WHITE PAPER Determining the Return-on-Investment from Deploying Consolidated Event and Performance Management

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1 WHITE PAPER Determining the Return-on-Investment from Deploying Consolidated Event and Performance Management Sponsored by: Hewlett-Packard Elisabeth Rainge Morris Edwards April 2006 Randy Perry Global Headquarters: 5 Speen Street Framingham, MA USA P F EXECUTIVE SUMMARY In today's IT-centric business environment, IT executives must assure optimum IT service availability and performance while keeping operational overhead to a minimum. To meet these needs, suppliers of IT management software have developed solutions that improve IT staff productivity and efficiency, and also reduce downtime by shortening the mean time to repair faults. These solutions scale across large environments, readily adapt to changing business conditions, and provide endto-end management of diverse, heterogeneous IT infrastructures. One company that offers such solutions is Hewlett-Packard with its HP OpenView (OV) portfolio of management software. Included in the portfolio is the HP OV Consolidated Event and Performance Management (CEPM) solution, an integrated enterprise management solution designed to help IT departments deliver and manage cross-domain IT services more efficiently to better serve the business teams that rely on them. The solution automates manual tasks to increase IT productivity and trim operational overhead. It also performs root-cause analysis quickly and accurately, reducing mean time to repair and increasing service availability. To assess and quantify the business benefits of the management software, IDC conducted in-depth interviews with a number of organizations using HP OV Consolidated Event and Performance Management solutions. IDC asked detailed questions about the implementation costs in deploying the solutions and the cost savings and other benefits realized compared with the prior use of homegrown and competitive products. Box ROI Analyst for HP OpenView Customized business case tools are now available that estimate the ROI and organizational benefits customers can expect from implementing HP OpenView management solutions. The tools are based on data gathered by IDC from HP OpenView customers and industry-standard data provided by Alinean. Please contact your OpenView account representative to learn more about this service.

2 IDC found that, for the companies surveyed, downtime dropped by an average of 32.75% following deployment of the management software. This reduction in downtime resulted in an average recaptured revenue of close to $1.3 million annually. The reduced downtime also increased the productive time of internal end users by an average of 2.4 hours per month per user. Additionally, there was an average reduction in time lost waiting for help desk support of 0.4 hours per month per user. The increased user productivity from reduced downtime and time lost waiting for help desk support contributed an average annual savings over three years of more than $7 million. When normalized for the number of end users supported by the company's IT organization, the savings amounted to $181,878 per 100 users. The IT managers interviewed also reported that they had realized substantial savings in staff hours expended on a number of management tasks, including a 13% saving in time spent on incident management, a 23% saving in managing the network infrastructure, and a 27% saving in managing the Internet and transactional customer experience. Overall, for the companies surveyed, IT productivity jumped by an average of 36%, resulting in an average cost savings over three years of more than $9 million annually, or $234,358 per 100 users. The companies surveyed also saved an average of close to $2.7 million a year from improved IT management efficiency and other economies, amounting to $69,145 per 100 users. The savings in IT efficiency came from a 60% increase in the average number of users managed by each FTE. This yielded an average reduction in IT headcount growth of 28% a year, and a payroll savings of more than $2.3 million a year over the three years, or $60,387 per 100 users. Additional savings came from bandwidth, capex and inventory savings, and from reductions in PC maintenance contract costs and the number of visits to remote sites for repairs. These savings averaged $337,045 a year. For the HP customers surveyed, the total benefits averaged close to $20 million annually over three years (see Table 1). The companies invested an average of more than $10 million over three years in deploying the HP OpenView management solution, resulting in a net present value for the three-year savings of more than $36.7 million, or $954,099 per 100 users. 2 # 2006 IDC

3 TABLE 1 ROI analysis for deploying HO OV Consolidated Event and Performance Management Item Average Three-year cost of investment Annual cost savings and increased revenue Net present value of three-year savings Payback period $10 million $20 million $36.7 million 10.3 months ROI over three years 367% Source: IDC, 2006 Based on these numbers, the payback period from deploying the HP OV Consolidated Event and Performance Management solution averaged 10.3 months for the companies surveyed, yielding an average return on investment of 367%. Many IT departments need to be making wise investments that can improve their alignment with business goals. To this end, products and solutions which fit with ITIL and service management, such as HP ITSM and BSM, could be viewed as a forwardlooking investment and one that can be implemented gradually through modules. INTRODUCTION In the past, IT departments were viewed as cost centers, charged with upgrading and managing the IT infrastructure at minimal expense. The budget constraints remain, but the IT department must now demonstrate its value as a business enabler, capable of fully supporting and adjusting to the organization's changing goals and objectives, and helping to retain and attract new customers. Additionally, IT managers must optimize vital IT assets, including operating systems, networks and applications, to ensure the highest performance and availability of critical business services. Frequent downtimes cost businesses dearly, especially in today's web-centric world, where 24x7 access is essential. IT managers must try to prevent problems by proactively detecting potential failures before they materialize. When problems do occur, the root cause must be determined quickly, and its business impact ascertained, so that corrective action can be prioritized to minimize disruption of mission-critical services. To control costs and deal with staff inefficiencies and skill shortages, IT managers realize they must automate manual processes. In a recent IDC survey, IT executives said that their top priority was to increase operational efficiency through automation (see Figure 1). With the growing complexity, diversity and dispersion of IT assets, 2006 IDC # 3

4 they also need an enterprise-wide view of the entire IT infrastructure, preferably using a single console for end-to-end management. FIGURE 1 Top goals of IT departments Increase IT efficiency by automation Use IT to monitor the business Speed time to integrate applications Speed applications development Improve system management Others (%) ( n = 204) Source: IDC, To meet these needs, suppliers of IT management software have developed solutions that improve IT staff productivity and efficiency, while assuring high availability of services. These solutions scale across large environments, readily adapt to changing business conditions, mergers and acquisitions and organizational restructuring, and provide end-to-end management of diverse, heterogeneous IT infrastructures. One company that offers such solutions is Hewlett-Packard with its HP OpenView (OV) portfolio of management software. HP OV Consolidated Event and Performance Management is an integrated enterprise management solution designed to help IT departments deliver and manage cross-domain IT services more efficiently to better serve the business teams that rely on them. The solution is made up of management products such as HP OpenView Operations for Windows, HP OpenView Operations for Unix, HP OpenView Performance Agent, HP OpenView Performance Manager, HP OpenView GlancePlus and HP OpenView Reporter. These products are highly scalable and well integrated with other HP OpenView products. They improve IT staff productivity and efficiency by automating manual tasks and performing root-cause analysis quickly and accurately. Intended to consolidate the health monitoring of the entire IT infrastructure from a services perspective, the software provides end-to-end management of heterogeneous environments of any size under a centralized point of control. HP OpenView Operations for Windows is a Windows-based event management product that provides proactive performance monitoring, automated alerting, reporting, and graphing for Windows, Linux, and Unix systems, middleware and applications. 4 # 2006 IDC

5 HP OpenView Operations for Unix discovers, monitors, controls and reports on the availability and performance of heterogeneous, large-scale IT environments. It consolidates information for all IT components that control an organization's business, including network, systems, storage, databases, and applications. HP OpenView Performance Agent is the collection, logging and alarming component of the HP OpenView Performance family. With its versatile application response measurement capabilities, the HP OpenView Performance Agent is the core enabling technology in HP s service management strategy. HP OpenView Performance Manager is a new Web-based analysis and visualization tool designed to analyze performance trends of applications, systems and services. It utilizes data collected from the HP OpenView Performance Agents and other sources to isolate performance bottlenecks and maximize resource uptime. HP OpenView Glance Plus is a system performance monitoring and diagnostic tool. It provides immediate performance information about system components and lets administrators examine system activities, identify and resolve performance bottlenecks, and tune the system for more efficient operation. HP OpenView Reporter is a management reporting solution designed to support service level reporting and planning. It also provides reports targeting IT service quality levels, such as application response times and server resource consumption, to both IT and business managers at regularly scheduled intervals. HP OV Consolidated Event and Performance Management determines the business impact of performance and system events, provides correlation for event filtering, and arms the IT manager with real-time and historical data to plan activities. Events can trigger pre-defined automatic actions, freeing IT staff for more productive tasks. In addition to speeding the isolation of system-level bottlenecks, the software allows IT managers to set alarms to detect outages based on statistical usage trends, and to predict future system loads to help reduce downtime. Out-of-box integration with other HP OpenView and third-party software also helps to reduce operational and maintenance costs. QUANTIFYING THE BUSINESS BENEFITS OF CONSOLIDATED EVENT AND PERFORMANCE MANAGEMENT Organizations are increasingly using an ROI analysis to assess the business value derived from their management software deployments. In IDC's 2005 System Management Software Strategies Survey, respondents from companies of all sizes identified ROI as the most important factor considered in prioritizing their software purchases (see Figure 2) IDC # 5

6 FIGURE 2 Factors considered by different-sized companies in prioritizing software purchases Q: When you prioritize purchases, what is the most important factor to consider? 60 Cost avoidance Cost savings Return on investment Businss process impact Source: IDC System Management Software Strategies Survey, Oct 2005To assess and quantify the business benefits of IT operations management solutions, IDC conducted in-depth interviews with a number of organizations using HP OV Consolidated Event and Performance Management software. IDC asked detailed questions about the implementation costs in deploying the software, and the cost savings and other benefits realized. IDC then applied its proprietary ROI methodology to the results to determine the average payback period and ROI realized by the surveyed companies. Survey Demographics For its survey, IDC interviewed IT managers at nine companies of different sizes and from various industries in Europe, the United States, Latin America and Asia that had deployed HP OpenView Operations and/or HP OpenView Performance products, which are components of the HP OpenView Consolidated Event and Performance Management solution. The companies included enterprises in financial services, manufacturing, transportation, consumer goods and insurance, as well as telecom service providers, utilities and systems integrators. Their annual revenues averaged more than $328 million. The average IT management team at these organizations numbered 268 people, who managed an average of 3,839 client devices and 1,212 Windows, Unix, Linux and other servers, with an average annual IT budget of more than $89.6 million. Prior to deploying the 6 # 2006 IDC

7 HP OpenView solution, the companies used either homegrown or competitive management products, or a combination of both. IDC's ROI Methodology To quantify the business benefits of IT operations management, IDC has developed a return-on-investment (ROI) methodology that measures the total costs of deployment and the sum of the savings achieved. The methodology calculates the ROI in a threestep process: 1.) Ascertain the investment made in the purchase and implementation of the solution and the associated training and maintenance costs. To get an accurate assessment of the investment in deploying HP OpenView Consolidated Event and Performance Management, IDC asked for the deployment, set up, upgrade, and maintenance costs, as well as the total cost of the software and training. This investment included the loaded costs of the incremental staff required to operate the HP OpenView software. 2.) Measure the gains in IT staff and user productivity from deploying the solution, as well as the revenue recaptured from reduced downtime, and the cost savings from increased IT staff efficiency and lower capital and operating expenses. Productivity savings. IT staff productivity indicates how effectively IT managers and their staff use their time. Besides reducing operations costs, gains in IT productivity can free up staff to implement new initiatives more rapidly, helping to create a competitive edge. User productivity is increasingly dependent on service uptime as organizations become progressively more network-centric. When users are unable to access network resources, their productivity may be severely impaired. User productivity also suffers when employees have to wait for help desk support or other IT administrative tasks. Since users often are able to move to other business applications when service interruptions or performance degradations occur, only a small fraction of the potential user impact time is counted toward the final ROI result. Recaptured Revenue. Higher service availability also contributes to business top lines because less revenue is lost due to downtime, and potential service penalties are avoided. Additionally, downtime can be costly in terms of diminished customer satisfaction and possible loss of a customer s business. Cost Savings. Costs can be cut by improving IT staff efficiency, which is a measure of how well the IT management organization can achieve economies of scale and scope of work with its people, tools and practices. To remain competitive, companies must be able to grow their systems and networks at a faster rate than the IT staff required to support them. Skilled IT professionals continue to be scarce, so companies are expecting existing staff to take on more work and responsibilities. If IT departments are unable to achieve the required economies of scale and scope, they restrain corporate managers' business 2006 IDC # 7

8 decisions and discourage aggressive deployment of technology to gain a competitive advantage. 3.) Calculate the payback period and ROI for the deployed solution. From the results of the interviews, IDC was able to calculate the average payback period and rate of return from investing in HP OpenView Consolidated Event and Performance Management, as well as the net present value of the savings. IDC bases its calculations on a number of assumptions: Time values are multiplied by burdened salary (salary + 40% for benefits and overhead) to quantify efficiency and manager productivity savings; Downtime values are a product of the number of hours of downtime multiplied by the number of users affected; The impact of unplanned downtime is quantified in terms of impaired end user productivity and lost revenues; Lost productivity is a product of downtime multiplied by burdened salary; Lost revenue is a product of downtime multiplied by the average revenue generated per hour; The net present value of the three-year savings is calculated by subtracting the amount that would have been realized by investing the original sum in an instrument yielding a 12% return to allow for the missed opportunity cost. Since not every hour of downtime equates to a lost hour of productivity or revenue generation, IDC attributes only a fraction of the result to savings. As part of its survey, IDC asks each company what fraction of downtime hours to use in calculating productivity savings and the reduction in lost revenue. IDC then taxes the revenue at that rate. Further, because IT solutions require a deployment period, the full benefits of the solution are not available during deployment. To capture this reality, IDC prorates the benefits on a monthly basis, then subtracts the deployment time from the first-year savings. SURVEY RESULTS In its survey, IDC asked a number of quantitative questions about management processes and the associated time and staffing requirements before and after deploying the HP OV Consolidated Event and Performance Management software. IDC asked about the implementation costs as well as the savings realized, including the revenue recaptured because of reduced downtime. Determining the ROI and Payback Period From the results of the interviews, IDC was able to determine the average ROI and payback period that the surveyed companies realized from deploying HP OV 8 # 2006 IDC

9 Consolidated Event and Performance Management solutions, based on increases in IT staff productivity and user productivity, other cost savings and the recapture of previously lost revenue. IT productivity. To determine the increase in IT staff productivity from deploying the management software, IDC asked questions about staff time needed for various activities related to IT event and performance management, before and after the software's implementation. In the companies surveyed, IT productivity jumped by an average of 36%, resulting in an average cost savings over three years of more than $9 million annually. When normalized for company size, the savings amounted to $234,358 per 100 users (see Figure 3). The IT managers interviewed reported that they had realized substantial savings in staff hours expended on change management, service level management, and incident management, as well as on managing the network infrastructure, and the Internet and transactional customer experience. FIGURE 3 Average annual savings per 100 users from deploying HP OV Consolidated Event and Performance Management User Productivity $181,878 Recaptured Revenue $33,490 IT Efficiency $60,387 Other Economies $8,758 IT Productivity $234,358 Total $518,871 per 100 Users Source: IDC, 2006 The biggest time savings came from a 41% drop in time spent on change management, which saved an average of 90.5 FTE hours a month. A 68% drop in time spent maintaining the configuration database saved a further 12.7 FTE hours a 2006 IDC # 9

10 month, while a 13% reduction in time spent on incident management contributed a saving of 4.5 FTE hours a month. There were also time savings of 23% on managing and maintaining the network infrastructure, 75% on service level management, and 27% on managing the Internet/transactional customer experience. User productivity. User productivity is impaired when employees wait for help desk and other IT administrative support, and when system downtime prevents access to needed applications and information. To determine the impact of HP OV Consolidated Event and Performance Management on user productivity, IDC asked about time lost waiting for support, before and after deploying the software, as well as the before and after number of downtime incidents and amount of downtime. IDC also inquired about the percentage of users affected and the estimated revenue lost per hour of downtime. For the companies surveyed, downtime dropped by an average of 32.75% following deployment of the management software. This reduction in downtime resulted in an average recaptured revenue of close to $1.3 million annually. The reduced downtime increased user productive time by an average of 2.4 hours per month per user. There was also an average reduction in time lost waiting for help desk support of 0.4 hours per month per user. The increased user productivity from reduced downtime and time lost waiting for help desk and other IT administrative support contributed an average annual savings over three years of more than $7 million, or $181,878 per 100 users. Cost savings. Additional savings come from increases in IT efficiency resulting from deployment of the management software, and from the elimination of other management tools, and reductions in the number of visits to remote sites for repairs. To determine increases in IT efficiency, IDC asked questions about the average number of users supported by each staff member, before and after deploying the HP OpenView management solution. IDC also asked about the IT staff salaries. For the companies surveyed, the average number of users managed by each FTE rose from 200 before deploying the management software to 312 afterwards, an increase of 60%. This improved management efficiency yielded an average reduction in IT headcount growth of 28% a year. With an average first-year loaded salary of $82,942, and annual increases of 5%, the payroll savings from increased management efficiency averaged more than $2.3 million a year over the three years, or $60,387 per 100 users. Additional savings came from bandwidth, cap-ex and inventory savings, and from reductions in PC maintenance contract costs and the number of visits to remote sites for repairs. These savings averaged $337,045 a year. Taken together, the savings from improved IT management efficiency and cost reductions yielded an average total savings of close to $2.7 million a year, or $69,145 per 100 users. Payback and ROI. Overall, the companies invested an average of more than $10 million over three years in deploying the HP OpenView management solution, including purchase and installation, IT support, training and maintenance. 10 # 2006 IDC

11 For the HP customers surveyed, the total benefits averaged close to $20 million annually, or $518,871 per 100 users. IDC accounts for the opportunity costs realized by not having invested the initial amount in some other instrument yielding a 12 percent return. This results in a net present value for the three-year savings of more than $36.7 million for the companies surveyed, or $954,099 per 100 users. Based on the average annual investment over the three years, the payback period from deploying the HP OV Consolidated Event and Performance Management solution averaged 10.3 months for the companies surveyed, yielding an average return on investment of 367%. CHALLENGES AND OPPORTUNITIES HP's Consolidated Event and Performance Management (CEPM) solution aims to solve business and technology requirements by leveraging existing HP products. This means that HP must clearly show how the existing technologies can be applied in a combinational way to solve IT and business issues more effectively. The key is operating with a portfolio of defined and known products, such as OV Operations (OVO) and OV Performance Agent, as well as newer, flexible solutions. While HP has had success with ITSM as a solution, the complexity of the solutions approach means that HP risks confusing customers who are overly focused on technologies or only on business goals. Also, because customers continue to implement best of breed products for key areas of the infrastructure, the underpinnings of the HP OV CEPM solution may become weakened in heterogeneous enterprise environments. In terms of opportunities, the HP OV CEPM approach helps HP to present its broad product portfolio in a more understandable way. For the IT customer, as well as the business sponsor of IT projects, the breadth and depth of HP's management expertise can get lost amid internal customer requirements, available budget and existing installed product. HP's OV CEPM presents a way for customers to view their capabilities, potentially breaking down the artificially constructed product capability boundaries. HP's solutions strategy suggests a back to basics approach in the aftermath of a complex set of products. Today's infrastructures rarely have catastrophic failures to shut down all operations. Instead, shades of brown outs and spotty performance are the key challenge to IT service availability and reliability. In the past, infrastructures existed in a kind of binary mode - either Up or Down and not usually in between. HP OV CEPM presents a way for customers to approach this reality, because it works with such issues of multiple dimensions to problems, as well as new kinds of problems that appear in newer infrastructures (e.g. virtualization, VOIP, mobility). Business challenges, tactical requirements and legacy infrastructures mean that implementing a full management platform is not always appropriate. Modular products, which can be added gradually, often make sense for budget timelines. Additionally, in today's business climate, where mergers and acquisitions as well as business unit realignments happen frequently and unpredictably, implementing a modular solution can provide further tangible and intangible benefits IDC # 11

12 The building block approach, which could be integrated and decomposed as needed, fits with today's business priorities and events. Core technologies and systems such as event management and performance monitoring remain critical elements in almost any management scenario. Investing in a solution which supports event management and performance monitoring are key steps towards business agility. At the same time, many IT departments need to be making wise investments that can improve their alignment with business goals. To this end, products and solutions which fit with ITIL and service management, such as HP ITSM and BSM, could be viewed as a forwardlooking investment and one that can be implemented gradually through modules. CONCLUSION For IT departments, integrated enterprise management solutions allow cross-domain IT services to be delivered and managed more efficiently to better serve the business teams that rely on them. To quantify the business benefits of such management solutions, IDC conducted in-depth interviews with nine organizations of different sizes and from various industries in Europe, the United States, Latin America and Asia that had deployed HP OpenView Operations and/or HP OpenView Performance products, which are components of the HP OpenView Consolidated Event and Performance Management solution. The software automates manual tasks to increase IT productivity and trim operational overhead. It also performs root-cause analysis quickly and accurately, reducing mean time to repair and increasing service availability. IDC asked a series of questions on specific IT administrative processes, and the associated time and staffing requirements, before and after deploying the management software, to determine the cost savings and other benefits realized compared with the prior use of homegrown and competitive products. The survey found that deploying the management software generated considerable savings from increased user productivity, reduced downtime, and higher IT staff productivity and efficiency, resulting in a short payback period for the investment and a high ROI. For the companies surveyed, the payback period from deploying the HP OpenView Consolidated Event and Performance Management solution averaged 10.3 months, yielding an average return on investment of 367%. Copyright Notice External Publication of IDC Information and Data Any IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country Manager. A draft of the proposed document should accompany any such request. IDC reserves the right to deny approval of external usage for any reason. Copyright 2006 IDC. Reproduction without written permission is completely forbidden. 12 # 2006 IDC

Global Headquarters: 5 Speen Street Framingham, MA 01701 USA P.508.872.8200 F.508.935.4015 www.idc.com

Global Headquarters: 5 Speen Street Framingham, MA 01701 USA P.508.872.8200 F.508.935.4015 www.idc.com Global Headquarters: 5 Speen Street Framingham, MA 01701 USA P.508.872.8200 F.508.935.4015 www.idc.com WHITE PAPER Quantifying the Business Benefits of IT Service Management Sponsored by: Hewlett-Packard

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