Prepared fr BMC Sftware, Inc. December 27, 2006 The Ttal Ecnmic Impact Of The BMC Atrium Cnfiguratin Management Database (CMDB) Slutin Multi-Cmpany Analysis Prject Directr: Bb Crmier, Frrester Cnsulting
Table Of Cntents Executive Summary...3 Frrester s Definitin Of A CMDB...6 Abut The BMC Atrium CMDB...7 Descriptin Of Sample Cmpsite Organizatin...8 The Sample Organizatin Chses The BMC Atrium CMDB...9 Csts, Benefits And Risks...10 Financial Summary: The Sample Organizatin...13 Cnclusins...14 Appendix A: Ttal Ecnmic Impact Overview...15 Appendix B: Abut The Prject Directr...16 2006 Frrester Research, Inc. Circulatin r disclsure in whle r in part f this reprt utside the authrized recipient rganizatin is expressly frbidden withut the prir written permissin f Frrester Research, Inc. Frrester, Frrester Oval Prgram, Frrester Wave, WhleView 2, Techngraphics, TechRankings, Ttal Ecnmic Impact, and TEI are trademarks f Frrester Research, Inc. All ther trademarks are the prperty f their respective cmpanies. Infrmatin is based n best available resurces. Opinins reflect judgment at the time and are subject t change. 2
Executive Summary In August 2006, BMC Sftware cmmissined Frrester Research t examine the financial impact and ptential benefits frm implementing the BMC Atrium Cnfiguratin Management Database (CMDB) slutin, hereafter referred t as the BMC Atrium CMDB. T determine the impact, Frrester examined the specific csts, benefits, flexibility, and risk elements that a representative r sample BMC custmer may experience when it implements the BMC Atrium CMDB. In supprt f this, Frrester cnducted in-persn, rundtable interviews with 17 key decisin-makers at 10 rganizatins currently using the BMC Atrium CMDB slutin. Frrester used the shared cmmn inputs frm these rganizatins t create a sample cmpsite rganizatin fr this study t describe the ptential benefits f the BMC Atrium CMDB slutin (a descriptin f the sample cmpsite rganizatin is n page 8). Purpse The purpse f this study is t prvide readers with a framewrk t evaluate the ptential financial impact f the BMC Atrium CMDB slutin. Frrester s aim is t clearly shw all calculatins and assumptins that g int the analysis. This study shuld be seen as a guide t better understand and evaluate the BMC Atrium CMDB. Methdlgy BMC selected Frrester fr this prject because f ur expertise in IT management technlgies and Frrester s Ttal Ecnmic Impact (TEI) analysis methdlgy. TEI nt nly measures csts and benefits (areas that are typically accunted fr within IT) but als weighs the enabling value f a technlgy in increasing the effectiveness f verall business prcesses. Frrester s TEI methdlgy serves an extremely useful purpse by prviding a cmplete picture f the ttal ecnmic impact f purchase decisins (see Appendix A fr additinal infrmatin n the TEI methdlgy). Apprach Frrester used a fur-step apprach fr this study: 1. Frrester interviewed BMC marketing and sales emplyees t fully understand the value prpsitin f the BMC Atrium CMDB. 2. Using knwledge f the BMC Atrium CMDB, as well as input frm existing Frrester research, a Frrester representative cnducted in-persn, rundtable interviews with 17 key individuals (e.g., IT directrs/managers r mre senir representatives) frm 10 rganizatins t better understand the value f the BMC Atrium CMDB. Each interviewed rganizatin had been using the BMC Atrium CMDB fr mre than six mnths. 3. Frrester cnstructed a financial value mdel representative f the data cllected in the interviews. 4. Frrester created this study, which represents and examines the estimated value f the findings derived frm the custmer interview and analysis prcess and frm Frrester s independent research. 3
The Interviewed Organizatins Brief descriptins f each f the 10 rganizatins are listed belw. Each rganizatin requested t remain annymus. A highly diversified financial services rganizatin lcated in Nrth America with ttal assets f $300 billin and mre than 30,000 emplyees prviding a brad range f retail and investment banking prducts and slutins. One f the largest pharmacy benefit management cmpanies in Nrth America, prviding services fr millins f peple natinwide thrugh emplyers, managed care plans, and gvernment entities. A large, high-end gift and cllectables designer and manufacturer whse prducts include tableware, stneware, earthenware, crystal stemware, and flatware. One f the leading diversified natural gas cmpanies in the US engaged in the transprtatin, strage, gathering, prcessing, and distributin f natural gas. One f the largest diversified fd and drug retailers in Nrth America with almst 2,000 retail lcatins. A Frtune 500 leading manufacturer f cnstructin and mining equipment, diesel and natural gas engines, and industrial gas turbines emplying 30,000 peple wrldwide. A 35,000-emplyee rganizatin that designs, develps, manufactures, and markets a brad range f semicnductrs and cmplete system slutins t selected industries. A sftware and services prvider f banking and payment technlgies t financial services firms and businesses wrldwide. A leading prvider f financial services t individual investrs and independent investment advisrs with client assets ttaling mre than $1 trillin. The aut-racing divisin f ne f the wrld s largest autmbile manufacturers. (Frrester nte: The interview with this Eurpean rganizatin was cnducted via telephne and was nt part f the rundtable discussins). 4
Key Findings Table 1 represents a summary f the net present value (NPV) f savings the sample cmpsite rganizatin realized ver a three-year perid by deplying the BMC Atrium CMDB. Table 1: Three-Year Summary Financial Results Sample Cmpsite Organizatin Summary financial results Unadjusted (best case) Risk-adjusted Ttal csts (PV)* ($263,800) ($263,800) Ttal cst savings and benefits (PV) $1,477,596 $1,108,197 Payback perid Within 6 mnths Within 8 mnths Ttal (NPV) $ 1,213,796 $844,397 * Frrester used a discunt rate f 12% t calculate PV and NPV. Surce: Frrester Research, Inc. The three-year, risk-adjusted ttal NPV (net present value) f $844,397 represents the net cst savings and benefits attributed t using the BMC Atrium CMDB when cmpared with a preimplementatin envirnment where relatinships between IT assets was unknwn, which made effective IT management mre difficult and resulted in significantly higher risk t the business. Yu may review the details f this analysis belw in the Csts, Benefits and Risks sectins. The bjective f this study is nt t illustrate savings that ther enterprises can btain by deplying the BMC Atrium CMDB but rather t identify savings experienced by the representative sample cmpsite rganizatin. These results can be used as a guide t allw ther enterprises t determine the apprpriate benefits fr their particular envirnment. Disclsures The reader shuld be aware f the fllwing disclsures assciated with this study: The study was cmmissined by BMC Sftware and delivered by the Frrester Cnsulting grup. BMC reviewed and prvided feedback t Frrester, but Frrester maintained editrial cntrl ver the study, its findings, and financial data. Frrester did nt accept any changes t the study that cntradicted its findings, bscured the meaning f the study, r changed any f the data cllected. The custmer names fr the interviews were prvided by BMC. Frrester makes n assumptins as t the ptential NPV f savings ther enterprises will receive within their wn envirnment. Frrester strngly advises that the reader use his r her wn estimates within the framewrk prvided in the study t determine the apprpriateness f implementing the BMC Atrium CMDB. 5
This study is nt an endrsement by Frrester f BMC Sftware r its fferings. The study is nt a cmpetitive prduct analysis. Frrester s Definitin Of A CMDB Over the past several mnths, Frrester has interviewed 67 different IT infrastructure managers at $1 billin-plus cmpanies abut their key challenges in running their crprate IT infrastructure. The tp five issues rganizatins are currently struggling with (all f which culd benefit frm a wellimplemented CMDB) are as fllws: 1) cnsistent end-t-end applicatin and service perfrmance guarantees; 2) unplanned infrastructure changes resulting in incidents and dwntime; 3) unanticipated infrastructure cnsequences f cnslidatin and new applicatin prjects; 4) miscnfiguratin f netwrk bjects; and 5) wide-area netwrk perfrmance. Frrester defines a CMDB as a fundamental cmpnent f the infrmatin technlgy infrastructure library (ITIL) framewrk that prvides a unified repsitry f data abut cnfiguratin items (CI) any system cmpnent with cnfigurable attributes and describes the relatinships between thse CIs. Frm this, we can derive the main characteristics f a CMDB: A CMDB is a repsitry f infrmatin abut all cnfigurable IT cmpnents. This repsitry shuld include all the physical, lgical, and human elements used in the prductin f IT services. A CMDB cmpnent has cnfiguratin attributes. Cnfiguratin attributes are all the parameters that determine the behavir f a cmpnent during prductin. They culd be characterized as physical, lgical, rganizatinal, r financial. A CMDB cntains cmpnent relatinships. The cmpnents are linked tgether t prvide a service, and it is the service that links these cmpnents t the business prcess. The service may be as simple as an applicatin, but it may als include several applicatins that are lgically gruped t prvide a cmplete service t supprt the business prcess. A CMDB is a fundamental cmpnent f the ITIL framewrk. All infrmatin recrded in the CMDB exists slely t supprt the infrmatin technlgy service management (ITSM) prcesses described by ITIL. Therefre, a cmplete CMDB cntains infrmatin dictated by ITIL. Because its cntent is guided by ITIL, building a CMDB must start with the management prcess t the CI, the CI attributes, and its relatinships t ther CIs. Tday's CMDB is mstly a cmbinatin f discverable asset infrmatin. physical CIs, such as servers, ruters, switches, r strage devices and f discverable relatinships between CIs derived frm either cnfiguratin tables r the bservatin f transactinal traffic. This limits the "first-generatin" CMDB t supprting ITIL prcesses that use runtime infrmatin f applicatins cmmunicating thrugh the netwrk. Hwever, sme CMDB technlgies als include the ability t discver and mdel lgical CIs and their relatinships, including business prcesses and business services. These lgical elements can be autmatically linked t the IT infrastructure CIs, prviding a business view f hw IT infrastructure elements supprt higher-level business prcesses. The best way t implement CMDB architectures is t use a federated apprach, enabling cmpanies t cnstruct different views f the data fr different purpses, while at the same time string and updating the data in lcal data stres. Frrester has reviewed a number f ITIL, CMDB, and asset management prjects ver the past 18 mnths. Given prper planning and executin, 6
cst savings and business benefits shuld accrue quickly fr mst rganizatins with a payback perid f within 12 mnths. Abut The BMC Atrium CMDB Accrding t BMC Sftware, the BMC Atrium CMDB prvides a shared set f enabling technlgies that bring business relevance t BMC and third-party IT slutins thrugh a single, federated cnfiguratin management database, a business service mdel, and cmmn views that prvide business relevance t IT management. The BMC Atrium CMDB supprts tight integratin acrss IT prcesses saving the IT rganizatin time and mney. The BMC Atrium CMDB is an intelligent data repsitry that ffers greater alignment f disparate IT functins t cmmn business pririties with accurate, pervasive, and business-aware visibility int the dependencies between business prcesses, users, and IT infrastructure. It prvides a single surce f truth fr an IT envirnment, thus ensuring a cnsistent apprach t managing IT prcesses, such as incident, prblem, change, cnfiguratin, asset, and service impact management. With the BMC Atrium CMDB, rganizatins can deliver the best-practice prcess structure and cntrl specified by key industry standards, such as ITIL. Accrding t BMC, the BMC Atrium CMDB: Eliminates the fragmentatin f IT tls and data surces by prviding bth a cmmn data mdel and service mdel t infuse business relevance int an industry-standards apprach t managing IT data. Ensures an accurate and up-t-date view int IT infrastructure cmpnents and relatinships by autmatically ppulating and maintaining the BMC Atrium CMDB with BMC Discvery. Includes a patent-pending recnciliatin engine that merges data frm multiple discvery tls int a single, reliable data set. Prvides federatin management capabilities t build a single, lgical data stre that can rely n multiple data surces, eliminating the need fr a mnlithic repsitry. Includes pen interfaces t integrate business prcesses and third-party IT management tls with business service management (BSM). Allws IT prcess users t launch a view int the BMC Atrium CMDB t quickly view CI and relatinship data relevant t their needs thrugh graphical interfaces. As illustrated belw, BMC believes it prvides a seamless implementatin experience fr the BMC Atrium CMDB by autmatically installing it with a number f ut-f-the-bx BMC prducts, including BMC Remedy Service Desk, BMC Remedy Change Management, BMC Remedy Asset Management, and BMC Service Impact Manager. In additin, the BMC Atrium CMDB has been built t supprt all majr ITIL Service Supprt and Service Delivery prcesses, creating a ptential upside in value as mre and mre prcesses take advantage f this single surce fr cnfiguratin management. 7
In additin, fr rganizatins that want t implement the BMC Atrium CMDB independent f ther BMC applicatins, they may take advantage f its many capabilities thrugh the BMC Atrium CMDB Enterprise Manager, a standalne versin f the BMC Atrium CMDB. Descriptin Of Sample Cmpsite Organizatin The sample cmpsite rganizatin shares key attributes, strategies, gals, and bjectives frm the 10 interviewed rganizatins. It is mdeled as a Frtune 2,000 US-based financial services rganizatin with mre than 10,000 emplyees lcated in majr ffices in Chicag, Singapre, and Lndn, and 20 ther reginal ffices thrughut the wrld. During the last five years, the sample cmpsite rganizatin acquired several ther rganizatins, where the resulting cnslidatin f IT departments was a challenge (r an afterthught). Characteristics f the sample rganizatin s IT and business envirnment include: Each emplyee has been issued a laptp r desktp using Windws XP and Micrsft Office 2003. Laptps represent 30% f the users; desktps represent 70%. The data center envirnment is made up f mre than 50 business applicatins that supprt 10,000 end users as well as external partner rganizatins. These 50 business applicatins are supprted by 500 servers made up f a mix f Unix-, Windws-, and Linuxbased envirnments. There is als an IBM mainframe envirnment t hst financial and ther back-ffice transactinal applicatins. The sample rganizatin is lking t leverage virtualizatin in rder t cnslidate wrklad and reduce its number f servers. The average server is running at 15% capacity. The sample rganizatin s mst critical business applicatins and technlgies include: SAP fr financial management PepleSft/Oracle fr HR data Siebel/Oracle fr sales and marketing 8
Micrsft Exchange fr email Oracle and Micrsft SQL Server databases IBM DB2, IMS, and CICS fr the mainframe The sample rganizatin currently manages IT cmpnent availability by functin (e.g., netwrk, databases, and servers) rather than by business service. The stated perfrmance gals are 99% availability, which mst f the cmpnents regularly meet. Hwever, because the rganizatin des nt currently manage frm a business service perspective, there are numerus cases where the netwrk is nt available when the applicatin is up and running r the reverse, leading t applicatin-level availability belw what the business finds acceptable, which in turn prly reflects n IT s ability t meet business needs. The sample rganizatin is currently using the fllwing BMC prducts: BMC Remedy Change Management, BMC Remedy Service Desk, BMC Remedy Asset Management, BMC Discvery, and BMC Service Level Management. The Sample Organizatin Chses The BMC Atrium CMDB The sample rganizatin shares similar gals and bjectives with the 10 interviewed rganizatins arund managing business risks, aviding unnecessary dwntime and driving mre efficient IT prcesses. The sample cmpsite rganizatin chse the BMC Atrium CMDB fr the fllwing shrt- and lng-term reasns, with each f the 10 custmers agreeing that the BMC Atrium CMDB ffers the ability t: Prvide a service-riented view f the IT infrastructure. The BMC Atrium CMDB prvides the ability t stre infrmatin abut cnfiguratin items and their relatinships t each ther as well as t the business services supprted by the IT infrastructure. Make IT mre respnsive t business needs. Having centralized current infrmatin abut cnfiguratin items within the BMC Atrium CMDB enables IT t make better planning decisins t respnd t business needs. Share critical IT data acrss functins. As IT departments adpt prcesses that span IT functins, there is a need t share data abut the infrastructure and the services it supprts. Crdinate IT prcesses and autmate them. With the BMC Atrium CMDB, IT rganizatins can use a mre integrated apprach with tls because they use cmmn data, which makes it easier t use autmated tls. Facilitate cmpliance and audits. The BMC Atrium CMDB supprts audits and cmpliance with gvernment regulatins such as Sarbanes-Oxley, SEC, HIPAA, etc., by prviding cntrl ver critical changes and mnitring the histry f thse changes. Reduce the impact f bth planned and unplanned changes. The BMC Atrium CMDB, alng with effective change and cnfiguratin management prcesses, enables management f the ever-increasing number f changes t the envirnment. 9
Make the service desk mre efficient. IT service desk staff are able t significantly reduce the time and effrt f prviding IT service supprt by using the BMC Atrium CMDB as well as accelerating the successful reslutin f supprt calls. Csts, Benefits And Risks T calculate the NPV f benefits fr the sample rganizatin, Frrester analyzed the csts, benefits and risks assciated with deplying the BMC Atrium CMDB. Csts The key cst categries assciated with implementing the BMC Atrium CMDB ttal $263,800 and are as fllws: BMC Atrium CMDB license. The sftware license fees and sftware applicatin (cde) fr the BMC Atrium CMDB slutin are autmatically included in the fllwing BMC prducts: BMC Remedy Service Desk, BMC Remedy Change Management, BMC Remedy Asset Management, and BMC Service Impact Manager. Nte: Althugh this study fcuses slely n the value that existing BMC business service management custmers experience frm a BMC Atrium CMDB implementatin, fr rganizatins that want t implement the BMC Atrium CMDB independent f the abve slutins, BMC sells the BMC Atrium CMDB Enterprise Manager, a standalne versin f the BMC Atrium CMDB. BMC Prfessinal Services: $100,000. This fee is a ne-time expense fr the cmplete deplyment f the BMC Atrium CMDB slutin including design, discvery, and ppulatin f CIs. ITIL training: $45,000. This cst is t train 30 IT staff n the Infrmatin Technlgy Infrastructure Library (ITIL). This user educatin training fcuses n hw t use and manage the BMC Atrium CMDB with respect t ITIL best-practice standards. BMC Atrium CMDB implementatin: $118,800. This includes 12 senir IT and business stakehlders spending 33% f their time ver three mnths planning the implementatin (average fully-laded cst f a senir persn is $120,000 annually). Their planning tasks included: Creating a systematic apprach t understanding and analyzing the IT and business requirements, defining the scpe f the prject and gathering data n cnfiguratin items (CIs) as the BMC Atrium CMDB becmes the backbne f any IT service management prcess. Making a plan fr the ability t recncile all enterprise cnfiguratin data in a single "gld cpy" f the BMC Atrium CMDB. Multiple asset and infrastructure databases already existed in their enterprise frm netwrk discvery and asset management. The sample rganizatin wanted t recncile these with the BMC Atrium CMDB int a single, master data repsitry. Understanding the breadth f applicatins that can be mapped autmatically. 10
Meeting with IT and business stakehlders t identify any cmpliance reprts that will need t be built and building these reprts t track and ensure that IT and business supprt teams are fllwing the defined prcesses. Clearly cmmunicating t all stakehlders hw cnfiguratin item data is ging t be captured and ppulated in the BMC Atrium CMDB. Determining hw the CMDB will identify hw each grup s needs are affected r tied in with ther areas f the business. Planning fr ease f access t the BMC Atrium CMDB infrmatin. As a fundatin fr service management, a number f prcesses will have t use the BMC Atrium CMDB including change and cnfiguratin management, end-t-end applicatin perfrmance management, and service-level management. CMDB implementatins need a well-designed interface that prvides a rapid way t select the right infrmatin fr the right prcess. Benefits: Business Results And Quantifiable Benefits The sample cmpsite rganizatin experienced three significant and quantifiable benefits resulting frm implementatin f the BMC Atrium CMDB; these benefits ttal $1,852,500. Reduced impact f bth planned and unplanned changes: $990,000. Alng with an effective change and cnfiguratin management prcess, the rganizatin discvered that the BMC Atrium CMDB mre efficiently enabled management f the ever-increasing number f changes t its envirnment. Fr example, the BMC Atrium CMDB helps the service desk get infrmatin abut recent changes t CIs that will help imprve first-time fix rates, reducing failed changes frm 20% t 10%. With an average f 2,200 changes per year, prir t implementing the BMC Atrium CMDB, 20% (r 440) f thse changes failed; since implementing the BMC Atrium CMDB, the rate has been reduced t 10% (r nly 220) failed changes. The average failed change requires 25 hurs f IT staff remediatin effrt at a fully-laded cst f $60 per hur r $1,500 per failed change. The sample rganizatin was able t reduce failed changes by 220 per year, saving $330,000 annually ($990,000 ver three years) in reduced labr csts. Reductin in technical supprt call times: $562,500. The sample rganizatin fund that it was able t significantly reduce the time and effrt invlved with technical assistance calls using the BMC Atrium CMDB. Prir t implementing the BMC Atrium CMDB, the rganizatin handled 7,500 technical assistance calls per year at a cst f $100* per call (ttal annual cst $750,000). After implementing the BMC Atrium CMDB, the rganizatin was able t accelerate the successful reslutin f these calls, reducing time and effrt invlved by an average f 25% per call and saving the rganizatin $187,500 annually r $562,500 ver the three years f this analysis. *Nte: Frrester cmpsite cst estimate. Single surce f IT envirnment data: $300,000. Using the BMC Atrium CMDB and autmated discvery, the rganizatin applied cnfigurable business rules t autmatically merge data frm multiple discvery tls int a single database and retired its existing multiple cnfiguratin databases, hence saving n its maintenance and supprt. After significant testing and six mnths after implementatin, the rganizatin was able t eliminate the csts assciated with managing and supprting tw databases and three discrete tls at a cst savings f $60,000 in the first year and $120,000 in years 2 and 3 ($300,000 ver three years) in vendr licensing/supprt and internal tl management csts. 11
Business Results. In additin t the abve quantified benefits, the interviewed rganizatins were able t describe additinal, un-quantified business benefits as a result f implementing the BMC Atrium CMDB, including: Imprved business cntinuity and planning fr backup sites. Understanding the dependencies f critical applicatins leads directly t mre efficient and errr-free planning f disaster recvery sites fr enterprises. Easier applicatin mapping. This allws firms t understand which applicatins run n which servers and hw these servers depend n each ther enabling mre efficient and errr-free server cnslidatin. Imprved prductivity frm being able t identify specific users (names) wh will be affected by a change r dwntime and sending ntificatin emails t nly thse affected emplyees, nt hundreds r thusands f unaffected emplyees, imprving prductivity. When a majr incident r shutdwn ccurs it is pssible t quickly priritize and determine which servers t bring back up first, based n which servers supprt the mst critical business services. Savings n license, supprt, and maintenance cntract csts n servers that n lnger exist r n lnger need t be licensed/supprted. One custmer cited a 40% reductin in servers needing supprt and maintenance, which saved the cmpany $50 per unused server, per year. Easier integratin f merged assets fr rganizatins that acquire new cmpanies. Increased visibility int CIs and their relatinships allwing fr mre accurate, timely, and effective release management prcesses. T cmply with regulatins, the BMC Atrium CMDB allws the ability t track changes. Cmpanies can keep, trace, and audit all changes fr cmpliance purpses. A decrease in the dcumentatin required t initiate changes and add new applicatins. One interviewed custmer achieved savings by nt having t fill ut the 15 frms assciated with her rganizatin s change management prcesses, instead relying n the BMC Atrium CMDB t capture change management data fr cmpliance purpses. Eliminatin f the manual mapping f CIs by up t 95%, accrding t several interviewees. The ability t mre effectively cmply with gvernment regulatins such as Sarbanes-Oxley and HIPAA and t prvide mre relevant infrmatin t internal and external auditrs. Risks And Risk Mitigatin Strategies There are tw aspects f risk and risk mitigatin cnsidered in this study: prject risks and the risks assciated with the estimates f csts and benefits. Belw is a summary f each. Prject Risk And Mitigatin There are risks assciated with IT prjects in general and specifically with the BMC Atrium CMDB slutin, hwever mst f the interviewed custmers indicated that there were mre risks t the business in nt implementing the BMC Atrium CMDB. Each viewed the BMC Atrium CMDB as a 12
decisin and risk analysis/mitigating slutin in itself, citing the BMC Atrium CMDB s ability t facilitate infrastructure changes with mre cnfidence and less risk. One f the specific prject implementatin risks cited by custmers was cultural in nature, whereby IT staffers might view the BMC Atrium CMDB as an expansin f the IT bureaucracy that wuld mre clsely mnitr the emplyees and the quality f their wrk. When asked hw ther rganizatins might mitigate this cultural risk, custmers cited better cmmunicatin between IT management and staff in utlining the brad benefits f the BMC Atrium CMDB. Anther risk relates t ITIL adptin, with interviewees citing the imprtance f ITIL certificatin training fr staff that will be leveraging the BMC Atrium CMDB t adpt ITIL best practices. Risks Assciated With Estimates Of Csts And Benefits Risk- and nn-risk-adjusted NPV f savings are bth discussed in this study. Since the future cannt be accurately predicted, there is risk inherent in any prject. Risk assessments prvide a range f pssible utcmes based n the risks assciated with IT prjects in general and specific risks relative t mving tward a particular technlgy slutin. With the benefit f hindsight, each interviewed custmer believes that its investment in the BMC Atrium CMDB carried a lwer level f risk when cmpared t the pre-implementatin envirnment where IT infrastructure relatinships were unknwn, making effective IT management mre difficult which resulted in significantly higher risk t the business. In this case study, Frrester chse nt t risk-adjust the implementatin csts, as these were firm qutes frm reliable vendrs. Frrester has risk-adjusted the benefit estimates dwnward by 25% t reflect the smewhat discretinary electin and/r pssible pstpnement f implementing the BMC Atrium CMDB. As with mst rganizatins, when resurces are cnstrained, prjects such as the BMC Atrium CMDB are secnd pririty t prjects respnsible fr the direct prductin f revenue. Financial Summary: The Sample Organizatin Table 1 (belw; repeated frm Executive Summary) represents a summary f the csts and quantifiable benefits that the sample cmpsite rganizatin expects t achieve during the threeyear perid by using the BMC Atrium CMDB. Table 1: Three-Year Summary Financial Results Sample Cmpsite Organizatin (Repeated Frm Executive Summary) Summary financial results Unadjusted (best case) Risk-adjusted Ttal csts (PV)* ($263,800) ($263,800) Ttal cst savings and benefits (PV) $1,477,596 $1,108,197 Payback perid Within 6 mnths Within 8 mnths Ttal (NPV) $ 1,213,796 $844,397 * Frrester used a discunt rate f 12% t calculate PV and NPV Surce: Frrester Research, Inc. 13
The three-year, risk-adjusted ttal NPV (net present value) f $844,397 represents the net cst savings and benefits attributed t using the BMC Atrium CMDB when cmpared with the preimplementatin envirnment where IT infrastructure relatinships were unknwn, making effective IT management mre difficult, which resulted in significantly higher risk t the business. If a risk-adjusted NPV f benefits still demnstrates a cmpelling business case, it raises cnfidence that the investment is likely t succeed, because the risks that threaten the prject have been taken int cnsideratin and quantified. The risk-adjusted numbers shuld be taken as realistic expectatins since they represent the expected value cnsidering risk. Assuming nrmal success at mitigating risk, the risk-adjusted numbers shuld mre clsely reflect the expected utcme f the investment. Cnclusins This study is meant t prvide the reader with a framewrk t examine the csts and benefits f implementing the BMC Atrium CMDB. Based n ur in-depth discussins with BMC Atrium CMDB custmers, Frrester prjects a three-year, risk-adjusted NPV savings f $844,397. Fr the sample cmpsite rganizatin, a successful, well-planned implementatin allwed significant cst savings t be achieved by the IT rganizatin. The sample cmpsite rganizatin als reflects the belief by BMC s custmers that an investment in the BMC Atrium CMDB gives them the future flexibility f using the BMC Atrium CMDB t facilitate ITIL adptin, mre effectively cmply with gvernment regulatins such as Sarbanes-Oxley and HIPAA and t prvide mre relevant infrmatin t internal and external auditrs. Other rganizatins that are likely t see beneficial results implementing the BMC Atrium CMDB are: Targeting the BMC Atrium CMDB as a key ingredient f service management, whether in cnjunctin with adpting ITIL r in its technlgy and prduct implementatin in business service management (BSM). Relying n servers and/r data management supprting missin-critical business services applicatins. Seeking mre cntrl ver change management prcesses. Able t link their IT infrastructure t key business services. Existing BMC BSM custmers. Fr ur subject rganizatin, the BMC Atrium CMDB carries a relatively lw level f risk, a very favrable $844,397 (NPV), and a reasnable (within) 8-mnth hrizn t recup the investment. Frrester makes n assumptins regarding the effects f the BMC Atrium CMDB at ther rganizatins. This study examines the financial impact attributable t a sample cmpsite rganizatin based n interviews with 10 BMC custmers. The underlying bjective f this dcument is t prvide guidance t technlgy decisin-makers seeking t identify areas where value can ptentially be created by using the BMC Atrium CMDB. 14
Appendix A: Ttal Ecnmic Impact Overview Ttal Ecnmic Impact is a methdlgy develped by Frrester Research that enhances a cmpany s technlgy decisin-making prcesses and assists vendrs in cmmunicating the value prpsitin f their prducts and services t clients. The TEI methdlgy helps cmpanies demnstrate, justify, and realize the tangible value f IT initiatives t bth senir management and ther key business stakehlders. The TEI methdlgy cnsists f fur cmpnents t evaluate investment value: benefits, cst, flexibility, and risk. Benefits Benefits represent the value delivered t the user rganizatin IT and/r business units by the prpsed prduct r prject. Often prduct r prject justificatin exercises fcus just n IT cst and cst reductin, leaving little rm fr analysis f the impact f the technlgy n the entire rganizatin. The TEI methdlgy and resulting financial mdel places equal weight f the measure f benefits t that f csts, allwing fr a full examinatin f the impact f the technlgy n the entire rganizatin. Calculatin f benefit estimates invlves a clear dialgue with the user rganizatin t understand the specific value that is created. In additin, Frrester als requires that there be a clear line f accuntability established between the measurement and justificatin f benefit estimates after the prject has been cmpleted. This ensures that benefit estimates tie back directly t the bttm line. Cst Csts represent the investment necessary t capture the value, r benefits, f the prpsed prject. IT r the business units may incur csts. These may be in the frm f fully-burdened labr, subcntractrs, r materials. Csts cnsider all the investment and expenses necessary t deliver the value prpsed. In additin, the cst categry within TEI captures any incremental csts ver the existing envirnment fr nging csts assciated with the slutin. All csts must be tied t the benefits that are created. Flexibility (analyzed but nt discussed in this study) Within the TEI methdlgy, direct benefits represent ne part f the investment value. While direct benefits can typically be the primary way t justify a prject, Frrester believes that rganizatins shuld be able t measure the strategic value f an investment. Flexibility represents the value that can be btained fr sme future additinal investment building n tp f the initial investment already made. Fr instance, an initial investment in an enterprisewide upgrade f an ffice prductivity suite can increase standardizatin (t increase efficiency) and reduce licensing csts. Later, the sample rganizatin may decide t take advantage f an embedded cllabratin feature, which may translate t greater wrker prductivity if activated. Hwever, this cllabratin feature can nly be used with an additinal investment in user training. The ability t capture the benefit assciated with this cllabratin feature has a present value that can be estimated. The flexibility cmpnent f TEI captures that value using the Black-Schles ptin pricing mdel. Risk Risk is the furth cmpnent f the TEI methdlgy. It is a measurement f the uncertainty f benefit and cst estimates cntained within the investment. Uncertainty is measured in tw ways: 1) the likelihd that the cst and benefit estimates will meet the riginal prjectins, and 2) the likelihd that the estimates will be measured and tracked ver time. TEI applies a prbability density functin knwn as triangular distributin t the values entered. At minimum, three values are calculated t estimate the underlying range arund each cst and benefit. 15
Appendix B: Abut The Prject Directr Bb Crmier Principal Cnsultant Bb is a principal cnsultant fr Frrester s Ttal Ecnmic Impact (TEI) service. He specializes in advising clients n the TEI framewrk services that help rganizatins make decisins abut the verall financial value f IT strategies and investments. Bb came t Frrester thrugh its acquisitin f Giga Infrmatin Grup and has mre than 20 years f experience in the IT and cnsulting industries. Prir t jining Giga, he held senir-level psitins at tw leading ebusiness cnsulting firms, ZEFER and Cambridge Technlgy Partners. Bb has successfully led cmpany effrts t ptimize financial, peratinal, and resurce planning activities, incrprating leading-edge, prfessinal service autmatin (PSA) applicatins and enterprise resurce planning (ERP) systems. He has als held management psitins at Digital Equipment and Anixter Internatinal. Bb earned an M.B.A. frm Bentley Cllege and a B.S. in business frm the University f New Hampshire. As an adjunct prfessr, he has taught finance and ecnmics curses fr mre than 10 years at Suthern New Hampshire University and Daniel Webster Cllege. 16