a forrester total economic impact™ study prepared … · 2015-11-07 · the total economic...

A Forrester Total Economic Impact™ Study Prepared For IBM

The Total Economic Impact Of Business Analytics OnIBM Power Systems

Project Director: Reggie Lau

Contributor: Jon Erickson

March 2013

Forrester Consulting

The Total Economic Impact Of Business Analytics On IBM Power Systems

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TABLE OF CONTENTSExecutive Summary................................................................................................................................................................................. 2

Running Business Analytics On Power Systems Simplifies Data Warehouse Architectures And Impacts BusinessDecisions..............................................................................................................................................................................................2

Factors Affecting Benefits And Costs............................................................................................................................................. 3

Disclosures...........................................................................................................................................................................................4

TEI Framework And Methodology...................................................................................................................................................... 5

Analysis...................................................................................................................................................................................................... 6

Interview Highlights .......................................................................................................................................................................... 6

Costs...................................................................................................................................................................................................... 9

Benefits ...............................................................................................................................................................................................10

Flexibility............................................................................................................................................................................................15

Risk......................................................................................................................................................................................................16

Financial Summary................................................................................................................................................................................18

IBM Business Analytics On Power: Overview .................................................................................................................................19

Appendix A: Composite Organization Description .......................................................................................................................19

Appendix B: Total Economic Impact™ Overview............................................................................................................................20

Appendix C: Glossary ...........................................................................................................................................................................21

Appendix D: Endnotes..........................................................................................................................................................................22

© 2013, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources.Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and TotalEconomic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective organizations. For additionalinformation, go to www.forrester.com.

About Forrester ConsultingForrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging inscope from a short strategy session to custom projects, Forrester’s Consulting services connect you directly with research analysts who applyexpert insight to your specific business challenges. For more information, visit www.forrester.com/consulting.



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Executive Summary

In March 2013, IBM commissioned Forrester Consulting to examine the total economic impact and potential return oninvestment (ROI) enterprises may realize by deploying business analytics software on IBM Power Systems hardware.The purpose of this study is to provide readers with a framework with which to evaluate the potential financial impactof IBM analytics on their organizations.

Running Business Analytics On Power Systems Simplifies Data Warehouse ArchitecturesAnd Impacts Business DecisionsOur interviews with four existing IBM customers and subsequent financial analysis found that a compositeorganization, based on these four organizations, experienced the risk-adjusted ROI, costs, and benefits shown in Table1. For the purposes of this case study, the composite organization is known as “Laud Goods & Co.” (See Appendix A fora description of the composite organization and its infrastructure environment.)

Table 1Laud Goods & Co. (Composite Organization) Three-Year Risk-Adjusted ROI1

ROI Paybackperiod

Total benefits(PV)

Total costs(PV)

Net presentvalue

64% 9 months $6,050,766 ($3,680,858) $2,369,908

Source: Forrester Research, Inc.

Benefits. Laud Goods & Co. experienced the following benefits that represent those experienced by theinterviewed organizations:

o Legacy software license cost avoidance. This benefit focuses on the retirement of licenses for legacy businessanalytics software with the deployment and adoption of Cognos.

o Preconfigured performance and maintenance efficiencies. This benefit centers on the preconfigured IBMPower Systems offering optimized to balance high-performance analytics and real-time operationalthroughput, mitigating system downtime and performance issues due to misconfiguration.

o Reporting and decision-making efficiency. This benefit details the capability to generate reports at a higherfrequency due to a higher workload capacity. For the business, this allows for more timely business analysisand decision-making.

o Advanced incident resolution. This benefit speaks to the use of IBM analytics to single out problem areas ina set of data so that an organization can zoom in and fix individual issues as opposed to incorrectlyattributing errors.



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Costs. Laud Goods & Co. experienced the following costs that represent those experienced by the interviewedorganizations:

o Software licenses. This cost is the direct cost for annual software license fees.

o Hardware. This cost details the upfront investment needed for Power hardware.

o Additional software. This cost notes the additional non-IBM software that was purchased.

o Professional services. This cost focuses on the fees paid to systems integrators and IBM for implementation,migration, support, and training services.

o Internal planning and implementation effort. This cost centers on the time and level effort contributed byLaud Goods & Co.’s internal BI team.

Figure 1Three-Year Risk-Adjusted Cost/Benefit Breakdown


Factors Affecting Benefits And CostsTable 1 illustrates the risk-adjusted financial results that were achieved by Laud Goods & Co. The risk-adjusted valuestake into account any potential uncertainty or variance that exists in estimating the costs and benefits, which producesmore conservative estimates. The following factors may affect the financial results that an organization may experience:

Training and adoption of IBM analytics software.

Overlapping analytics software that is not discontinued.

Willingness to use preconfigured devices and not overly customize.

AIX expertise and BI maturity.



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DisclosuresThe reader should be aware of the following:

The study is commissioned by IBM and delivered by the Forrester Consulting group.

Forrester makes no assumptions as to the potential return on investment that other organizations will receive.Forrester strongly advises that readers should use their own estimates within the framework provided in thereport to determine the appropriateness of an investment in business analytics on Power Systems.

IBM reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and itsfindings and does not accept changes to the study that contradict Forrester’s findings or obscure the meaning ofthe study.

The customer names for the interviews were provided by IBM.



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TEI Framework And Methodology

IntroductionFrom the information provided in the interviews, Forrester has constructed a Total Economic Impact™ framework forthose organizations considering implementing business analytics on Power Systems. The objective of the framework isto identify the cost, benefit, flexibility, and risk factors that affect the investment decision.

Approach And MethodologyForrester took a multistep approach to evaluate the impact that IBM can have on an organization (see Figure 2).Specifically, we:

Interviewed IBM marketing, sales, product personnel, and a Forrester analyst to gather data relative to businessanalytics on Power Systems and its marketplace.

Interviewed four organizations currently using IBM Power Systems hardware, either Cognos software or anotherbrand of BI software, to obtain data with respect to costs, benefits, and risks.

Designed a composite organization, Laud Goods & Co., based on characteristics of the interviewed organizations(see Appendix A).

Constructed a financial model representative of the interviews using the TEI methodology. The financial model ispopulated with the cost and benefit data obtained from the interviews as applied to the composite organization.

Figure 2TEI Approach


Forrester employed four fundamental elements of TEI in modeling IBM’s service:

1. Costs.

2. Benefits to the entire organization.

3. Flexibility.

4. Risk.

Design compositeorganization

Construct financialmodel using TEI

framework

Write casestudy

Perform duediligence

Conductcustomerinterviews



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Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester’sTEI methodology serves the purpose of providing a complete picture of the total economic impact of purchasedecisions. Please see Appendix B for additional information on the TEI methodology.

Analysis

Interview HighlightsA total of four interviews were conducted for this study, involving representatives from the following organizations:

1. A North American food and beverage manufacturer and distributor with approximately $15 billion inannual revenue and operations in North America and Europe. This organization has engaged with IBMfor more than 12 years and served as a catalyst for IBM to develop preconfigured systems. The first IBMSmart Analytics System was installed nine years ago, which solved this organization’s concerns for stability,reliability, and architecture complexity.

2. A leading Latin American telecommunications provider for both B2C and B2B services. Not only doesthis organization receive data through sales and orders, but it also incorporates data from networkoperations and contact center records into its analytics environment. With the objective to scale, simplifyits multi-brand BI environment, and keep up with growing data demands, this organization deployed acommon set of IBM Power 795 servers. Not only was there an immediate improvement in query times by30% and ad hoc report generation by 60%, there was also a 20% to 30% reduction in time needed forongoing management.

3. A North American shared services provider focused specifically on government-funded medicalinsurance contracts. This organization has an estimated headcount of 2,100 employees, of whichapproximately 200 are users of the analytical warehouse, which is supported by seven staff members. Out ofthe 200 users, 150 use the system primarily to process insurance claims, and the other 50 provide statisticalanalysis and reporting. This organization migrated to Power for its stability and Smart Analytics Systemoffering, which addressed its daily system outage concerns in the past. While IBM Smart Analytics Systemshardware and data warehouse is used, this organization has also kept licenses for a separate statisticssoftware and business reporting software.

4. A North American retailer with $7 billion in annual revenue, approximately 300 stores, and 400 ITstaff members. This organization estimates 1,000 Cognos users with 700, mainly from merchandising, whohave adopted the tool very well. Not only did this organization use IBM analytics for price optimization, italso further used IBM analytics for vendor management and even components of supply chainmanagement such as inventory and replenishment forecasts.

The four interviews uncovered the following themes for our construction of Laud Goods & Co.:

Preconfigured systems reduce maintenance issues, increase stability, and are a key driver in adoption ofPower Systems and Smart Analytics Systems. Several interviewees noted that the catalyst to their migration to



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Power Systems was the stability of the preconfigured and pre-optimized analytics solutions. Some customers eveninstituted policies that limited the level of customization their teams could perform because straying too far fromthe original design became an operational risk to system stability.

Some customers use IBM Cognos exclusively, while others choose to keep a legacy BI tool or statistical toolfor familiarity. Although the customers that used Cognos exclusively for BI from analysis to reporting didexplicitly mention how much easier it was for the business to be engaged, some customers did not use Cognos asthe exclusive BI tool. These customers preferred to keep either a legacy CRM tool with BI capabilities or a fullstatistical software in their software portfolio.

Power Systems enable faster and more frequent reporting, leading to more timely decision-making. ThePower Systems platform is optimized for analytics workloads, which meant going from weekly reporting to dailyreporting for one customer. Furthermore, daily reporting not only translated into time savings for staff but alsomore timely decision-making, which affected the business in the form of price optimization and inventorymanagement.

While the use cases and derived business value of analytics is not always tracked, there are definitelyexamples of educated decision-making due to insight from analytics. The value of a decision is often difficultfor customers to track, especially if a decision is a one-off or not part of a repeated process. However, somecustomers do attribute business metrics and results to analytics, and one such example centers on incidentresolution between an IBM customer and its vendor regarding defective inventory. Instead of attributing alldefective goods to all vendors in a region, the customer was able to zoom in on the exact style, exact batch, andexact vendor that produced defects. With that level of detail, the customer was able to quickly resolve with thatspecific vendor instead of incurring costs for return shipping and time for finding replacement vendors during abusy retail season.

Laud Goods & Co. — Composite OrganizationBased on the interviews with the four existing customers provided by IBM, Forrester constructed a TEI framework, acomposite organization, and an associated ROI analysis that illustrates the areas financially affected. Laud Goods & Co.,the composite organization that Forrester synthesized from these results, represents a North American mixed goodsretailer with $10 billion in annual revenue and 400 stores throughout the US, Canada, and Mexico. While exploringoptions to expand into the European and Asian markets, Laud Goods & Co. already has an established presencethrough its vendor network outside of North America.

As Laud Goods & Co.’s business grew organically and through acquisitions, the IT team faced the challenge of agrowing demand for business analytics with a dated and disparate infrastructure that was not built or optimized for BIworkloads. Furthermore, as business demands continually pushed the IT infrastructure, system outages were commonuntil the IT team set a policy that certain analytics reports may only be run once a week — usually over the weekendwhen there was most bandwidth. The CIO quickly assembled a team of infrastructure staff (seven FTEs) and developeda new BI team (two FTEs) to decide which hardware systems and BI software to invest in.

The infrastructure and BI teams held meetings with several vendors that provided a combination of hardware and BIsoftware. After advancing discussions with two vendors to the proof-of-concept stage, Laud Goods & Co. chose IBM’spre-integrated and pre-optimized analytics system on Power servers and Cognos as the primary BI software.



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Laud Goods & Co.’s objectives in choosing Smarter Analytics on Power were:

Increased system stability and reduced maintenance effort.

Capacity to support at least 1,000 business and back-office users with BI software, with a subgroup that has dailyreporting demands.

Gaining business value from analytics by making smarter and more timely business decisions.

Retiring overlapping software and phasing out obsolete hardware over time.

Framework AssumptionsTable 2 provides the model assumptions that Forrester used in this analysis.

Table 2Model Assumptions

Ref. Metric Calculation Value

X1 Hours per week 40

X2 Weeks per year 52

X3 Hours per year (M-F, 9-5) 2,080

X4 Hours per year (24x7) 8,760

X5 IT FTE annual salary $120,000

X6 IT FTE hourly wage $65

X7 Business FTE hourly wage $45

X8 Salary increase per year 3%


The discount rate used in the PV and NPV calculations is 10% and time horizon used for the financial modeling is threeyears. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers areurged to consult with their respective organization’s finance department to determine the most appropriate discountrate to use within their own organizations.



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CostsLaud Goods & Co. incurred costs in five categories: software licenses, hardware, additional software, professionalservices, and internal planning and implementation effort. While both software licenses and additional software costsare recurring annually, hardware, professional services, and internal planning and implementation effort are upfrontcosts that must be recouped before Laud Goods & Co. can see a positive ROI.

Software LicensesThis is the annual, recurring cost for IBM BI software licenses. Laud Goods & Co. has approximately 1,000 users acrossmerchandising, marketing, finance, and several smaller departments that use BI software for analysis, reporting, ordashboard development. The total non-risk-adjusted cost each year is $700,000.

HardwareAfter working with IBM and a systems integrator, Laud Goods & Co. took their recommendation and purchased theIBM preconfigured and pre-optimized analytics solutions on Power servers. The upfront, non-risk-adjusted cost is$700,000.

Additional SoftwareAlthough the BI team has pushed for major adoption of Cognos in the organization, a group of experienced users of thelegacy statistics software requested that the organization keep that software. As this is a small subgroup, and keepinglegacy BI or stat software could play into the road map of adoption and phasing out legacy components, the BI teamdecided to keep the stat software, which costs $100,000 per year for licenses before adjusting for risk.

Professional ServicesLaud Goods & Co. has an IT team of average size but has never focused on advancing technology because it did notview IT as a core competency. As it takes incremental steps in modernizing its infrastructure and overall technology,the organization did not want to hire incremental headcount just for implementation and decided to leverage externalprofessional services for implementation, testing, and training. Over two to three months of implementation, the total,upfront cost for professional services was $700,000 before adjusting for risk.

Internal Planning And Implementation EffortThe main portion of planning and implementation started after the team decided on which vendor’s solution to deploy.At that point, since the organization had hired external professional services to assist with the implementation, theinternal Laud Goods & Co. team was just two staff members at 90% (1.8 FTE) of their time. After incorporating fullyloaded salary costs, this is an upfront, non-risk-adjusted cost of $18,720.

Total CostsTable 3 shows the total of all costs mentioned above as well as associated present values, discounted at 10%.



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Table 3Total Costs — Non-Risk-Adjusted

Costs Initial Year 1 Year 2 Year 3 Total Present value

Software licenses $0 ($700,000) ($700,000) ($700,000) ($2,100,000) ($1,740,796)

Hardware ($700,000) $0 $0 $0 ($700,000) ($700,000)

Additional software $0 ($100,000) ($100,000) ($100,000) ($300,000) ($248,685)

Professional services ($700,000) $0 $0 $0 ($700,000) ($700,000)

Internal planning andimplementation effort

($18,720) $0 $0 $0 ($18,720) ($18,720)

Total ($1,418,720) ($800,000) ($800,000) ($800,000) ($3,818,720) ($3,408,202)


BenefitsLaud Goods & Co. experienced four specific benefits:

Legacy software license cost avoidance.

Preconfigured performance and maintenance efficiencies.

Reporting and decision-making efficiency.

Advanced incident resolution.

The implementation of IBM’s preconfigured and pre-optimized analytics system on Power resulted in a balanced groupof tangible and quantified benefits for Laud Goods & Co. Benefit categories covered tangible cost avoidance, timesavings through efficiencies, and value derived from a business decision enabled by analytics.

Legacy Software License Cost AvoidanceOne of the relatively easier and quicker benefits to realize is the retirement of legacy BI software. Laud Goods & Co.noted that its legacy software licensing costs were approximately the same as its current software costs from IBM.However, since Laud Goods & Co.’s current agreement with IBM provides 1,000 licenses instead of 700, theorganization is getting an incremental benefit of 300 licenses.

Laud Goods & Co. not only broke even on software license cost but also saw a benefit of the value for 300 incrementallicenses to increase its BI user capacity. As shown in Table 4, this is a $1 million benefit each year, before adjusting forrisk.



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Table 4Legacy Software License Cost Avoidance — Non-Risk-Adjusted

Ref. Metric Calculation Year 1 Year 2 Year 3

A1Amount of software licensesretiring Composite 700 700 700

A2 License cost Composite $1,000 $1,000 $1,000

A3Incremental software licensesneeded Composite 300 300 300

At Legacy software license costavoidance (A1*A2)+(A3*A2) $1,000,000 $1,000,000 $1,000,000


Preconfigured Performance And Maintenance EfficienciesThe main driver for Laud Goods & Co.’s decision to implement IBM’s preconfigured and pre-optimized analyticssystem on Power is need for stability and capacity as business analytics demands grow. Laud Goods & Co. estimatedtwo resources dedicated 100% of their time in the previous environment to maintenance. Furthermore, there werefrequent system outages, the organization did not have the capacity for daily reporting, and the team often did not havetime to perform root-cause analysis for complicated breaks in the system.

With the introduction of business analytics on IBM Power Systems, Laud Goods & Co. was confident that there wouldbe fewer stability issues with a preconfigured IBM system running IBM hardware and software. After implementation,the team’s two AIX administrators spent considerably less time on maintenance (10% of one resource), which freed uptheir time for more value-added activities.



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Assuming a $120,000 fully loaded annual salary with a 3% raise each year, this benefit totals to approximately $700,000over three years before adjusting for risk, as shown in Table 5.

Table 5Preconfigured Performance And Maintenance Efficiencies — Non-Risk-Adjusted


B1 Maintenance FTEs needed inprevious environment

Composite 2 2 2

B2 Maintenance FTEs needed incurrent environment Composite 0.1 0.1 0.1

B3 FTE annual salary Assumption $120,000 $123,600 $127,308

BtPreconfigured performanceand maintenanceefficiencies

(B1*B3)-(B2*B3) $228,000 $234,840 $241,885


Reporting And Decision-Making EfficiencyAs Laud Goods & Co. grew its business, the executive team realized that business analytics would play an importantrole if it wanted to be successful going forward. Meeting analytics demands was a top priority, and reviewing reports ata weekly frequency was not going to be enough for the organization’s planned growth. Not only did weekly reportingactually cause business users to spend more time in generating, reviewing, and absorbing reports each week, it also didnot allow for timely decisions.

After implementing IBM’s preconfigured and pre-optimized analytics system on Power, business users were able to usethe BI software to pull reports more frequently. Approximately 10% of users got the most benefit out of reviewingreports daily instead of weekly and saw about a 3-hour difference. That is, instead of spending all or most of Mondayreviewing reports generated over the weekend, these users were able to spend 1 hour each day during the work week toreview reports and make more timely business decisions for everything from price optimization to inventorymanagement.

Assuming a $45 loaded hourly salary with a 3% raise per year for a business user, this benefit totals $2.2 million overthree years before adjusting for risk, as shown in Table 6.



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Table 6Reporting And Decision Making Efficiency — Non-Risk-Adjusted


C1Business intelligencereporting users Composite 1,000 1,000 1,000

C2

Hours spent ongenerating/reviewing reportsto make business decisionsper week in previousenvironment

Composite 8 8 8

C3

Hours spent ongenerating/reviewing reportsto make business decisionsper week in currentenvironment

Composite 5 5 5

C4 Impacted users requiringdaily reporting capabilities

Composite 10% 10% 10%

C5 Business user hourly wage Assumption $45 $46 $48

Ct Reporting and decision-making efficiency (C1*C4)*(C2-C3)*C5*52 $702,000 $723,060 $744,752


Advanced Incident ResolutionLaud Goods & Co. has found a positive reaction among business users and an overall positive impact on business afterimplementing a new BI system. Business decisions are being made more quickly, and although the organization has notinstalled metrics to attribute and track the performance that BI has on each aspect of the business, there is at least oneexample that made a material impact.

Although the Smarter Analytics System is not used as a primary ticket resolution system, Laud Goods & Co. was able toleverage the detailed data analysis capabilities to track down specific issues in its supply chain. The organization investsabout $20 million in a group of vendors each retail season. Each vendor produces four, sometimes overlapping, SKUseach quarter. In the first year with Smarter Analytics deployed, Laud Goods & Co. was able to single out the threevendors that produced defects while also zooming in on the exact SKUs that had issues.

In the past, Laud Goods & Co. would have likely returned all defects to all vendors producing the defective SKUs andrapidly looked for a replacement vendor, which would have taken time and potentially increased price because ofshorter lead time for production. With Smarter Analytics deployed, Laud Goods & Co. was able to find out exactlywhich vendor has issues with a SKU instead of attributing the issue to all vendors producing that SKU. This enabled the



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organization to work out the issue with the vendor instead of incurring return shipping and replacement vendor searchcosts, which are estimated at 1% of the quarterly cost of goods sold.

As vendor issues are better managed, defect situations decrease over three years. Before adjusting for risk, this benefittotals $1.8 million over three years, as shown in Table 7.

Table 7Advanced Incident Resolution — Non-Risk-Adjusted


D1Vendors with defectiveproduct Composite 3 2 1

D2Investment in vendor perquarter Composite $20,000,000 $20,000,000 $20,000,000

D3 Total SKUs at vendor Composite 4 4 4

D4 Defective SKUs Composite 2 1 1

D5Cost to return defectiveproducts and replace vendor(% of investment)

Composite 1% 1% 1%

Dt Advanced incidentresolution (D2/D3)*D1*D4*D5*4 $1,200,000 $400,000 $200,000




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Total BenefitsTable 8 shows the total of all benefits mentioned above as well as associated present values, discounted at 10%.

Table 8Total Benefits — Non-Risk-Adjusted

Benefits Initial Year 1 Year 2 Year 3 Total Present value

Legacy softwarelicense costavoidance

$1,000,000 $1,000,000 $1,000,000 $3,000,000 $2,486,852

Preconfiguredperformance andmaintenanceefficiencies

$228,000 $234,840 $241,885 $704,725 $583,087

Reporting anddecision-makingefficiency

$702,000 $723,060 $744,752 $2,169,812 $1,795,295

Advanced incidentresolution $1,200,000 $400,000 $200,000 $1,800,000 $1,571,751

Total $3,130,000 $2,357,900 $2,186,637 $7,674,537 $6,436,985


FlexibilityFlexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned intobusiness benefit for some future additional investment. This provides an organization with the “right” or the ability toengage in future initiatives but not the obligation to do so. There are multiple scenarios in which a customer mightimplement IBM’s pre-integrated and pre-optimized analytics system on Power and later realize additional uses andbusiness opportunities. Flexibility would also be quantified when evaluated as part of a specific project (described inmore detail in Appendix B).

Laud Goods & Co. is seeing analytics capability scale and permeate faster than consumption. The organization knowsthat business analytics is a valuable asset to the company; therefore, the main question is which business units havemost to gain and should adopt more rapidly. Not only has this IBM solution enabled for rapid analytics growth, theorganization is also confident that the infrastructure will hold up with little-to-no downtime even with increased use.

Looking forward, Laud Goods & Co. also sees scalability value in not only analytics scaling up but also the option ofscaling up infrastructure, cores, and storage as needed. Most importantly, now that the organization is familiar with thePower platform and AIX, it foresees the next upgrade, regardless of hardware or software, to be much easier and faster.



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RiskForrester defines two types of risk associated with this analysis: implementation risk and impact risk. “Implementationrisk” is the risk that a proposed investment in IBM’s pre-integrated and pre-optimized analytics system on Power maydeviate from the original or expected requirements, resulting in higher costs than anticipated. “Impact risk” refers to therisk that the business or technology needs of the organization may not be met by the investment in IBM, resulting inlower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefitestimates.

Quantitatively capturing investment and impact risk by directly adjusting the financial estimates results in moremeaningful and accurate estimates and a more accurate projection of the ROI. In general, risks affect costs by raisingthe original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should betaken as “realistic” expectations since they represent the expected values considering risk.

The following implementation risks that affect costs are identified as part of this analysis:

Decreased demand or adoption rate of analytics, impacting volume discounts.

Increased need for additional software beyond planned needs.

Implementation by professional services takes longer than expected.

Lack of AIX and DB2 expertise when planning or hiring.

The following impact risks that affect benefits are identified as part of the analysis:

Requests by business to keep two sets of overlapping BI tools, slowing down license retirement schedule.

Customization that deviates from IBM’s preconfigured and pre-optimized analytics systems on Power, whichmay cause system instability.

Decreased demand or adoption rate of analytics, impacting decision-making efficiency.

No usage in live business decisions like vendor management or inventory management.



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Table 9 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates. The TEI model uses atriangular distribution method to calculate risk-adjusted values. To construct the distribution, it is necessary to firstestimate the low, most likely, and high values that could occur within the current environment. The risk-adjusted valueis the mean of the distribution of those points. Readers are urged to apply their own risk ranges based on their owndegree of confidence in the cost and benefit estimates.

Table 9Cost And Benefit Risk Adjustments

Costs Low Mostlikely High Mean

Software licenses 100% 100% 125% 108%

Hardware 100% 100% 125% 108%

Additional software 100% 100% 125% 108%

Professional services 100% 100% 125% 108%

Internal planning and implementation effort 100% 100% 125% 108%

Benefits Low Mostlikely High Mean

Legacy software license cost avoidance 80% 100% 103% 94%

Preconfigured performance and maintenance efficiencies 80% 100% 103% 94%

Reporting and decision-making efficiency 80% 100% 103% 94%

Advanced incident resolution 80% 100% 103% 94%




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Financial Summary

The financial results calculated in the Costs and Benefits sections can be used to determine the return on investment,net present value, and payback period for the organization’s investment in IBM’s pre-integrated and pre-optimizedanalytics system on Power. These are shown in Table 10.

Table 10Cash Flow — Non-Risk-Adjusted

Cash flow — Original estimatesInitial Year 1 Year 2 Year 3 Total Present value

Costs ($1,418,720) ($800,000) ($800,000) ($800,000) ($3,818,720) ($3,408,202)

Benefits $0 $3,130,000 $2,357,900 $2,186,637 $7,674,537 $6,436,985

Net benefits ($1,418,720) $2,330,000 $1,557,900 $1,386,637 $3,855,817 $3,028,783

ROI 89%

Payback period 7.3 months


Table 11 below shows the risk-adjusted ROI, NPV, and payback period values. These values are determined by applyingthe risk-adjustment values from Table 9 in the Risk section to the cost and benefits numbers in Tables 3 and 8.

Table 11Cash Flow — Risk-Adjusted

Cash flow — Risk-adjusted estimatesInitial Year 1 Year 2 Year 3 Total Present value

Costs ($1,532,218) ($864,000) ($864,000) ($864,000) ($4,124,218) ($3,680,858)

Benefits $0 $2,942,200 $2,216,426 $2,055,439 $7,214,065 $6,050,766

Net benefits ($1,532,218) $2,078,200 $1,352,426 $1,191,439 $3,089,847 $2,369,908

ROI 64%

Payback period 8.8 months




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IBM Business Analytics On Power: Overview

An integrated analytics solution that is built on Power based servers and designed to accelerate delivery of insights forfaster, smarter action:

Key features include:

Built on a foundation of IBM data warehouse management software, storage, and the Power platform.

Offers business analytics capabilities including business intelligence reporting, analysis, dashboards, data mining,cubing services, and text analytics.

Pre-integrated hardware and software modules can be added to existing installations — resulting in scalabilityand flexibility.

Engineered for the rapid deployment of a business-ready solution in days.

Control console that allows for coordinated updates and maintenance.

Operating systems supported: AIX.

Appendix A: Composite Organization Description

Based on the interviews with the four existing customers provided by IBM, Forrester constructed a TEI framework, acomposite organization, and an associated ROI analysis that illustrates the areas financially affected. Laud Goods & Co.,the composite organization that Forrester synthesized from these results, represents a North American mixed goodsretailer with $10 billion in annual revenue and 400 stores throughout the US, Canada, and Mexico. While exploringoptions to expand into the European and Asian markets, Laud Goods & Co. already has an established presencethrough its vendor network outside of North America.

As Laud Goods & Co.’s business grew organically and through acquisitions, the IT team faced the challenge of agrowing demand for business analytics with a dated and disparate infrastructure that was not built or optimized for BIworkloads. Furthermore, as business demands continually pushed the IT infrastructure, system outages were commonuntil the IT team set a policy that certain analytics reports may only be run once a week — usually over the weekendwhen there was most bandwidth. The CIO quickly assembled a team of infrastructure staff (seven FTEs) and developeda new BI team (two FTEs) to decide which hardware systems and BI software to invest in.

The infrastructure and BI teams held meetings with several vendors that provided a combination of hardware and BIsoftware. After advancing discussions with two vendors to the proof of concept stage, Laud Goods & Co. chose IBM’spre-integrated and pre-optimized analytics system on Power servers and Cognos as the primary BI software.

Laud Goods & Co.’s objectives in choosing Smarter Analytics on Power were:

Increased system stability and reduced maintenance effort.



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Capacity to support at least 1,000 business and back-office users with BI software, with a subgroup that has dailyreporting demands.

Gaining business value from analytics by making smarter and more timely business decisions.

Retiring overlapping software and phasing out obsolete hardware over time.

Appendix B: Total Economic Impact™ Overview

Total Economic Impact is a methodology developed by Forrester Research that enhances an organization’s technologydecision-making processes and assists vendors in communicating the value proposition of their products and servicesto clients. The TEI methodology helps organizations demonstrate, justify, and realize the tangible value of IT initiativesto both senior management and other key business stakeholders.

The TEI methodology consists of four components to evaluate investment value: benefits, costs, risks, and flexibility.

BenefitsBenefits represent the value delivered to the user organization — IT and/or business units — by the proposed productor project. Often product or project justification exercises focus just on IT cost and cost reduction, leaving little room toanalyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial modelplace equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect ofthe technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the userorganization to understand the specific value that is created. In addition, Forrester also requires that there be a clear lineof accountability established between the measurement and justification of benefit estimates after the project has beencompleted. This ensures that benefit estimates tie back directly to the bottom line.

CostsCosts represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the businessunits may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all theinvestments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI capturesany incremental costs over the existing environment for ongoing costs associated with the solution. All costs must betied to the benefits that are created.

RiskRisk measures the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measuredin two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections, and 2) the likelihoodthat the estimates will be measured and tracked over time. TEI applies a probability density function known as“triangular distribution” to the values entered. At minimum, three values are calculated to estimate the underlyingrange around each cost and benefit.



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FlexibilityWithin the TEI methodology, direct benefits represent one part of the investment value. While direct benefits cantypically be the primary way to justify a project, Forrester believes that organizations should be able to measure thestrategic value of an investment. Flexibility represents the value that can be obtained for some future additionalinvestment building on top of the initial investment already made. For instance, an investment in an enterprisewideupgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reducelicensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated.The collaboration can only be used with additional investment in training at some future point in time. However,having the ability to capture that benefit has a present value that can be estimated. The flexibility component of TEIcaptures that value.

Appendix C: Glossary

Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although theFederal Reserve Bank sets a discount rate, organizations often set a discount rate based on their business andinvestment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically usediscount rates between 8% and 16% based on their current environment. Readers are urged to consult their respectiveorganization to determine the most appropriate discount rate to use in their own environment.

Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (thediscount rate). A positive project NPV normally indicates that the investment should be made, unless other projectshave higher NPVs.

Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate(the discount rate). The PV of costs and benefits feed into the total net present value of cash flows.

Payback period: The breakeven point for an investment. The point in time at which net benefits (benefits minus costs)equal initial investment or cost.

Return on investment (ROI): A measure of a project’s expected return in percentage terms. ROI is calculated bydividing net benefits (benefits minus costs) by costs.

A Note On Cash Flow TablesThe following is a note on the cash flow tables used in this study (see the example table below). The initial investmentcolumn contains costs incurred at “time 0” or at the beginning of Year 1. Those costs are not discounted. All other cashflows in Years 1 through 3 are discounted using the discount rate (shown in Framework Assumptions section) at theend of the year. Present value (PV) calculations are calculated for each total cost and benefit estimate. Net present value(NPV) calculations are not calculated until the summary tables and are the sum of the initial investment and thediscounted cash flows in each year.



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Table [Example]Example Table

Ref. Category Calculation Initial cost Year 1 Year 2 Year 3 Total


Appendix D: Endnotes

1 Forrester risk-adjusts the summary financial metrics to take into account the potential uncertainty of the cost andbenefit estimates. For more information on Risk, please refer to Appendix B.

EllenLura

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a forrester total economic impact™ study prepared … · 2015-11-07 · the total economic...

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