various processes with Dimension Data depends on the company s previous experience with working with service providers and might be higher than originally estimated. The assumed number of hours spent in regular governance meetings might be higher than originally estimated. The following impact risks that affect benefits have been identified as part of the analysis: The assumed fully loaded salary of network engineers that did not need to be hired depends on the region or location and might be lower than originally estimated. The amount of revenue saved due to reduced network downtime is based on high-level assumptions and the impact might be smaller than originally estimated. The cost savings for spares depend on the way the organization handled spares before the outsourcing engagement. The estimated procurement cost savings depend on the level of discount that the organization had prior to the engagement with Dimension Data and might be lower the originally estimated. Table 12 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates. The TEI model uses a triangular distribution method to calculate risk-adjusted values. To construct the distribution, it is necessary to first estimate the low, most likely, and high values that could occur within the current environment. The risk-adjusted value Page 17

19 is the mean of the distribution of those points. Readers are urged to apply their own risk ranges based on their own degree of confidence in the cost and benefit estimates. Table 12 Cost And Benefit Risk Adjustments Costs Low Most likely High Mean Uptime Services fee 100% 100% 115% 105% Initial setup costs 98% 100% 105% 101% Governance costs 98% 100% 105% 101% Benefits Low Most likely High Mean Labor cost savings 80% 100% 103% 94% Reduced revenue losses 50% 100% 100% 83% Reduced spares 80% 100% 103% 94% Procurement cost savings 80% 100% 103% 94% Page 18

20 Financial Summary The financial results calculated in the Costs and Benefits sections can be used to determine the ROI, NPV, and payback period for the organization s investment in Dimension Data s Uptime Services. These are shown in Table 13 below. Table 13 Cash Flow: Non-Risk-Adjusted Cash flow: original estimates Initial Year 1 Year 2 Year 3 Total PV Costs ($16,700) ($139,650) ($139,650) ($139,650) ($435,650) ($363,989) Benefits $0 $383,500 $355,500 $355,500 $1,094,500 $909,531 Total ($16,700) $243,850 $215,850 $215,850 $658,850 $545,542 ROI 150% Payback period Within 12 months Table 14 below shows the risk-adjusted ROI, NPV, and payback period values. These values are determined by applying the risk-adjustment values from Table 12 in the Risk section to the cost and benefits numbers in Tables 6 and 11. Table 14 Cash Flow: Risk-Adjusted Cash flow: risk-adjusted estimates Initial Year 1 Year 2 Year 3 Total PV Costs ($17,267) ($146,375) ($146,375) ($146,375) ($456,391) ($381,279) Benefits $0 $347,290 $320,970 $320,970 $989,230 $822,132 Total ($17,267) $200,916 $174,596 $174,596 $532,840 $440,854 ROI 116% Payback period Within 12 months Page 19

21 Dimension Data Uptime Services: Overview According to Dimension Data, Uptime Services provide a cost-effective way of handling resource constraints by accessing the right IT resource for the environment at the right time. Through Uptime Maintenance, Dimension Data teams not only handle faults and restore IT products across multiple vendors and their technologies, but they also make the fix within a set response or result time that is agreed with the client. However, their view is that adding value to the IT environment means moving away from break-fix maintenance and becoming proactive in the approach to IT support. With Uptime Support from Dimension Data, clients can make this leap without the capital expense of employing additional experts in-house. Dimension Data has capabilities in aggregating, maintaining and supporting IT vendors and their technologies across the globe: Uptime Maintenance. Dimension Data monitors device availability, tracks IT assets, and restores failed devices to working order within agreed response times. The service focuses on ensuring that the client s IT infrastructure is available for business and that the client has control over the assets in the environment at all times. The client relies on Dimension Data to return to service any IT asset under contract that is not operating properly in some way. A repair can be anything from a simple device replacement to a full reconfiguration of the asset. A client with a maintenance contract can expect Dimension Data to 1) manage the client call (from call logging to call closure); 2) ensure full management of the response to the client s service request (including all actions needed to fulfill the service request whether performed directly by Dimension Data or a third party on its behalf); and 3) ensure that the client s service request is closed upon restoration (restoration meaning that the agreed commitment between Dimension Data and the client is met). Multivendor service aggregation forms part of this service where Dimension Data provides a single point of contact from a service delivery and commercial perspective, managing calls with vendors as well as vendor contracts on behalf of the client. This helps the client minimize the number of interfaces its IT resources have to deal with for service requests, reducing the complexity and challenges of managing multiple service delivery partners. Uptime Support. Dimension Data provides access to skills that offer expert technical advice and perform proactive activities within the client s IT environment. Support services include Dimension Data providing (scheduled or on-request) technical advice, expert technical assistance, management of MACDs, and the fulfillment of periodic assessments and trend analysis. Providing transparent service to the client is achieved through regular meetings with Dimension Data service delivery managers and ensures that the client does not only get visibility into the state of the environment, but also receives recommendations to help it plan for and improve the IT environment on an ongoing basis. Page 20

22 Appendix A: Composite Organization Description For this TEI study, Forrester has created a composite organization to illustrate the quantifiable costs and benefits of using Dimension Data s Uptime Services. The composite company is intended to represent a manufacturing company based in Australia. The company develops, manufactures, and distributes stainless steel products for industry, utility, and building technology. It employs about 5,000 people and generates annual revenue of close to $1 billion. The company has about 15 sites throughout the continent, some of them fairly remote. The organization s IT department of 20 staff is rather small. Due to budget constraints, the department cannot afford to hire fully certified and highly skilled network engineers. However, as the network is a critical asset for the manufacturer, it wanted to ensure that the network is appropriately protected against hardware failures and serious outages. The organization wanted to get predictable service, but knew that it could not support the required service levels with its limited in-house resources. Therefore, the decision was made to outsource the break-fix maintenance and support of network devices to Dimension Data. Now, the 300 network chassis (70% small, 20% medium-size, 10% large) mainly containing Cisco routers and switches are covered by the Uptime Services contract. The most critical assets have a restore SLA of 4 hours; less critical devices will be replaced the next business day. Achievement of service levels is examined regularly in service management reports and during service management reviews. The company also prepurchases about 60 on-site MACDs per year that are used for various configuration changes; Dimension Data conducts an annual assessment to help the company control its network infrastructure health and life cycle. Appendix B: Total Economic Impact Overview Total Economic Impact is a methodology developed by Forrester Research that enhances a company s technology decision-making 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. The TEI methodology consists of four components to evaluate investment value: benefits, costs, risks, and flexibility. 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. Page 21

23 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. Risk Risk measures 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 applies a probability density function known as triangular distribution to the values entered. At minimum, three values are calculated to estimate the underlying range around each cost and benefit. 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 enterprisewide 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 in time. However, having the ability to capture that benefit has a present value that can be estimated. The flexibility component of TEI captures that value. Appendix C: Glossary Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although the Federal Reserve Bank sets a discount rate, companies often set a 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 organization 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 net present value of cash flows. Page 22

24 Payback period: The breakeven point for an investment 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 Framework Assumptions section) at the end of the year. Present value (PV) calculations are calculated for each total cost and benefit estimate. Net present value (NPV) calculations are not calculated until the summary tables and are the sum of the initial investment and the discounted cash flows in each year. Table [Example] Example Table Ref. Category Calculation Initial cost Year 1 Year 2 Year 3 Total Appendix D: Related Forrester Research Related Forrester Research Justifying The Business Case For Business Technology Resiliency, Forrester Research, Inc., June 11, 2012 Demand Insights: The Network And Telecommunications Market For SMB Customers, Forrester Research, Inc., February 8, 2012 Building The Always-On, Always-Available Extended Enterprise, Forrester Research, Inc., February 1, 2012 How To Create A Realistic Global SLA For Managed Network Services, Forrester Research, Inc., January 5, 2011 Page 23

25 Appendix E: Endnotes 1 Forrester risk-adjusts the summary financial metrics to take into account the potential uncertainty of the cost and benefit estimates. For more information on Risk, please see page To account for the uncertainty associated with estimating increased uptime benefits, we have risk-adjusted these benefits down by 17% (see the Risk section). The final risk-adjusted ROI in this study therefore only includes 83% of the benefit shown in Table 8. Page 24