The Total Economic Impact Of BMC s Service Impact And Event Management Solutions

Transcription

1 Prepared for BMC Software July 28, 2006 The Total Economic Impact Of BMC s Service Impact And Event Management Solutions HealthSouth Corporation Project Director: Bob Cormier, Forrester Consulting

2 Table Of Contents Executive Summary...3 About BMC Service Impact And Event Management Solutions...5 Costs, Benefits, Flexibility, And Risks...7 Financial Analysis Summary: HealthSouth...12 Conclusions...13 Appendix A: Total Economic Impact Overview...14 Appendix B: About The Project Director Forrester Research, Inc. Circulation or disclosure in whole or in part of this report outside the authorized recipient organization is expressly forbidden without the prior written permission of Forrester Research, Inc. Forrester, Forrester Oval Program, Forrester Wave, WholeView 2, Technographics, TechRankings, Total Economic Impact, and TEI are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. 2

3 Executive Summary In April 2006, BMC Software commissioned Forrester Research to examine the financial impact and potential return on investment (ROI) an organization might realize from implementing BMC Service Impact and Event Management solutions. To determine the impact, Forrester examined the specific costs, benefits, flexibility, and risk elements that one healthcare customer experienced when it implemented BMC Service Impact and Event Management solutions. The organization is HealthSouth Corporation, which has more than 1,800 facilities in the US (all 50 states), the United Kingdom, Australia, Saudi Arabia, and Puerto Rico. Purpose The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of BMC Service Impact and Event Management solutions. Forrester s aim is to clearly show all calculations and assumptions that go into the analysis. This study should be seen as a guide to better understand and evaluate BMC solutions. Methodology BMC selected Forrester for this project because of our expertise in understanding and determining the impact of IT actions on the business services they support and Forrester s Total Economic Impact (TEI) analysis methodology. TEI not only measures costs and benefits (areas that are typically accounted for within IT) but also weighs the enabling value of a technology in increasing the effectiveness of overall business processes. Forrester s TEI methodology serves an extremely useful purpose by providing a complete picture of the total economic impact of purchase decisions (see Appendix A for additional information on the TEI methodology). Approach Forrester used a four-step approach for this study: 1. Forrester interviewed BMC marketing and sales executives to fully understand the value proposition of BMC Service Impact and Event Management solutions. 2. Using knowledge of service impact and event management solutions, as well as input from existing Forrester research and BMC, Forrester representatives conducted several in-depth discussions with Tracy Foy, director of Systems Infrastructure for HealthSouth Corporation. 3. Forrester constructed a financial value model representative of the data collected in the interview. 4. Forrester created this study, which represents and examines the estimated value of the findings derived from the customer interview and analysis process, as well as from Forrester s independent research. 3

4 Key Findings Table 1 represents a summary of the ROI HealthSouth realized over a three-year period by deploying BMC Service Impact and Event Management solutions. Table 1: Three-Year Summary Financial Results HealthSouth Summary financial results Risk-adjusted ROI 177% Payback period Within six months Total costs (PV) ($729,196) Total cost savings and benefits (PV) $2,018,283 Total (NPV) $1,289,087 Source: Forrester Research, Inc. The three-year, risk-adjusted total NPV (net present value) of $1,289,087 represents the net cost savings and benefits attributed to the BMC Service Impact and Event Management solutions when compared with HealthSouth s prior manual and homegrown tools/processes. (See details below in Costs, Benefits, Flexibility, and Risks section). In addition, the risk-adjusted ROI was a very favorable 177%. The objective of this study is not to illustrate savings that other enterprises can obtain by deploying BMC Service Impact and Event Management solutions but rather to identify savings experienced by HealthSouth. These results can be used as a guide to allow other enterprises to determine the appropriate benefits for their particular environments. Disclosures The reader should be aware of the following disclosures associated with this study: The study was commissioned by BMC Software and delivered by the Forrester Consulting group. BMC and HealthSouth reviewed and provided feedback to Forrester, but Forrester maintained editorial control over the study, its findings, and financial data. Forrester did not accept any changes to the study that contradicted its findings, obscured the meaning of the study, or changed any of the data collected. HealthSouth and the interviewee name was provided by BMC. Forrester makes no assumptions as to the potential ROI other enterprises will receive within their own environments. Forrester strongly advises that the reader use his or her own estimates within the framework provided in the study to determine the appropriateness of implementing BMC Service Impact and Event Management solutions. This study is not an endorsement by Forrester of BMC Software or its offerings. The study is not a competitive product analysis. 4

5 About BMC Service Impact And Event Management Solutions The topic of this case study is BMC Service Impact and Event Management solutions, which are part of a broader set of business service management (BSM) solutions from BMC. According to BMC, BSM is a dynamic IT management strategy that enables organizations to align their IT operations and resources with their key business objectives. By focusing IT technology, people, and processes on supporting critical business services, IT management can increase the quality and value of IT services, while reducing the cost of IT service delivery and lowering the risks of failure to business operations. Using the BSM approach, IT staff can continuously monitor, manage, and improve the specific IT systems and applications that are most important to the business. BSM also enables companies to understand and predict how technology changes will affect their business and how changes in the business affect the IT infrastructure. BMC offers eight milestone-driven approaches to BSM, known as BSM Routes to Value. The BMC Service Impact and Event Management Route to Value provides event management and service impact management technologies to enable BSM. These Service Impact and Event Management solutions integrate service impact management with event processing automation to build a service model that maps IT components to the business services they support, consolidating, enriching, and correlating events, as well as determining root causes and the impact of events on business services. With regard to compliance, the BMC Service Impact and Event Management Route to Value allows organizations to map all of the IT components and dependencies that are critical to the business, thus helping to facilitate problem management. In addition, BMC Service Impact and Event Management enables organizations to integrate enterprisewide event management and monitoring capabilities and automate the mapping of IT components to business services: Leverage existing resources by integrating with monitoring and event management tools. Optimize IT team productivity by consolidating and processing raw events from across the enterprise IT infrastructure. Reduce mean-time-to-repair (MTTR) by filtering and correlating the data to deliver meaningful and actionable information to the IT staff. Optimize the service impact and event management investment by linking business processes and services and underlying IT infrastructure information into a centralized database, shared across all BSM Routes to Value. This study will focus on Service Impact and Event Management and the value HealthSouth received from using the BMC products described below. 5

6 HealthSouth Chooses BMC Service Impact And Event Management Solutions HealthSouth needed a solution that would help it across the enterprise not just a point product or another homegrown application, but an all-encompassing solution that would identify IT problems across its infrastructure. In addition HealthSouth uses BMC Remedy Service Desk (formerly BMC Remedy Help Desk) and has experienced integration benefits (unquantified) with adding BMC Service Impact and Event Management solutions. In March 2005, HealthSouth deployed the BMC Service Impact and Event Management solutions across five mission-critical applications on 800 servers in a very short time period (90 days), allowing HealthSouth to start experiencing some of the benefits immediately. Here are the BMC products and services that were implemented that replace the existing manual processes and several homegrown tools: BMC Service Impact Manager. The BMC Service Impact Manager (BMC SIEM) solution provides real-time impact management to determine the effect of IT problems on business services and their customers. BMC Impact Explorer. The BMC Impact Explorer product (BMC IX) provides a crossplatform operator and administrator interface for defining and managing events and for viewing service models. The BMC Impact Explorer operations console is used by IT staff to perform event and service management activities on events from any number of BMC Impact Manager instances. BMC Event Manager. BMC Event Manager allows organizations to detect IT problems and concentrate on the fastest resolution before there is an impact on critical IT services. This product receives events from IT components and translates them into information to solve the problem faster by filtering, prioritizing, enriching, correlating, and automatically handling events according to business and operations priorities. It also automates corrective actions, integrates diverse technologies (frameworks), and interoperates with other management applications like a help desk. BMC Maintenance Support. Three years of BMC maintenance support for BMC Service Impact Manager and BMC Impact Explorer (the first year of support was included in the initial license fee). BMC Professional Services. BMC Professional Services can help organizations plan, design, implement, and manage the deployment of solutions to their optimal advantage including ITIL best practice processes. 6

7 Costs, Benefits, Flexibility, And Risks To calculate the ROI for HealthSouth, Forrester analyzed the costs, benefits, flexibility, and risks associated with deploying the BMC Service Impact and Event Management solutions. Costs The key cost categories associated with the BMC Service Impact and Event Management offerings total $840,500 and are as follows: Planning, testing, and implementation costs: o Internal IT labor costs to plan, test, and implement the solution of $2,000. HealthSouth estimates that six engineers (average 8 hours each) were involved with testing the BMC Service Impact and Event Management software using different configurations on test hardware and later assimilated it into their larger production environment, and these costs are listed separately. o BMC Professional Services personnel were also involved in planning and implementation services (25 days) for $50,000. Purchased incremental back-end servers for BMC Service Impact and Event Management software at an initial cost of $40,000 plus $18,000 ($6,000 annually for three years) in maintenance. BMC SIEM Software Suite (including BMC Impact Explorer, BMC Service Impact Manager, BMC Service Impact Manager Service Components) and first-year maintenance costs of $91,000. o Maintenance support costs for BMC SIEM Software Suite (Impact Manager) of $52,000 ($26,000 annually for Years 2 and 3 of this analysis). BMC SIEM Software Suite (Event Manager) and first-year maintenance costs of $122,500. o Maintenance support costs for BMC SIEM Software Suite (Event Manager) of $70,000 ($35,000 annually for Years 2 and 3 of this analysis). BMC Service Impact and Event Management training costs of $5,000 for two staff members. HealthSouth uses two full-time IT staff to perform SIEM Administrator duties at a total three-year cost of $390,000 ($130,000 per year). Note: Pricing for BMC Software, Maintenance, Professional Services, and Training reflect normal and typical discounts BMC provides its United States customers. 7

8 Table 2: Total Cost Of Implementing BMC Service Impact And Event Management Solutions Project costs Year 0 Year 1 Year 2 Year 3 Total PV Internal pre-planning and testing of BMC Service Impact and Event Management products BMC Professional Services planning and testing of BMC Service Impact and Event Management products Servers (and support costs) to host the BMC Service Impact and Event Management software $2, $2,000 $2,000 $50, $50,000 $50,000 $40,000 $6,000 $6,000 $6,000 $58,000 $54,411 BMC SIEM Software Suite (Service Impact Manager) licenses and maintenance BMC SIEM Software Suite (Event Manager) licenses and maintenance BMC Service Impact and Event Management Training Two full-time IT staff to perform SIEM Administrator duties $91,000 0 $26,000 $26,000 $143,000 $130,233 $122,500 0 $35,000 $35,000 $192,500 $175,314 $5, $5,000 $5,000 0 $130,000 $130,000 $130,000 $390,000 $312,238 Total costs $310,500 $136,000 $197,000 $197,000 $840,500 $729,196 Source: Forrester Research, Inc. Benefits HealthSouth identified three significant and quantifiable benefits totaling $2,561,595 over three years resulting from implementation of BMC Service Impact and Event Management solutions. 1. Cost avoidance savings from increased productivity of IT Operations staff and improved service and availability $1,950,000. BMC Service Impact and Event Management solutions help optimize HealthSouth s IT staff productivity by automatically identifying the technical root cause and business impact of an outage and prioritizing events accordingly. HealthSouth s Director of Systems Infrastructure reported that about 50 IT infrastructure staff (service system engineers, network engineers, data center operations, support center, and desktop support) have benefited (improved productivity) from BMC Service Impact and Event Management solutions, and for the first year of implementation, the Productivity Optimization factor associated with centralized Service Impact and Event Management was 20%. As a result, HealthSouth was able to grow and improve service delivery while avoiding the cost of 10 additional FTE resources that would have been required to provide a minimum level of support without BMC Service Impact and Event Management solutions. 8

9 Table A: Savings From Increased Productivity Of IT Operations Staff (non-risk-adjusted) Ref Description Calculation Value Number of people in IT Operations team affected by A1 BMC Service Impact and Event Management 50 A2 Average cost of IT operations employee (fully loaded) $65,000 A3 Productivity optimization factor reported by HealthSouth 20% A4 Annual cost avoidance of not hiring 10 additional staff to support growth over 3 years A2*10 staff $650,000 A5 Savings from increased productivity of IT Operations Staff over a three-year period A4*3 years $1,950,000 Source: Forrester Research, Inc. 2. Savings from fewer escalated problems $480,930 (risk-adjusted). HealthSouth is experiencing a reduction in the number of technical events/calls that are escalated to more expensive second-level specialists. This is due to first-level staff s ability to use the BMC solution s root-cause analysis and correlation techniques and the automatic error resolution triggers that have been put in place. Level two support staff has a fully loaded labor premium of $9,000 per year ($74,000 versus $65,000 for first level) saving HealthSouth $25.02 per second tier call avoided. With BMC Service Impact and Event Management solutions, HealthSouth anticipates avoiding 34,500 escalated events/calls over a three-year period creating a savings opportunity of $961,860. However, HealthSouth will not be reducing headcount as a result of this benefit; instead, the staff is now able to focus on areas that require attention prior to an escalated event occurring and additional activities that improve the overall business service management of the IT organization. Forrester and HealthSouth recognize the real savings risk associated with assigning staff to these other areas and have adjusted the benefit downward by 50% (to $480,930) to reflect this transition risk. Table B: Savings from Fewer Escalated Events/Calls to Second-Level Support Ref Description Calculation Value B1 Number of help desk events/calls per year (11,500 per month) 11,500*12 138,000 B2 Prior to implementation, 75% of these calls subsequently required escalation to second tier support staff B1* ,500 B3 During the first year of implementation, only 71% of these calls subsequently required escalation to second tier support staff B1*.71 97,980 B4 During the second year after implementation, only 67% of these calls subsequently required escalation to second tier support staff B1*.67 92,460 B5 During the third year after implementation, only 62% of these calls subsequently required escalation to second tier support staff B1*.62 85,560 B6 Total calls that avoided being escalated to second tier over this three-year analysis after implementation (B2-B3)+(B2- B4)+(B2-B5) 34,500 B7 Number (FTE) of second tier help desk staff 39 B8 Average cost of first-level IT operations employee (fully loaded) $65,000 B9 Average cost of second-level IT operations employee (fully loaded) $74,000 B10 Prior to implementation cost per second tier event/call (B7*B9)/B2 $27.88 B11 Savings (before risk-adjustment) from fewer escalated events/calls over a three-year period B10*B6 $961,860 B12 50% downward risk adjustment recognizing that HealthSouth has no plans to reduce headcount. B11*.50 $480,930 Source: Forrester Research, Inc. 9

10 3. Potential reduction in unscheduled downtime: $90,000 in gross profit over three years. HealthSouth may achieve savings from a reduction in unscheduled downtime for five mission-critical business services (surgery, in-patient rehabilitation, out-patient rehabilitation, diagnostic imaging and corporate finance) using BMC Service Impact and Event Management solutions. According to HealthSouth s Director of Systems Infrastructure, the potential for HealthSouth to lose revenue varies depending on the impacted service with an average revenue loss of $5,000 per hour of downtime, per service which translates into $1,000 in gross margin profit of 20%. Prior to implementing BMC Service Impact and Event Management solutions, each application experienced an average of 60 minutes downtime per month. After implementing the BMC Service Impact and Event Management solutions, the MTTR of outages was reduced by 50%, cutting unscheduled downtime and gross profit loss by 50%. Because BMC Service Impact Manager will automatically identify the technical root cause and business impact of an outage and prioritize events accordingly, the MTTR is accelerated by an average of 30 minutes per outage. Table C: Savings From Reduction In Business Application Unscheduled Downtime (nonrisk-adjusted) Ref Description Calculation Value C1 Number of critical business services 5 C2 Average downtime (hours per month, per business application) 1.0 C3 Average hours of business application downtime annually C1*C2*12 months 60 C4 Average revenue loss per hour of downtime $5,000 C5 Gross profit margin % 20% C6 Gross profit margin loss per hour of downtime C4*C5 $1,000 C7 Gross profit loss prior to implementing BMC Service Impact and Event Management solutions (annually) C3*C6 $60,000 C8 Gross profit loss over a three-year period C7*3 $180, Below are results of implementing Service Impact and Event Management solutions C9 Reduction in MTTR 50% Savings from reduction in business application downtime C10 over a three-year period C8*C9 $90,000 Source: Forrester Research, Inc. HealthSouth achieved savings of $90,000 from reduction in business application downtime over a three-year period. Forrester recognizes that most other BMC Service Impact and Event Management customers achieve greater savings from reductions in business application unscheduled downtime. For HealthSouth, its business-critical applications do not experience high cost per downtime; hence, its savings are atypically low. HealthSouth s primary goal in implementing the BMC solution was to achieve significant cost avoidance from process optimization for its IT operations staff (see Table A, above). Forrester makes no assumptions regarding the effects of BMC Service Impact and Event Management solutions at other organizations. For the benefits quantified above, each reader needs to determine his/her organization s status relative to the ability of BMC Service Impact and Event Management s ability to deliver savings and cost reductions. The underlying objective of this document is to provide guidance to technology decision-makers seeking to identify areas where value can potentially be created by using BMC Service Impact and Event Management Solutions. HealthSouth identified the following additional benefits achieved from using BMC Service Impact and Event Management solutions; however, it was not able to quantify the benefits. 10

11 Service modeling that provides business impact and IT relationship information for its surgery services, in-patient rehabilitation services, outpatient rehabilitation services, diagnostic imaging, and corporate finance systems. Ability to establish and track SLAs (Service Level Agreements) with internal customers to improve IT alignment with business needs and values. Improved service levels due to problems being resolved before users notice. A reduction in the number of event management consoles (the BMC event console replaced seven homegrown views/consoles). Ability to coordinate tasks from automated discovery to recovery and to understand all the elements of assets that can negatively affect an IT service. Flexibility Options Flexibility, as defined by Forrester s TEI methodology, represents investing in additional capacity or agility today that can be turned into business benefits later, at some additional cost. HealthSouth cited the flexibility of the BMC Service Impact and Event Management framework authority that allows HealthSouth to plug in additional BMC products, install the agents, and configure the various alerts. The Director of Systems Infrastructure stated that they don t have to think about how these future solutions will be assimilated into their environment because of the existing BMC Service Impact and Event Management framework. This flexibility allows HealthSouth to get systems up and running in their environment and to monitor them more quickly than prior to implementing the BMC Service Impact and Event Management solutions. Forrester and HealthSouth believe that there is potential value in having the flexibility and agility of the BMC Service Impact and Event Management framework; at this time, HealthSouth is unable to quantify these flexibility options. In some instances, the reader of this study may believe that his/her organization is ready to take advantage of the flexibility of the BMC Service Impact and Event Management solutions, and in that case, the option will have a present value that can be estimated. The flexibility component of TEI captures that value using the financial industry standard Black-Scholes options pricing model. The value of flexibility is clearly unique to each organization, and the willingness to measure its value varies from company to company (see Appendix A for additional information regarding flexibility). Risks And Risk Mitigation Strategies There are two aspects of risk and risk mitigation considered in this study: project risks and the risks associated with the estimates of costs and benefits in a business case. Below is a summary of each. Project Risk And Mitigation There are risks associated with IT projects in general and some risk specifically associated with service impact and event management solutions; however, HealthSouth s Director of Systems Infrastructure indicated that it was a relatively low-risk venture due to its risk mitigation strategy of pre-implementation planning and testing done by internal staff as well as BMC Professional Services. 11

12 When asked how other organizations might mitigate the implementation risks, the Director of Systems Infrastructure stated that the Service Impact and Event Management system administrator should be a senior person with about seven years of experience and a detailed understanding and background in various operating systems and network environments. The BMC Service Impact and Event Management solutions also reduced business risk, allowing the IT Operations staff and frontline support personnel to have awareness and visibility into outages that affect business and to reduce the overall outage time window. Risks Associated With Estimates Of Costs And Benefits Risk-adjusted and non-risk-adjusted ROI are both discussed in this study. Since the future cannot be accurately predicted, there is risk inherent in any project. Risk assessments provide a range of possible outcomes based on the risks associated with IT projects in general and specific risks relative to moving toward a particular technology solution. With the benefit of hindsight, HealthSouth believes that its investment in BMC Service Impact and Event Management solutions carried a low level of risk mitigated by its pre-implementation planning and testing activities. Financial Analysis Summary: HealthSouth Table 1 (below; repeated from the Executive Summary) represents a summary of the costs and savings HealthSouth expects to achieve during the three-year period by using BMC Service Impact and Event Management solutions. Table 1: Three-Year Summary Financial Results HealthSouth Summary financial results Risk-adjusted ROI 177% Payback period Within six months Total costs (PV) ($729,196) Total cost savings and benefits (PV) $2,018,283 Total (NPV) $1,289,087 Source: Forrester Research, Inc. The three-year, risk-adjusted total NPV (net present value) of $1,289,087 represents the net cost savings and benefits attributed to the BMC Service Impact and Event Management solutions when compared with HealthSouth s prior manual and homegrown tools/processes. (See details in Costs, Benefits, Flexibility, and Risks section). In addition the risk-adjusted ROI was a very favorable 177%. If a risk-adjusted ROI still demonstrates a compelling business case, it raises confidence that the investment is likely to succeed because the risks that threaten the project have been taken into consideration and quantified. The risk-adjusted numbers should be taken as realistic expectations since they represent the expected value considering risk. Assuming normal success at mitigating risk, the risk-adjusted numbers should more closely reflect the expected outcome of the investment. 12

13 Conclusions This study is meant to provide the reader with a framework to examine the costs and benefits of deploying BMC Service Impact and Event Management solutions. Based on our in-depth discussions with the BMC customer, Forrester and HealthSouth project a three-year risk-adjusted ROI of 177%. The net present value for the investment is $1,289,087 (risk-adjusted). For HealthSouth, a successful, well-planned implementation allowed cost savings and benefits to accrue to its IT organization. In addition, the study found potential value (unquantified) in the ability of BMC Service Impact and Event Management solutions to model the business impact and IT relationship information for applications supporting its surgery services, in-patient rehabilitation services, outpatient rehabilitation services, diagnostic imaging, and corporate finance systems. Other types of organizations that are likely to see beneficial results using BMC Service Impact and Event Management solutions include: Organizations that are trying to better understand the IT event links to business services and are manually mapping assets to business services today. Organizations that are trying to move beyond the collection of events to better understand the business impact on SLAs. Large distributed organizations that rely heavily on real-time technology to run its mission-critical business services. Organizations that use several different monitoring tools to collect event information from its distributed environment and are looking to consolidate those tools/consoles. For HealthSouth, BMC Service Impact and Event Management solutions carry a relatively low level of risk, a very positive 177% risk-adjusted ROI and a quick (within) six-month horizon to recoup the investment. Forrester makes no assumptions regarding the effects of BMC Service Impact and Event Management solutions at other organizations. This study examines the financial impact attributable to one organization. The underlying objective of this document is to provide guidance to technology decision-makers seeking to identify areas where value can potentially be created by using BMC Service Impact and Event Management solutions. 13

14 Appendix A: 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, cost, flexibility, and risk. 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 for analysis of the impact of the technology on the entire organization. The TEI methodology and resulting financial model places equal weight of the measure of benefits to that of costs, allowing for a full examination of the impact of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue between the user-organization and IT 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. Cost Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs. These may be in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investment and expenses necessary to deliver the value proposed. 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 initial investment in an enterprisewide upgrade of an office productivity suite can increase standardization (to increase efficiency) and reduce licensing costs. Later, the organization may decide to take advantage of an embedded collaboration feature, which may translate to greater worker productivity if activated. However, this collaboration feature can only be used with an additional investment in user training. The ability to capture the benefit associated with this collaboration feature has a present value that can be estimated. The flexibility component of TEI captures that value using the Black-Scholes option pricing model. Risk Risk is the fourth component of the TEI methodology. It is a measurement of the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured 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. 14

15 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. 15

16 Appendix B: About The Project Director Bob Cormier Principal Consultant Bob is a principal consultant for Forrester s Total Economic Impact (TEI) service. He specializes in advising clients on the TEI framework services that help organizations make decisions about the overall financial value of IT strategies and investments. Bob came to Forrester through its acquisition of Giga Information Group and has more than 20 years experience in the IT and consulting industries. Prior to joining Giga, he held senior-level positions at two leading ebusiness consulting firms, ZEFER and Cambridge Technology Partners. Bob has successfully led company efforts to optimize financial, operational, and resource planning activities, incorporating leadingedge, professional service automation (PSA) applications and enterprise resource planning (ERP) systems. He has also held management positions at Digital Equipment and Anixter International. Bob earned an M.B.A. from Bentley College and a B.S. in business from the University of New Hampshire. As an adjunct professor, he has taught finance and economics courses for more than 10 years at Southern New Hampshire University and Daniel Webster College. 16