oe forrester tei study

8/10/2019 OE Forrester TEI Study

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Prepared for Informatica April 2009

The Total Economic Impact of theInformatica Platform and IntegrationCompetency CentersMulticompany Analysis

Project Director: Jon Erickson


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The Total Economic Impact of the Informatica Platform and Integration Competency Centers

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TABLE OF CONTENTSExecutive Summary ...............................................................................................................................4

Purpose ..............................................................................................................................................4

Methodology.......................................................................................................................................4

Approach............................................................................................................................................5

Key Findings ......................................................................................................................................5

Disclosures.........................................................................................................................................8

Informatica: Overview.............................................................................................................................9

What is data integration? .................................................................................................................11

Overcoming the challenges of enterprise data integration with Informaticas Platform and anIntegration Competency Center practice ........................................................................................11

Analysis.................................................................................................................................................13

Interview Highlights..........................................................................................................................13

TEI Framework ................................................................................................................................15

Costs ................................................................................................................................................15

Benefits ............................................................................................................................................22

Risk...................................................................................................................................................35

Flexibility...........................................................................................................................................35

TEI Framework: Summary...............................................................................................................36

Study Conclusions................................................................................................................................37

Appendix A: Total Economic Impact Overview ...............................................................................38

Benefits ............................................................................................................................................38

Costs ................................................................................................................................................38

Risk...................................................................................................................................................38

Flexibility...........................................................................................................................................38

Appendix B: Glossary...........................................................................................................................39


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2009, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based onbest available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics,Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All othertrademarks are the property of their respective companies. For additional information, go to www.forrester.com.


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Executive SummaryIn January 2009, Informatica commissioned Forrester Consulting to examine the total economicimpact and potential return on investment (ROI) enterprises may realize by standardizing dataintegration practices from hand-coding and one off tools to a common platform for data integrationand moving data integration away from a project-by-project view to more of an enterprise focus ondata integration through the creation of a centralized shared services environment also referred toas an Integration Competency Center (ICC) or Center of Excellence (CoE). The Informatica DataIntegration Platform provides a comprehensive, unified, open, and economical set of capabilitiesdesigned to support all types of data integration projects including:

Enterprise Data Warehousing : Extracting data from a number of systems into a commondata store for reporting, analytics, or business intelligence purposes

Data Migration and consolidation : Converting or consolidating data from existingsystems into the formats and structures of new systems and applications

Master Data Management (MDM): Creating a single view, central registry, or data hub for

master data like Customer, Product, Supplier, etc.

Data Integration fo r Cloud Comput ing: Integrating data that resides inside a corporationwith Software-as-a-Service (SaaS) applications

Operational Data integration: Real-time data access, transformation, and delivery acrossa set of applications or databases

B2B Data Exchange : Integrating customers/partners/suppliers data across enterpriseboundaries

Information Life Cycle Management : Focusing on application and database archiving,

test data management, data privacy, and application retirement.

This study illustrates the financial impact and operational efficiency gains an organization mayreceive through the investment in Informaticas solutions and an Integration Competency Center.

In conducting in-depth interviews with seven existing customers, Forrester found that thesecompanies achieved benefits in both operational and analytical data integration. Specific benefitsincluded improved operational efficiency across the organization, reduced capital costs fromconsolidation and standardization of hardware and software, improved data visibility andconsistency across departments, as well as increased scalability within the data integrationenvironment.

PurposeThe purpose of this study is to provide readers with a framework to evaluate the potential financialimpact of standardizing on the Informatica platform and the adoption of an ICC practice across theirrespective organization. Forresters aim is to clearly show all calculations and assumptions used inthe analysis. Readers should use this study to better understand and communicate a business casefor investing in Informaticas data integration platform and an ICC practice.

MethodologyInformatica selected Forrester for this project because of its industry expertise in data integrationplatforms and Forresters Total Economic Impact (TEI) methodology. TEI not only measures


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costs and cost reduction (areas that are typically accounted for within IT) but also weighs theenabling value of a technology in increasing the effectiveness of overall business processes.

For this study, Forrester employed four fundamental elements of TEI in modeling the Informaticaplatform and ICC practice

1. Costs and cost reduction.

2. Business and IT benefits to the entire organization.

3. Flexibility.

4. Risk.

Given the increasing sophistication that enterprises have regarding cost analyses related to ITinvestments, Forresters TEI methodology serves an extremely useful purpose by providing acomplete picture of the total economic impact of purchase decisions. Please see Appendix A foradditional information on the TEI methodology.

ApproachForrester used a five-step approach for this study:

1. Forrester gathered data from existing Forrester research relative to Informatica and thedata integration market in general.

2. Forrester interviewed Informatica marketing and sales personnel to fully understand thepotential (or intended) value proposition of enterprise data integration with Informatica.

3. Forrester conducted a series of in-depth interviews with seven organizations of varyingsizes and in different industries currently using Informaticas data integration solutions and

a centralized shared services environment.

4. Forrester constructed a financial model that was representative of the interviews. Thismodel can be found in the TEI Framework section below.

5. Forrester created a composite organization based on the interviews and populated theframework using data from the interviews as applied to the composite organization.

Key FindingsForresters study yielded three key findings:

Benefits. Total benefits equated to over $5.5M in a 5 year period, comprising $4.2M in

present value IT benefits and $1.3M in present value line of business benefits. IT benefitsinclude improved operational efficiencies within the data integration environment arounddeveloper productivity and replacement of hand coding (leading to productivity increases ofbetween 30% to 50%), improved data availability and accuracy, reduced cost of deliveryand improved flexibility to react to changing requirements. Specific line of businessbenefits included reduced data errors as well as improved reporting and data reconciliationto support risk management and regulatory compliance practices. Figure 2 illustrates theyearly incremental benefit received by the representative organization.


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Figure 2 Yearly Incremental Benefit

Yearly Incremental Benefit -Informatica Platform/ICC

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

Year 1 Year 2 Year 3 Year 4 Year 5

Source: Forrester Research, Inc.

Investment/Costs. The primary costs include the incremental costs of software licenseand maintenance, internal and external implementation and change management costs, aswell as ongoing costs to run and maintain an ICC environment at an enterprise levelconsisted of $2.7M over a 5 year period. Figure 1 illustrates the yearly incremental cost ofthe Informatica platform.

Figure 1 Yearly Incremental Cost

Yearly Incremental Cost -Informatica Platform/ICC

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

Initial Year 1 Year 2 Year 3 Year 4 Year 5



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ROI. Based on the interviews with the seven existing customers, Forrester constructed aTEI framework for a composite organization (see Appendix A) and the associated ROIanalysis illustrating the financial impact areas. As seen in Table 1, the ROI for ourcomposite company is 88%, with a breakeven point (payback period) of 18 months afterdeployment. Figure 3 provides an illustration of the cumulative cash flow of therepresentative organization.

Figure 3 Cumulative Cash Flow

Cummulative Net Cash Flow

$(2,000,000)

$(1,000,000)

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

Initial Year 1 Year 2 Year 3 Year 4 Year 5


Table 1 illustrates the risk-adjusted cash flow for the composite organization, based on data andcharacteristics obtained during the interview process. Forrester risk-adjusts these values to takeinto account the potential uncertainty that exists in estimating the costs and benefits of a technologyinvestment. The risk-adjusted value is meant to provide a conservative estimation, incorporatingany potential risk factors that may later impact the original cost and benefit estimates. For a morein-depth explanation of risk and risk adjustments used in this study, please see the Risk section.

Table 1: Composite Company ROI, Risk-Adjusted

Cash flow summary:five-year analysis Original estimates Risk-adjust ed

Total cost $2,996,000 $3,219,200

Total cost (PV) $2,535,861 $2,722,020

Total benefit $8,001,320 $7,619,176

Total benefit (PV) $5,824,213 $5,540,277

ROI 110% 88%

IRR 95% 82%

Net present value (NPV) $3,288,352 $2,818,257



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Table 2: Net Cash Flow, Risk-Adjusted

Init ial Year 1 Year 2 Year 3 Year 4 Year 5 Total PV

Total cost 730,000 630,000 464,800 464,800 464,800 464,800 3,219,200 2,722,020

Total benefit 782,053 1,301,947 1,548,176 1,844,827 2,142,173 7,619,176 5,540,277

Net cash flow (730,000) 152,053 837,147 1,083,376 1,380,027 1,677,373 4,399,976 2,818,257


Forrester found that higher ROI was associated with companies that were rolling out large andgrowing data warehouses, were consolidating more data marts and databases, had mappings inthe hundreds and thousands, had larger project teams, and had business needs requiring ongoingdevelopment and maintenance of the data integration environment.

DisclosuresThe reader should be aware of the following:

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

Informatica reviewed and provided feedback to Forrester, but Forrester maintains editorialcontrol over the study and its findings and does not accept changes to the study thatcontradict Forresters findings or obscure the meaning of the study.

The customer names for the interviews were provided by Informatica.

Forrester makes no assumptions as to the potential ROI that other organizations willreceive. Forrester strongly advises readers to use their own estimates within the frameworkprovided in the report to determine the appropriateness of an investment in Informatica.

This study is not meant to be used as a competitive product analysis.


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Informatica: Overview According to Informatica, data is the lifeblood for many organizations and is considered one of themost important assets they own. Timely, accurate, and consistent data helps businesses compete,comply with regulators, retain customers, facilitate mergers and acquisitions, and improveoperational efficiency. As companies face significant business challenges in these tough economictimes, a key way for them to survive and even thrive is to better leverage data as an asset and tobecome a data-driven enterprise. A data-driven enterprise is one who consciously focuses onand invests in maximizing the value to increase business agility, lower costs and mitigate risks.

Not every company however has achieved this level of focus about their data. That is becausemost organizations have many challenges when it comes to accessing and leveraging their dataassets including:

Lack of capable technologies, repeatable processes, and architecture

Ever-growing number of systems, formats, languages

Increased fragmentation of Data through the proliferation of SaaS applications by the line ofbusiness

Growing data volumes

Need for real-time data

Need for certifiable, accurate data

Tightening IT budgets

One of the challenges that makes it difficult to invest in becoming data-driven is the fact that asignificant majority of the IT budget63% 1 is spent on ongoing operations and maintenance,rather than new initiatives. In particular, a significant portion of the ongoing maintenance costs isdedicated to application integration maintenance. This is in large part due to the integrationhairball that has developed in most organizations. With the hairball, integration is costly tomaintain, and the integration points are constantly breaking every time a change occurs.

How did we get to this point? In the 1970s and 1980s, data was often centralized in a handful oflarge mainframes and mid-range systems. Then in the 1990s, distributed applications became thebusiness standard. Conventional wisdom said that the data should be managed within the ERP,CRM, SCM and other applications. This led to silos, with applications not being able to talk to oneanother and share data. Additionally the rise of enterprise application integration (EAI), whichfocused on processing transactional data between applications, occurred. The advent of internetand web applications also exacerbated this problem in the last decade, proliferating hundreds if notthousands of new applications, with data integration often handled by custom coding or using oneoff tools.

1 Forrester Research, The State Of Enterprise IT Budgets: 2008, March 27, 2008


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Source: Informatica.

What is the result of all this ad hoc integration? The Integration Hairball that causes the followingchallenges:

Disjointed IT approaches across the enterprise that arent scalablethat is they cant

be reused across different projects. Very complex IT environment. In large part because of the complexity, this integration

spaghetti or hairball is also extremely difficult to change, as a change in oneapplication or system ripples across many different integration points.

High upfront and ongoing costs from ad hoc integration. First, there is little or no reuseacross projects at development time. Moreover, the ripple effect of changes makesmaintenance and updates extremely costly.

However, business-critical data isnt only in enterprise applications. Its in spreadsheets anddocuments that are on peoples hard drives. IT organizations struggle to access that data.In addition, organizations have to share data with many partners in their ecosystem suppliers,channel partners, customers, etc. Each partner may have a different application and data standard,leading to one-off integration. Also, in some cases, B2B data must adhere to industry standardssuch as EDI or SWIFT which themselves are changing, further complicating how data is shared.Finally, we have seen a recent shift toward cloud computing and SaaS (software-as-a-service), inlarge part due to its lower costs.

Cloud Computing is gaining popularity because it allows businesses to build and deployapplications faster and at a lower cost compared to traditional application implementations..Because of the pressure to move quickly, more ad hoc approaches to data integration are taken,which often have to deal with newer technology standards including web services. But without anintegration blueprint and standard tools, organizations risk losing access to and control of their data.


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What is data integration?Data integration involves both analytical and operational IT activities including:

Enterprise Data Warehousing : Extracting data from a number of systems into a commondata store for reporting, analytics, or business intelligence purposes

Data Migration and consolidation : Converting or consolidating data from existingsystems into the formats and structures of new systems and applications

Master Data Management (MDM): Creating a single view, central registry, or data hub formaster data like Customer, Product, Supplier, etc.

Data Integration fo r Cloud Comput ing: Integrating data that resides inside a corporationwith Software-as-a-Service (SaaS) applications

Operational Data integration: Real-time data access, transformation, and delivery acrossa set of applications or databases

B2B Data Exchange : Integrating customers/partners/suppliers data across enterpriseboundaries

Information Life Cycle Management : Focusing on application and database archiving,test data management, data privacy, and application retirement

Data integration is a complex, time consuming, expensive, and operationally inefficient processwithout the right technology, people, and processes. IT organizations that lack these criticalelements resort to using one-off tools from different vendors, develop hand coded processes, andoperate data integration at a departmental level. These practices often result in significantoperational inefficiencies caused by redundant processes, underutilized resources, higherinfrastructure, development, support, maintenance, and change management costs.

Overcoming the challenges of enterprise data integration wi thInformaticas Platform and an Integration Competency CenterpracticeOrganizations can deliver timely, trusted, comprehensive data to the business at lower costs byadopting the right approach to data integration. This includes the people, process and technologyaspects of data integration. Informatica delivers on all three fronts to drive operational efficiency fordata integration.

Technology : Utilize the Informatica Platform to reduce TCO of data integration projects

The Informatica Platform helps lower upfront cost during initial development anddeployment. This is due to the ease-of-use of its role-based features. The capabilities areeasier to learn, which lowers ramp-up time, and easier to use, which makes developmentgo faster. They are also designed to enable different people to collaborate effectively,ensuring IT delivers what the business needs.

It also lowers the cost for ongoing maintenance and administration. Informaticas provenscalability, performance and availability is designed to stand up to the demands of 24x7operations in large, complex environments. Its intuitive and simple administration


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capabilities also make it simpler for IT to manage the data integration environment on aday-to-day basis, and to configure it to meet the changing needs of the organization.

The Informatica Platform lowers the cost of change with shared metadata. Metadatadocuments where your data is, as well as the business rules and logic around the data. Byensuring the right people have the right metadata at the right time, they can understand the

existing environment and the impact of any changes they plan to make, to avoidunexpected problems as changes ripple through the system.

Finally, The Informatica Platform lowers costs by providing a unified solution from one vendor,avoiding the costs and risks of tying together disparate point tools to work with each other. Thetechnology is the underlying foundation for enabling people and process.

People and Process : Standardize on a common approach to data integration, managed via anIntegration Competency Center to reduce TCO for multiple data integration projects across theenterprise.

As organizations scale their data integration practices, they can further improve their operationalefficiencies across multiple projects by centralizing data integration activities under a centralizedpractice otherwise known as an Integration Competency Center (ICC) or Center of Excellence. Withan ICC, organizations can build on past successes instead of reinventing the wheel with eachproject resulting in further cost savings and economies of scale. Informatica is industry leader inICC education and services. Combined with the Informatica Platform for enterprise data integration,organizations who operate an ICC can significantly reduce their start up and ongoing costs acrossthe enterprise and do more with less to ensure business success.

In covering a board array of integration project types, ICCs can employ a variety of complimentarytechnical approaches including ETL. ELT, EII, EAI, and ESB. In addition, given the focus on data,ICCs are well positioned to can take a leadership role in a companys Information LifecycleManagement (ILM) strategy. By extending the policies, processes and tools used for integratingdata to encompass concepts like data retention, compliance, data privacy, test data management,and application retirement, ICCs are well suited to ensuring alignment between the business valueof information with the most appropriate and cost effective infrastructure for managing IT .


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Analysis As stated in the Executive Summary, Forrester took a multistep approach to evaluate the effect thatmigrating to an enterprise view of data integration and management can have on an organization:

Interviews with Informatica marketing and sales personnel.

In-depth interviews of seven organizations currently using Informatica across theenterprise.

Construction of a common financial framework for standardizing on the Informaticaplatform.

Construction of a composite organization based on characteristics of the interviewedorganizations.

Interview Highligh ts A total of seven interviews were conducted for this study, involving representatives from thefollowing companies (Informatica customers based in the United States):

1. A North America-based f inancial services organization w ith roughly 6,000 employeeslocated throughout the US using Informatica as part of its standardized dataintegration platform. On average, the organization is currently running 50 to 70 dataintegration projects consisting of roughly 70% operational data and 25% analytical data.The organization formally adopted a data integration center of excellence (CoE) in 2004.

2. A global financial servic es organization w ith roughly 45,000 employees and 750billion in assets under management. The organization currently operates with acentralized IT shared services organization leveraged by 50 discrete business units.

3. A North America-based media and research organization w ith roughly 4,500employees and offices worldwide. The organization typically runs 20 to 30 concurrentdata integration projects per year across 12 individual business units.

4. A global media and en tertainment company with roughly 2,000 employees locatedprimarily in the western US. As part of the data integration platform, the organization usesthe business-to-business (B2B) data exchange solution to integrate order, planning,forecasting, and manufacturing information from all its customers, partners, and suppliers.

5. A North American financial services organization with roughly 68,000 employees. The organization maintains a large development organization in the US and India as part ofits ongoing development efforts.

6. A North America-based h ealth s ervices o rganization with roughly 43,000 employees. The organization has recently begun moving its data integration tasks to a shared servicesenvironment focusing on data warehousing and data synchronization.

7. A global pharmaceutical o rganization with roughly 86,000 employees worldwide. Theorganization maintains a shared services environment created in 2003 primarily for itsresearch-and-development (R&D) division that moved to other departments in 2006. Theorganization supports roughly 5TB in data for its research organization.


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The composite organization created from the results of the customer interviews represents a US-based services organization that standardized on the Informatica platform in 2006. To drive thestandardization and consolidation around a single shared services environment, the organizationcreated an ICC to facilitate the move away from a distributed to a centralized data integrationenvironment.

The representative organization currently operates four primary business units, each with its owndepartmental IT organization. The growth of a shared data integration environment parallels otherinitiatives to share other common functions under a centralized IT organization.

The seven in-depth interviews uncovered several key business challenges and common goals thatdrove the analysis:

The need to develop a clear path to achieve operational efficiency gains w ithin dataintegration. All organizations mentioned both internal and external pressure to maximizeresources around common IT functions. With the rapid growth of operational and analyticaldata, organizations noted that they were required yearly to demonstrate tangible efficiencygains within their organizations.

Lack of clear data integration standards. Prior to the development of a shared servicesdata integration environment, many organizations mentioned that they had difficultyreducing overall costs in part due to a lack of clear ways of performing data integrationtasks. As a result, different departments and business units in some cases choseexpensive hand-coding efforts that limited reuse and raised the overall cost ofdevelopment. By creating a shared services environment through the creation of an ICC,organizations could allow different departments to share resources using a commonplatform, potentially reducing the level of expensive hand-coding within the environment.

Inability to reuse data integration assets. Several organizations noted that a compellingreason to move toward a shared services data integration environment was the ability toleverage common data integration components across different departments and businessunits. While departmental IT still sets requirements for the data integration project, a sharedservice function can pool different components, making it easier to leverage different assetsacross the organization and leading to operational savings.

Need to maximize the savings fro m offshore development. A common theme amongall organizations interviewed was the growth of offshore development as part of anorganizations data integration efforts. In some cases, organizations saw the need tocentralize around a shared services structure as a way to ensure a reduction in riskassociated with offshore delivery of projects through a strong governance function.

Faster ramp-up of new data integration technolog ies. Organizations saw the movementto a shared services structure as an incremental process. Many organizations beganstandardizing their data warehousing, synchronizing, and replication functions, eventuallymoving onto additional data functions depending on demand from individual business units.Having a single platform to standardize enabled the organizations to develop a clear pathfor achieving operational efficiency and providing faster ramp-up of new technologiescompared with use of a multivendor solution.

These common challenges served as the basis of the creation of the analysis in this report.


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TEI Framework

IntroductionFrom the information provided in the in-depth interviews, Forrester has constructed a TEIframework for those organizations considering moving to a shared services data integration

platform. The objective of the framework is to identify the cost, benefit, flexibility, and risk factorsthat affect the investment decision.

Framework AssumptionsTable 2 lists the discount rate used in the present value (PV) and net present value (NPV)calculations and the time horizon used for the financial modeling.

Table 2: General Assumptio ns

Ref. General assumpt ions Value

Discount rate 10%

Length of analysis 5 years


Organizations typically use discount rates of 8% to 16% based on their current environment.Readers are urged to consult with finance to determine the most appropriate discount rate to usewithin their own organizations.

In addition to the financial assumptions used to construct the cash-flow analysis, Table 3 providessalary assumptions used within this analysis.

Table 3: Salary Assumptions

Ref. Metric Calculation Value

A1 Hours per week 40

A2 Weeks per year 52

A3 Hours per year (M-F, 9-5) 2,000

A4 Hours per year (24x7) 8,736

A5 Annual fully burdened salary $160,000

A6 Hourly (A5/A3) $80


CostsCosts represent the incremental investment required by the representative organization to move itsdata integration functions to a standardized shared services environment on the Informatica


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In addition to an increase in annual license spend, the model assumes that the organization willalso see an increase in the yearly maintenance cost. Assuming that the annual cost of maintenanceis 20% of overall license costs, the net increase investment in maintenance is $146,000,representing the difference in project versus enterprise maintenance costs.

Table 5: Incremental Maintenance Cost


B1 Maintenance as percentage of license 20%

B2 Annual maintenance cost: project $54,000

B3 Annual maintenance cost: enterprise $200,000

B4 Net annual investment B3-B2 $146,000


Implementation And Change Management CostsIn addition to the incremental license costs and the maintenance billed to Informatica, keycomponents in the success of the migration to an Informatica enterprise platform are labor andservices related to implementation and successful change management. Many of the interviewedorganizations saw the movement to a standardized shared services environment as a process thattook time to implement to reduce the risk of service disruption to the end user organization. As aresult, organizations noted the emphasis placed on planning, external professional services to helpin the upfront implementation of an ICC, and strong project governance and management in thecreation of a standardized environment.

In the case of hardware, the model assumes the representative organization will need to purchaseadditional hardware to run the centralized environment. These costs are offset, by the potentialcost savings the representative organization realized through repurposing server hardware fromindividual departments. To ensure a smooth transition to a centralized environment, therepresentative organization will allocate $48,000 in upfront hardware spend for implementation ofthe Informatica platform, with a 15% annual recurring cost.

Table 6: Hardware Cost

Ref Metric Calculation Value

C1 Incremental Upfront Hardware Cost $ 48,000

C2 Annual Recurring Cost (% of Upfront) 15%

C3 Annual Recurring Investment C1*C2 $7,200


In the case of planning, the model assumes that the representative organization will allocate roughlytwo full-time equivalents (FTEs) to plan and develop a strategy for implementing a standardizedenvironment. Assuming each FTE devotes 400 hours to planning at an hourly cost of $80, the totalupfront cost of planning is $64,000.


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Table 7: Planning Cost


D1 Number of FTEs 2

D2 Hours per FTE 400

D3 Cost per FTE $80

D4 Upfront cost D1*D2*D3 $64,000


External professional services represents a key upfront and ongoing cost in ensuring successfulchange management as the organization moves from a project-specific view of data integration to amore enterprise wide view. To calculate this cost, the model assumes that roughly 1,200 projecthours are devoted to upfront change management and knowledge transfer of best practices aroundsetting up a standardized data integration environment. Assuming an hourly cost of $120, the totalupfront cost is $144,000. In addition, the model assumes that professional services will play a rolein ongoing change management for the organization as the standardized environment grows andnew capabilities and services are added. Twenty percent of the upfront cost is devoted to ongoingchange management.

Table 8: External Professional Services Cost


E1 Project hours 1,200

E2 Cost per hour $120

E3 Ongoing cost as percentage of upfront 20%

E4 Up-front cost E1*E2 $144,000

E5 Ongoing annual cost E3*E4 $28,800


While external professional services provide the guidance around the creation of the ICC, the modelalso assumes that the representative organization will devote resources specifically related to thecreation of the ICC. This includes the time to create an overall governance committee and to setpolicies and guidance for the shared services environment. To calculate this cost, the modelassumes that roughly six FTEs spend roughly 200 hours each at a cost of $80 per hour in thecreation of the ICC.


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Table 9: Internal Implementation Cost


F1 Staffing requirement 6

F2 Hours per FTE 200

F3 Cost per FTE $80

F4 Upfront cost F1*F2*F3 $96,000


The final upfront cost is overall project management of moving staff and resources to a sharedservices environment. This cost includes the time for an overall project manager, who is responsiblefor handling overall management of change and communication to multiple groups on progress andupdates as the organization moves to a shared services environment. To calculate this cost, themodel assumes that one FTE devotes roughly 600 hours at a cost of $80 per hour to overall projectmanagement.

Table 10: Project Management Cost


G1 Number of FTEs 1

G2 Hours per FTE 600

G3 Cost per FTE $80

G4 Upfront cost G1*G2*G3 $48,000


Ongoing Support And TrainingIn addition to the upfront costs associated with the migration toward a shared services environment,organizations noted the need to adequately fund and staff the shared services organization toensure a strong governance layer is in place. Specifically, a key part in the ongoing success of ashared services environment is to adequately train developers on the integrated platform andensure that there is the appropriate level of support within the shared services organization.

In the case of training, the model assumes that the organization will need to allocate funds to trainroughly eight developers annually on the Informatica platform. While the organization usedInformatica within its environment prior to standardization, this cost is specifically related to thosedevelopers who had been using other ad hoc tools and primarily hand-coding within theenvironment.


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Table 11: Training Cost


H1 Number of developers trained annually 8

H2 Cost per developer $800

H3 Total cost H1*H2 $6,400


The cost of support includes the ongoing cost of running the ICC and reviewing projects that couldbe part of the shared services environment.

Table 12: Ongoing Suppor t Cost


I1 Ongoing staffing requirement 2

I2 Cost per FTE $120,000

I3 Annual cost I1*I2 $240,000



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Total CostsTable 13 includes the total costs associated with the implementation of migrating to Informaticasplatform.

Table 13: Total Cost: Non-Risk-Adjusted

Cost Categor y Init ial Year 1 Year 2 Year 3 Year 4 Year 5 Total PV

Incremental License cost 730,000 730,000 730,000

Annual Maintenance 146,000 146,000 146,000 146,000 146,000 730,000 553,455

Hardware 48,000 7,200 7,200 7,200 7,200 76,800 64,385

Planning/Testing 64,000 64,000 58,182

External Professional Services 144,000 28,800 28,800 28,800 28,800 259,200 213,902

Project Management 48,000 48,000 43,636

Training 6,400 6,400 6,400 6,400 6,400 32,000 24,261

Creation of ICC/CoE 96,000 96,000 87,273

Support 240,000 240,000 240,000 240,000 960,000 760,768

Total Cost 730,000 552,400 428,400 428,400 428,400 428,400 2,996,000 2,535,861



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To calculate this benefit, the model assumes that the organization has an average of 20 dataintegration projects focusing on operational and analytical data. It also assumes that the annualyearly spend per project prior to an enterprise investment in data integration is $200,000, withroughly 70% of that spend devoted to development. Based on client data, the estimated productivityimprovement resulted in a 20% improvement in Year 1, increasing to 50% in Year 5, compared withan environment that does not have a standardized view of data integration. In addition, the modelconservatively assumes that for the yearly productivity gain, roughly 30% of the time saved isactually translated into tangible bottom line operational savings. Based on this calculation, theannual cost savings range from roughly $168,000 in Year 1 to $420,000 in Year 5.

Table 14: Improved Developer Productivi ty


A1 Total data integration projects yearly in production 20

A2 Average yearly project spend $200,000

A3 Percentage of project spend on development 70%

A4 Typical developer FTE allocation 6

A5Estimated productivity improvement as a result of a single enterprisesolution: Y1 20%





A10 Percentage of time translated into recoverable time 30%

A11 Annual savings: Y1 A1*A2*A3*A10*A5 $168,000







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Improved Developer Training Costs Another area of benefit created as a result of standardizing data integration tools across theenterprise is through a reduction in training costs. This would include the cost of formal training, aswell as the cost to put together online training materials and to support an in-house knowledge baseof each tool that the organization has access to. This cost also includes the cost of educating newdevelopers about the tools available within the environment. One organization noted: Reduction intraining costs was a key indicator of the success of implementing the ICC. It allowed us to seetangibly how moving to a centralized view of data integration tied to reducing operational runningcosts.

To calculate this benefit, the model assumes an annual training budget for each developer of$8,000, taking into account that developers need to be up to date with different tools and differentversions of tools in a multivendor environment. Assuming over time through standardization that theorganization can achieve economies of scale through a reduction in tools, the model assumes a15% reduction in Year 1 in the cost and time to train the developers, increasing to 30% savingscompared with the pre-standardization environment in Year 5.

Table 15: Improved Developer Training Cost


B1 Annual developer training cost $8,000

B2 Number of developers trained 12

B3 Hours of training 50

B4 Estimated improvement in training: Y1 15%





B9 Annual savings: Y1 B1*B2*B4 $14,400







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Improved Data Availability Across Applications And Projects A standardized platform also provided the opportunity for organizations to increase the availability ofdata across applications and projects. In particular, several organizations noted that havingcentralized governance through a standardized platform allowed project teams to increase accessto distributed data, leading to lower costs to uncover data from disparate sources. In addition,organizations noted the ability to reduce the time it takes to provide failover and recovery ofinterrupted work, while improving setup and management through a configurable servicesframework.

To calculate this benefit, the model assumes that of the 20 projects in production over a given year,the average time to uncover and locate data from disparate sources across the organization is 125hours in a pre-standardization environment. With a standardized environment, the organization canachieve savings by standardizing the process of uncovering data as well as making it easier tolocate data in different formats from disparate sources. As a result, the model assumes a 20%savings in Year 1 in the time it takes to uncover and locate data, increasing to 35% in Year 5,compared with a pre-standardized data integration environment.

Table 16: Improved Data Availability


C1 Total number of projects 20

C2 Average time to uncover and locate data from disparatesources (hours) 125

C3 Cost per hour $120

C4 Number of FTEs 2

C5 Percentage reduction: Y1 20%





C10 Annual savings: Y1 C1*C2*C3*C4*C5 $120,000







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Lower Hardware CostsThrough standardization, organizations also saw potential areas of capital savings by consolidatingdifferent data integration tools within a shared services infrastructure. Whereas in the previousenvironment, individual departments had to purchase and manage their own data integrationenvironments, the shared services environment allows organizations to pool hardware resourcesand improve overall server utilization. This in turn allows for lower development, hardware, andinfrastructure costs to capture real-time changes of data in core systems, handling only incrementalchanges as they occur and not large sets of data repeatedly.

To calculate this benefit, the mode assumes that the impact of standardization results in greaterserver utilization within a federated, standardized environment. Consolidating tools within acentralized environment increases the ability of the organization to better predict demand andincrease overall utilization, leading to cost avoidance in hardware spend. Based on customer data,the model assumes that server utilization is able to increase on average from 50% to 70% as theorganization moves to a federated model. Assuming the average cost per server is $12,000, we cancalculate the total savings resulting from higher utilization to be roughly $96,000.

Table 18: Lower Hardware Costs


E1 Average server utilization: distributed 50%

E2 Average server utilization: federated 70%

E3 Total server count 40

E4 Average cost per server $12,000

E5 Annual savings (E2-E1)*E3*E4 $96,000


A Reduced Cost Of Change By Understanding The Ripple Effect Of MakingChanges To Data

Another key driver in improving operational efficiency within a shared services environment is theability to control the cost of change for related data integrated projects. In particular, in aheterogeneous data integration tools environment where different departments are not coordinatingtheir data integration efforts, the cost of change can accelerate due in part to the cost of manualdata profiling, cleansing, and identity matching. Having a central shared services approach, anorganization can reduce development costs associated with rework when data quality issues areidentified after the fact.

To calculate this benefit, the model assumes an annual percentage savings of the estimatedchange management cost as a percentage of upfront implementation. Of the total annual projectcost, roughly 5% is devoted to change management in a non-standardized, non-centralizedenvironment. Based on the findings of the customer interviews, the model assumes an estimatedpercentage savings of 5% in Year 1 to 45% in Year 5, resulting from the migration to a centralized,standardized environment.


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Table 19: Reduced Cost Of Change


F1 Annual project cost $200,000

F2 Total projects completed per year 20

F3 Annual change management cost as apercentage of upfront implementation 5%

F4 Estimated percentage savings: Y1 15%





F9 Annual savings: Y1 F1*F2*F3*F4 $30,000






Reduced Ongoing Administration Cost Another advantage mentioned by the interviewed organizations was the economies of scale createdfrom the ability to consolidate administrative resources. Within a distributed environment, eachdepartment had to allocate staff to overall manage data integration development, resulting inredundancy of administrative tasks across departments. Centralizing control allows for anorganization to reduce the level of redundancy, reducing the overall administrative costs. Inaddition, this in turn reduces time and costs in developing accurate data transformation rules byallowing analysts to leverage Microsoft Excel to define transformation rules and automatically importand generate the mappings in PowerCenter.

To calculate this benefit, the model assumes that the representative organization had roughly twoFTEs devoted to the management and oversight of data integration projects across each of the fourdepartments. As the organization centralizes these administrative functions, it can reduce theannual cost burden on these departments for the representative organization by 10% in Year 1,increasing to 30% by Year 5.


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Table 20: Reduced Ongoing Adminis tration Cost


G1 Average FTE requirements per department:distributed 2

G2 Number of departments 4

G3 Percentage savings: Y1 10%





G8 Cost per FTE $120,000

G9 Annual savings: Y1 G1*G2*G8*G3 $96,000






Reduce Costs By Retiring Legacy Software PackagesIn addition to savings on capital costs of hardware, several organizations noted that consolidatingon a single platform allowed the organization to achieve economies of scale through the use of asingle enterprise platform. Meanwhile, this is offset by an increase in the lower total technology costof ownership by leveraging standard technology investments across multiple projects.

To calculate this benefit, the model assumes that the impact of standardizing on the Informaticaplatform allows the representative organization to consolidate disparate departmental licenses,leading to a reduction in annual maintained costs. The model assumes for the representativeorganization that it can reduce the number of licenses within its environment by four, with an annualmaintenance spend per license of $45,000. Conservatively estimating that only 70% of the retiredlicenses are recoverable, we can calculate an annual savings of $126,000.


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Table 21: Reduced Software Spend


H1Number of existing legacy software packagesreplaced by Informatica enterprise 4

H2Existing legacy software maintenance spend:per application $45,000

H3 Percentage reduction in software spend 70%

H4 Estimated savings H1*H2*H3 $126,000


Reduce Data Errors/InaccuraciesCompanies can improve the quality of data integration development and transformation mappings

while decreasing overall development and testing costs through Metadata Manager. They can alsoreduce IT support costs to troubleshoot data discrepancies and issues by leveraging data lineageand impact analysis to quickly audit and analyze data issues.

To calculate this benefit, the model assumes that a percentage of the time-spent data acrossproject teams can be reduced through a more standardized process for uncovering and identifyingdata inaccuracies. The model assumes that the representative organization spends on average 5%of the annual development budget prior to moving to a standardized platform reconciling operationas well as analytical data across teams. Of the cost of reconciling data, the model assumes that therepresentative organization can realize 5% savings in Year 1 to 35% savings by Year 5, comparedwith a non-standardized, distributed environment.

Table 22: Reduced Data Inaccuracies


I1Total data integration projects yearly inproduction 20

I2 Average yearly project spend $200,000

I3 Average cost as a percentage of project spendinvested in reconciling data across teams 5%

I4 Estimated percentage improvement: Y1 15%





I9 Annual savings: Y1 I1*I2*I3*I4 $30,000


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Improved Risk Management/Compliance: Improve Data Visibility/Accuracy ForReportingOne area of business impact identified by the representative organizations was the ability of the enduser organization to have greater visibility of data in less time through a centralized approach todata integration. One organization in particular noted the challenge it had in allowing greater datavisibility of cross-departmental analytical data when the organization took a departmental view ofdata integration projects. End users typically received different and, in some cases, conflicting

information due to inability to reconcile data at the project level. This in turn had a tangible impactduring times when the organization needed a cross-departmental view of data such as in end-of-quarter or end-of-year accounting of financial data.

To calculate this benefit, the model assumes that the organization currently performs an annualaudit requiring the collection and aggregation of analytical data. Prior to standardization, roughlythree FTEs at a fully burdened cost per hour were involved in the audit process, devoting roughly 50hours each to complete the audit. From the customer interviews, standardization increases datavisibility across projects, allowing for audits to be completed faster and leading to an estimated costimprovement of 20% in Year 1 to 24% in Year 5.

Table 23: Improved Reporting Efficiency


J1 Number of FTEs: audit 3

J2 Hours per audit per FTE 50

J3 Number of projects 20

J4 Cost per hour $80

J5 Estimated cost improvement: Y1 20%





J10 Annual savings: Y1 J1*J2*J3*J4*J5 $48,000



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Lower Costs Of Manual Reconciliation Of DataIn addition to reconciliation of data at specific times of the year, other organizations noted theimpact of manual reconciliation across multiple users who require access to analytical data withinthe organization.

To calculate this benefit, the model assumes that the representative organization has roughly 150power users reconciling analytical data from multiple sources the organization. Standardizationimproves data visibility and allows faster reconciliation of disparate data sources. Based oncustomer interviews, the model assumes that prior to standardization, the organization spent

roughly 40 hours per power user reconciling disparate sources of information. As a result of fasterdata integration capabilities of a standardized environment, the representative organization sawsavings of 20% to 33%, compared with a non-standardized environment.

Table 24: Low er Costs From Manual Reconciliation Of Data


L1 Number of FTEs 150

L2 Hours per year 40

L3 Cost per FTE $80

L4 Percentage savings: Y1 20%





L9 Estimated savings: Y1 L1*L2*L3*L4 $96,000







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Faster Time-To-Market With New Business Applications/CapabilitiesTo calculate this benefit, the model assumes that historically the time it takes to ramp up thedevelopment teams on a data integration project is six months. The representative organizationassumes that the time difference to deploy in a standardized versus non-standardized environmentequates to a 20% savings. Based on these assumptions, we can calculate the time-to-marketsavings by being able to take advantage of a more standardized platform.

Table 25: Faster Time-To-Market With New Business Applications/Capabilities


M1 Average project ramp-up time (months) 6

M2 Estimated improvement 20%

M3 Average project ROI 30%

M4 Average project cost $200,000

M5 Total projects in production per year 20

M6 Annual savings $52,000



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Total BenefitsTable 26 illustrates the total estimated benefits resulting from the investment.

Table 26: Total Benefits: Non-Risk-Adjusted

Benefi t category Year 1 Year 2 Year 3 Year 4 Year 5 Total PV

Improved developer productivityacross the data integration lifecycle (access, discover, cleanse,integrate, and deliver)

$168,000 $294,000 $336,000 $378,000 $420,000 $1,596,000 $1,167,110

Improved developer trainingcosts

$14,400 $19,200 $21,120 $24,000 $28,800 $107,520 $79,101

Improved data availability acrossapplications and projects

$120,000 $150,000 $192,000 $210,000 $210,000 $882,000 $651,137

Lower cost of delivery throughincreased reuse

$80,000 $240,000 $320,000 $480,000 $640,000 $1,760,000 $1,236,731

Lower hardware costs $48,000 $96,000 $96,000 $96,000 $96,000 $432,000 $320,279

Reduced cost of change byunderstanding the ripple effect ofmaking changes to data

$30,000 $36,000 $50,000 $70,000 $90,000 $276,000 $198,284

Reduced ongoing administrationcost

$96,000 $144,000 $192,000 $240,000 $288,000 $960,000 $693,282

Reduced costs by retiring legacysoftware packages

$63,000 $126,000 $126,000 $126,000 $126,000 $567,000 $420,366

Reduced dataerrors/inaccuracies

$30,000 $40,000 $50,000 $54,000 $70,000 $244,000 $178,244

Improved riskmanagement/compliance:improved data visibility/accuracyfor reporting

$48,000 $50,400 $52,800 $55,200 $57,600 $264,000 $198,426

Lower costs of manualreconciliation of data (often viaspreadsheet)

$96,000 $120,000 $134,400 $144,000 $158,400 $652,800 $484,131

Faster time-to-market with newbusinessapplications/capabilities

$52,000 $52,000 $52,000 $52,000 $52,000 $260,000 $197,121

Total benefit$845,400 $1,367,600 $1,622,320 $1,929,200

$2,236,800$8,001,320 $5,824,213



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RiskForrester defines two types of investment risk associated with this analysis: implementation risk andimpact risk. Implementation risk is the risk that a proposed technology investment may deviatefrom original resource requirements needed to implement and integrate the investment, resulting inhigher costs than anticipated. Impact risk refers to the risk that the business or technology needsof the organization may not be met by the technology investment, resulting in lower overall totalbenefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefitestimates. Quantitatively capturing investment risk by directly adjusting the financial estimatesresults in more meaningful and accurate estimates and a more accurate projection of the ROI.

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

Installation and testing for improving data integration takes longer than originallyanticipated.

Acquisition costs could be higher than originally anticipated for the Informatica platform.

The administrative cost to support the Informatica platform environment could be higher

than originally anticipated.

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

The amount of structured and unstructured information integrated through the Informaticaplatform could be lower than originally anticipated.

Movement of data administration and development staff could take longer than originallyanticipated, leading to reduced administration cost savings.

The amount of excess capacity reclaimed and the level of data growth reduced could belower than originally anticipated, leading to reduced consolidation savings.

The effectiveness of a consolidated view of data could be lower than originally anticipated,leading to reduced end user benefits.

Steps For Measuring Investment Risk

Risk factors are used in TEI to widen the possible outcomes of the costs and benefits (and resultingsavings) associated with a project. TEI applies a probability density function known as triangulardistribution to the values entered. At a minimum, three values are calculated to estimate theunderlying range around each cost and benefit estimate. The expected value the mean of thedistribution is used as the risk-adjusted cost or benefit number. The risk-adjusted costs andbenefits are then summed to yield a complete risk-adjusted summary and ROI. In this study,Forrester discovered that engaging with Informatica was a relatively low-risk endeavor, as

expressed by the interviewed organizations, and applied a risk factor of 100% to the costs and 98%to the benefits to arrive at a risk-adjusted number.

FlexibilityFlexibility, as defined by TEI, represents an investment in additional capacity or capability that couldbe turned into business benefit for some future additional investment. Flexibility would also bequantified when evaluated as part of a specific project (described in more detail in Appendix A).


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While Forrester believes that organizations purchasing the Informatica platform can take advantageof these flexibility options, quantification (using the financial industry standard Black-Scholes or thebinomial option pricing models) of the additional value associated with these options for thiscustomer would require scenario development and forward-looking analysis that is not available atthis time.

The value of flexibility is unique to each organization, and the willingness to measure its valuevaries from company to company (see Appendix A for additional information regarding the flexibilitycalculation).

TEI Framework: SummaryConsidering the financial framework constructed above, the results of the costs, benefits, risk, andflexibility sections using the representative numbers can be used to determine ROI, net presentvalue, and payback period. Table 27 shows the consolidation of the numbers for the compositeorganization.

Table 27: Net Cash Flow: Non-Risk-AdjustedInit ial Year 1 Year 2 Year 3 Year 4 Year 5 Total PV

Total cost 730,000 552,400 428,400 428,400 428,400 428,400 2,996,000 2,535,861

Total benefits 845,400 1,367,600 1,622,320 1,929,200 2,236,800 8,001,320 5,824,213

Net cash flow (730,000) 293,000 939,200 1,193,920 1,500,800 1,808,400 5,005,320 3,288,352


Table 28 below shows the risk-adjusted values, applying the risk-adjustment method indicated inthe Risks section and the values from Tables 13 and 26.

Table 28: Net Cash Flow: Risk-Adjusted

Init ial Year 1 Year 2 Year 3 Year 4 Year 5 Total PV

Total cost 730,000 630,000 464,800 464,800 464,800 464,800 3,219,200 2,722,020

Total benefit 782,053 1,301,947 1,548,176 1,844,827 2,142,173 7,619,176 5,540,277

Net cash flow (730,000) 152,053 837,147 1,083,376 1,380,027 1,677,373 4,399,976 2,818,257


It is important to note that values used throughout the TEI framework are based on in-depthinterviews with seven organizations and the resulting composite organization built by Forrester.Forrester makes no assumptions as to the potential return that other organizations will receivewithin their own environment. Forrester strongly advises that readers use their own estimates withinthe framework provided in this study to determine the expected financial impact of standardizing onthe Informatica data integration platform.


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Study ConclusionsForresters in-depth interviews with Informaticas customers yielded several important observations:

Based on information collected in interviews with current Informatica customers, Forresterfound that organizations can realize benefits in the form of improved operational efficiency,greater scalability and flexibility within data integration projects, as well as improved dataavailability and visibility.

Of the customers interviewed, several factors contributed to the difference in ROI. Thesefactors included when companies were rolling out large and growing data warehouses,were consolidating more data marts and databases, had mappings in the hundreds andthousands, had larger project teams, and had business needs that required ongoingdevelopment and maintenance of the data integration environment.

In addition to adopting Informaticas platform for data integration and data quality, formingand operating an Integration Competency Center further reduces the costs and risks ofdesigning, deploying, and supporting data integration projects across the enterprise.

The financial analysis provided in this study illustrates the potential way that an organization canevaluate the value proposition of the Informatica data integration platform. Based on informationcollected in seven in-depth customer interviews, Forrester calculated a three-year risk-adjusted ROIof 88% for the composite organization with a payback period of 18 months. All final estimates arerisk-adjusted to incorporate potential uncertainty in the calculation of costs and benefits.

Based on these findings, companies looking to migrate to an enterprise data integration solutioncan see tangible improvements to operational efficiency and effectiveness. Using the TEIframework, many companies may find the potential for a compelling business case to make such aninvestment.


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Appendix A: Total Economic Impact OverviewTotal Economic Impact is a methodology developed by Forrester Research that enhances acompanys technology decision-making processes and assists vendors in communicating the valueproposition of their products and services to clients. The TEI methodology helps companiesdemonstrate, justify, and realize the tangible value of IT initiatives to both senior management and

other key business stakeholders.

The TEI methodology consists of four components to evaluate investment value: benefits, costs,risks, and flexibility. For the purpose of this analysis, the impact of flexibility was not quantified.

BenefitsBenefits represent the value delivered to the user organization IT and/or business units by theproposed product or project. Often product or project justification exercises focus just on IT cost andcost reduction, leaving little room to analyze the effect of the technology on the entire organization.The TEI methodology and the resulting financial model place equal weight on the measure ofbenefits and the measure of costs, allowing for a full examination of the effect of the technology onthe 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 thatthere be a clear line of accountability established between the measurement and justification ofbenefit estimates after the project has been completed. This ensures that benefit estimates tie backdirectly to the bottom line.

CostsCosts represent the investment necessary to capture the value, or benefits, of the proposed project.IT or the business units may incur costs in the forms of fully burdened labor, subcontractors, ormaterials. Costs consider all the investments and expenses necessary to deliver the proposedvalue. In addition, the cost category within TEI captures any incremental costs over the existingenvironment for ongoing costs associated with the solution. All costs must be tied to the benefitsthat are created.

RiskRisk measures the uncertainty of benefit and cost estimates contained within the investment.Uncertainty is measured in two ways: the likelihood that the cost and benefit estimates will meet theoriginal projections and the likelihood that the estimates will be measured and tracked over time.TEI applies a probability density function known as triangular distribution to the values entered. Ata minimum, three values are calculated to estimate the underlying range around each cost andbenefit.

FlexibilityWithin the TEI methodology, direct benefits represent one part of the investment value. While directbenefits can typically be the primary way to justify a project, Forrester believes that organizationsshould be able to measure the strategic value of an investment. Flexibility represents the value thatcan be obtained for some future additional investment building on top of the initial investmentalready made. For instance, an investment in an enterprisewide upgrade of an office productivitysuite can potentially increase standardization (to increase efficiency) and reduce licensing costs.However, an embedded collaboration feature may translate to greater worker productivity ifactivated. The collaboration can only be used with additional investment in training at some futurepoint in time. However, having the ability to capture that benefit has a present value that can beestimated. The flexibility component of TEI captures that value.


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Appendix B: GlossaryDiscount rate: The interest rate used in cash flow analysis to take into account the time value ofmoney. Although the Federal Reserve Bank sets a discount rate, companies often set a discountrate based on their business and investment environment. Forrester assumes a yearly discount rateof 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on

their current environment. Readers are urged to consult their organization to determine the mostappropriate discount rate to use in their own environment.

Net present value (NPV): The present or current value of (discounted) future net cash flows givenan interest rate (the discount rate). A positive project NPV normally indicates that the investmentshould be made, unless other projects have higher NPVs.

Present value (PV): The present or current value of (discounted) cost and benefit estimates givenat an interest rate (the discount rate). The PV of costs and benefits feed into the total net presentvalue 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 projects expected return in percentage terms. ROI iscalculated by dividing 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 investment column contains costs incurred at time 0 or at the beginning of Year 1.Those costs are not discounted. All other cash flows in Years 1 through 3 are discounted using thediscount rate shown in Table 2 at the end of the year. Present value (PV) calculations arecalculated for each total cost and benefit estimate. Net present value (NPV) calculations are notcalculated until the summary tables and are the sum of the initial investment and the discountedcash flows in each year.

Example Table

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


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