A Forrester Total Economic Impact™ Study Commissioned By Siemens, August 2024
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Manufacturers face multiple challenges in their business operations, from designing products, managing documentation and compliance information, managing logistics around securing parts. What truly proves taxing is balancing these challenges simultaneously with siloed, nonscalable solutions for information, documentation, process, and project management. Without a flexible, scalable solution not hindered by the inherent limitations of on-premises deployment, organizations often struggle with little to no relief in solving their issues, and costly management and licensing for solutions that don’t solve the root of their problem.
Siemens Teamcenter X is a cloud-based, software-as-a-service (SaaS) deployment of the Siemens Teamcenter Product Lifecycle Management (PLM) solution. Teamcenter X helps customers plan, develop, and deliver innovative products in a scalable and secure cloud platform managed by Siemens.
Siemens commissioned Forrester Consulting to conduct a Total Economic Impact™ (TEI) study and examine the potential return on investment (ROI) enterprises may realize by deploying Teamcenter X.1 The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of Teamcenter X on their organizations.
Return on investment (ROI)
90%90%
Payback Period
17 months17 months months
To better understand the benefits, costs, and risks associated with this investment, Forrester interviewed four representatives with experience using Teamcenter X. For the purposes of this study, Forrester aggregated the interviewees’ experiences and combined the results into a single composite organization that is a mature manufacturing organization with a global reach and a revenue of $1 billion.
spends $0 on manufacturing parts and requires 0 FTEs per project in its legacy state. Custom results are based on your inputs and the TEI case study.
Interviewees said that prior to using Teamcenter X, their organizations struggled to manage their product data, compliance documentation, ideation processes, and manufacturing and engineering logistics. Prior attempts to resolve these issues with alternative documentation or PLM systems had limited success and offered only siloed or limited capabilities. These limitations led to additional IT costs as well as maintenance and licenses, without resolving issues around inefficient processes, avoidable spending on parts, and difficulty preparing for audits.
After the investment in Teamcenter X, the interviewees adopted a SaaS-based PLM that is fully managed by Siemens. Key results from the investment include reduced total cost of ownership of any prior on-premises solutions, savings on parts spend through supply chain efficiencies, and accelerated ideation and product development.
Quantified benefits. Three-year, risk-adjusted present value (PV) quantified benefits for the composite organization include:
For , this benefit could be worth over three years.
For , this benefit could be worth over three years.
For , this benefit could be worth over three years.
For , this benefit could be worth over three years.
Unquantified benefits. Benefits that provide value for the composite organization but are not quantified for this study include:
Costs. Three-year, risk-adjusted PV costs for the composite organization include:
For , this cost could be over three years.
For , this cost could be over three years.
It is important to note that implementation and ongoing costs will vary based on the organization size and number of use cases. To better understand your organization’s potential costs, please contact Siemens.
The representative interviews and financial analysis found that a composite organization experiences benefits of $8.5 million over three years versus costs of $4.5 million, adding up to a net present value (NPV) of $4 million and an ROI of 90%.
could experience benefits of over three years versus costs of , adding up to an NPV of and an ROI of 0%.
Maintenance effort and licensing fee reduction due to switching to cloud-based delivery for product lifecycle management (PLM)
90%
“[A SaaS deployment with Siemens] means reduced infrastructure and maintenance costs, as well as greater security, stability, and availability.”
Engineering lead and product manager, electronics
Return on investment (ROI)
Benefits PV
Net present value (NPV)
Payback
From the information provided in the interviews, Forrester constructed a Total Economic Impact™ framework for those organizations considering an investment Teamcenter X.
The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision. Forrester took a multistep approach to evaluate the impact that Teamcenter X can have on an organization.
Interviewed Siemens stakeholders and Forrester analysts to gather data relative to Teamcenter X.
Interviewed four representatives at organizations using Teamcenter X to obtain data about costs, benefits, and risks.
Designed a composite organization based on characteristics of the interviewees’ organizations.
Constructed a financial model representative of the interviews using the TEI methodology and risk-adjusted the financial model based on issues and concerns of the interviewees.
Employed four fundamental elements of TEI in modeling the investment impact: benefits, costs, flexibility, and risks. Given the increasing sophistication of ROI analyses related to IT investments, Forrester’s TEI methodology provides a complete picture of the total economic impact of purchase decisions. Please see Appendix A for additional information on the TEI methodology.
Readers should be aware of the following:
This study is commissioned by Siemens and delivered by Forrester Consulting. It is not meant to be used as a competitive analysis.
Forrester makes no assumptions as to the potential ROI that other organizations will receive. Forrester strongly advises that readers use their own estimates within the framework provided in the study to determine the appropriateness of an investment in Teamcenter X. For the interactive functionality using Configure Data/Custom Data, the intent is for the questions to solicit inputs specific to a prospect's business. Forrester believes that this analysis is representative of what companies may achieve with Teamcenter X based on the inputs provided and any assumptions made. Forrester does not endorse Siemens or its offerings. Although great care has been taken to ensure the accuracy and completeness of this model, Siemens and Forrester Research are unable to accept any legal responsibility for any actions taken on the basis of the information contained herein. The interactive tool is provided ‘AS IS,’ and Forrester and Siemens make no warranties of any kind.
Siemens reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester’s findings or obscure the meaning of the study.
Siemens provided the customer names for the interviews but did not participate in the interviews.
Consulting Team:
Sam Sexton
Role | Industry | Region | Revenue |
---|---|---|---|
Engineering lead and project manager | Electronics | Global | $5 billion |
Director of IT products | Appliance manufacturer | EMEA | $5.3 billion |
Director of engineering | Technology manufacturer | North America | $50 million |
Director of IT | Industrial supplies | North America | $3 billion |
Interviewees told Forrester that before investing in Siemens Teamcenter X, their organizations either completely lacked any significant PLM capabilities, or had limited capabilities based on a hodge-podge of on-premises documentation and planning systems that didn’t operate well together.
The interviewees noted how their organizations struggled with common challenges, including:
The interviewees’ organizations searched for a solution that could:
“Our main issue was the large amount of time required to keep things organized. There was also the possibility of human error. We definitely ordered the wrong parts a few times, or used an older drawing for a PO [purchase order].”
Director of engineering, technology manufacturer
“Before, we were never an organization to go into the cloud. … Now, we pretty much run as much as we can in the public cloud due to the fact that we had a global pandemic. It really changed our mindset.”
Director of IT, industrial supplies
Based on the interviews, Forrester constructed a TEI framework, a composite company, and an ROI analysis that illustrates the areas financially affected. The composite organization is representative of the four interviewees, and it is used to present the aggregate financial analysis in the next section. The composite organization has the following characteristics:
Description of composite. The composite organization is a billion-dollar manufacturing organization with 11,000 employees. It spends $220 million on manufacturing parts each year. It undergoes heavy regulations related to the specialized industries it develops certain products for, undergoing two audits each fiscal quarter. Its prior licensing costs for its legacy, on-premises documentation systems was $350,000 per year.
Description of . has in annual revenue and a project development sync team of 0 FTEs.
Deployment characteristics. As this is the composite organization’s first enterprise-wide PLM system, it undergoes a phased deployment of Teamcenter X, gradually replacing its existing on-premises systems. This enables the organization to undergo change without disrupting its operations while still reaping significant benefits. Note that for organizations transitioning from an on-premises deployment of Teamcenter to Teamcenter X, the deployment process can differ.
Ref. | Benefit | Year 1 | Year 2 | Year 3 | Total | Present Value |
---|---|---|---|---|---|---|
Atr | Reduced product development and supply chain costs | $1,229,220 $1,229,220 | $1,967,580 $1,967,580 | $2,827,620 $2,827,620 | $6,024,420 $6,024,420 | $4,868,005 $4,868,005 |
Btr | Savings on replacing legacy solutions | $360,000 $360,000 | $540,000 $540,000 | $648,000 $648,000 | $1,548,000 $1,548,000 | $1,260,406 $1,260,406 |
Ctr | Incremental revenue from faster time to market | $468,000 $468,000 | $702,000 $702,000 | $936,000 $936,000 | $2,106,000 $2,106,000 | $1,708,850 $1,708,850 |
Dtr | Savings on audit and compliance effort | $129,600 $129,600 | $259,200 $259,200 | $388,800 $388,800 | $777,600 $777,600 | $624,144 $624,144 |
Total benefits (risk-adjusted) | $2,186,820 $2,186,820 | $3,468,780 $3,468,780 | $4,800,420 $4,800,420 | $10,456,020 $10,456,020 | $8,461,405 $8,461,405 | |
Evidence and data. Interviewees told Forrester that their organizations were able to realize savings around product development, ordering incorrect parts, ordering parts at the right time, and discounts on certain parts for specialized industries.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could impact the size of this benefit include the following:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $4.9 million.
For , with $0 in total spending on manufacturing parts, 0 new projects per year, and a team of 0 FTEs per project, this benefit may have a three-year, risk-adjusted total PV of .
3.5%
Reduction in parts spend by Year 3
“The external parts catalog Is a big win for us. … We are able to reduce our overall spending on parts by 2% to 3%."
Director of IT products, appliance manufacturer
The following table shows custom results for .
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 |
---|---|---|---|---|---|
A1 | Total spending on manufacturing parts | CompositeComposite | $220,000,000 $220,000,000 | $220,000,000 $220,000,000 | $220,000,000 $220,000,000 |
A2 | Percentage spending impacted by Siemens Teamcenter X on manufacturing parts | CompositeTEI case study | 25%25% | 25%25% | 25%25% |
A3 | Savings on parts due to better visibility into design iteration and supply chain | InterviewsTEI case study | 1.5%1.5% | 2.5%2.5% | 3.5%3.5% |
A4 | Subtotal: Reduced spending on parts | A1*A2*A3 | $825,000 $825,000 | $1,375,000 $1,375,000 | $1,925,000 $1,925,000 |
A5 | Total amount of new projects per year impacted by Siemens Teamcenter X | InterviewsInterviews | 5050 | 5050 | 5050 |
A6 | Redundant sync/corrective project development meetings per project a year | CompositeTEI case study | 5252 | 5252 | 5252 |
A7 | FTEs needed per meeting before Teamcenter X | InterviewsInterviews | 88 | 88 | 88 |
A8 | Hours spent per meeting before Teamcenter X | InterviewsTEI case study | 1.01.0 | 1.01.0 | 1.01.0 |
A9 | Fully-loaded hourly salary of a project development FTE | TEI standard | $65 $65 | $65 $65 | $65 $65 |
A10 | Reduction in collaboration time due to Teamcenter X | InterviewsTEI case study | 40%40% | 60%60% | 90%90% |
A11 | Subtotal: Reduction in project development rework due to Teamcenter X | A5*A6*A7*A8*A9* A10 | $540,800 $540,800 | $811,200 $811,200 | $1,216,800 $1,216,800 |
At | Reduced product development and supply chain costs | A4+A11 | $1,365,800 $1,365,800 | $2,186,200 $2,186,200 | $3,141,800 $3,141,800 |
Risk adjustment | ↓10% | ||||
Atr | Reduced product development and supply chain costs (risk-adjusted) | $1,229,220 $1,229,220 | $1,967,580 $1,967,580 | $2,827,620 $2,827,620 | |
Three-year total: $6,024,420 $6,024,420 | Three-year present value: $4,868,005 $4,868,005 |
Evidence and data. One of the primary benefits experienced by interviewees was the ability to retire their on-premises systems for documentation and, where applicable, PLM platforms.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could impact the size of this benefit for organizations include the following:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $1.3 million.
For , with $0 required to maintain legacy solutions and 0 IT FTEs dedicated to supporting these solutions, this benefit may have a three-year, risk-adjusted total PV of .
The following table shows custom results for .
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 |
---|---|---|---|---|---|
B1 | FTEs required to maintain and update legacy solutions around project documentation | InterviewsInterviews | 33 | 33 | 33 |
B2 | Fully-loaded salary of an IT FTE | TEI standard | $150,000 $150,000 | $150,000 $150,000 | $150,000 $150,000 |
B3 | Legacy solution hardware and software expenditures | CompositeComposite | $350,000 $350,000 | $350,000 $350,000 | $350,000 $350,000 |
B4 | Maintenance and licensing fees avoided with Teamcenter X | CompositeTEI case study | 50%50% | 75%75% | 90%90% |
Bt | Savings on replacing legacy solutions | (B1*B2*B4)+(B3* B4) | $400,000 $400,000 | $600,000 $600,000 | $720,000 $720,000 |
Risk adjustment | ↓10% | ||||
Btr | Savings on replacing legacy solutions (risk-adjusted) | $360,000 $360,000 | $540,000 $540,000 | $648,000 $648,000 | |
Three-year total: $1,548,000 $1,548,000 | Three-year present value: $1,260,406 $1,260,406 |
90%
Avoided maintenance, support and hardware and software costs by Year 3
“We prefer having our software platforms on cloud when available. … We don’t have enough internal IT developers. This makes it difficult to support [on-prem] software and databases.”
Engineering lead and product manager, electronics
Evidence and data. The time savings due to better version control and avoided rework helped organizations acquire additional revenue from getting products to market faster.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could impact the size of this benefit for organizations include the following:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $1.7 million.
For , with $0 in annual revenue per product, this benefit may have a three-year, risk-adjusted total PV of .
20%
Improved time-to-market by Year 3
“Before, we had disorganized chaos. … When you have a standardized system everybody uses, and when you have a SaaS-based model where you don’t have to deal with complexities or maintenance, that all leads to faster time to market.”
Global director of IT, industrial supplier
"We thought that just an out-of-the-box SaaS application would be a whole lot faster time to market than it would be with either a premise-based or some other type solution."
Global director of IT, industrial supplier
The following table shows custom results for .
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 |
---|---|---|---|---|---|
C1 | Time to market before Siemens Teamcenter X (weeks) | CompositeTEI case study | 5252 | 5252 | 5252 |
C2 | Improvement to time to market and improved processes due to Siemens Teamcenter X | InterviewsTEI case study | 10%10% | 15%15% | 20%20% |
C3 | Additional weeks on market due to Teamcenter X | C1*C2 | 5.25.2 | 7.87.8 | 10.410.4 |
C4 | Impacted projects | A5 | 5050 | 5050 | 5050 |
C5 | Weekly revenue per product | CompositeComposite | $20,000 $20,000 | $20,000 $20,000 | $20,000 $20,000 |
C6 | Incremental gross revenue due to faster time to market | C3*C4*C5 | $5,200,000 $5,200,000 | $7,800,000 $7,800,000 | $10,400,000 $10,400,000 |
C7 | Operating profit margin | TEI standard | 10%10% | 10%10% | 10%10% |
Ct | Incremental revenue from faster time to market | C6*C7 | $520,000 $520,000 | $780,000 $780,000 | $1,040,000 $1,040,000 |
Risk adjustment | ↓10% | ||||
Ctr | Incremental revenue from faster time to market (risk-adjusted) | $468,000 $468,000 | $702,000 $702,000 | $936,000 $936,000 | |
Three-year total: $2,106,000 $2,106,000 | Three-year present value: $1,708,850 $1,708,850 |
Evidence and data. Interviewees detailed their organizations’ struggle with preparing for audits before the investment in Teamcenter X, but spoke highly of Siemens’ ability to help them prepare for audits and save time.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could impact the size of this benefit for organizations include:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $624,000.
For , with 0 audits per year and 0, FTEs required to conduct audit and compliance preparation work, this benefit may have a three-year, risk-adjusted total PV of .
The following table shows custom results for .
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 |
---|---|---|---|---|---|
D1 | FTEs required to conduct audit and compliance preparation work | InterviewsInterviews | 7575 | 7575 | 7575 |
D2 | Audits per year | CompositeComposite | 88 | 88 | 88 |
D3 | Hours of work required per audit per FTE | InterviewsTEI case study | 8080 | 8080 | 8080 |
D4 | Blended hourly salary of a business user FTE | TEI standard | $60 $60 | $60 $60 | $60 $60 |
D5 | Reduction in effort required due to Teamcenter X | InterviewsTEI case study | 5%5% | 10%10% | 15%15% |
Dt | Savings on audit and compliance effort | D1*D2*D3*D4*D5 | $144,000 $144,000 | $288,000 $288,000 | $432,000 $432,000 |
Risk adjustment | ↓10% | ||||
Dtr | Savings on audit and compliance effort (risk-adjusted) | $129,600 $129,600 | $259,200 $259,200 | $388,800 $388,800 | |
Three-year total: $777,600 $777,600 | Three-year present value: $624,144 $624,144 |
15%
Reduction in audit preparation effort due to Teamcenter X by Year 3
Teamcenter X has a very nice documentation system which compiles these regulatory documents. … We estimate there’s about a 10% savings.”
Director of IT products, appliance manufacturer
Interviewees mentioned the following additional benefits that their organizations experienced but were not able to quantify:
The value of flexibility is unique to each customer. There are multiple scenarios in which a customer might implement Teamcenter X and later realize additional uses and business opportunities, including:
Flexibility would also be quantified when evaluated as part of a specific project (described in more detail in Appendix A).
“As far as business continuity and disaster recovery [is concerned], it certainly made a difference. ... You have much more resiliency built into a SaaS application than what I would have in my current infrastructure.”
Director of IT, industrial supplies
Ref. | Cost | Initial | Year 1 | Year 2 | Year 3 | Total | Present Value |
---|---|---|---|---|---|---|---|
Etr | Total ongoing implementation effort costs | $1,625,400 $1,625,400 | $1,153,530 $1,153,530 | $681,660 $681,660 | $209,790 $209,790 | $3,670,380 $3,670,380 | $3,395,037 $3,395,037 |
Ftr | Teamcenter X Subscription fees | $0 $0 | $275,000 $275,000 | $412,500 $412,500 | $618,750 $618,750 | $1,306,250 $1,306,250 | $1,055,785 $1,055,785 |
Total costs (risk-adjusted) | $1,625,400 $1,625,400 | $1,428,530 $1,428,530 | $1,094,160 $1,094,160 | $828,540 $828,540 | $4,976,630 $4,976,630 | $4,450,822 $4,450,822 | |
Evidence and data. Interviewees told Forrester that their organizations implemented Siemens Teamcenter X in a phased approach, to avoid disruption while maximizing benefits.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could impact this cost for organizations include the following:
Results. To account for these risks, Forrester adjusted this cost upward by 5%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $3.4 million. It is important to note that implementation and ongoing costs will vary based on the organization size and number of use cases; to better understand your organization’s potential costs, please contact Siemens.
For ,ongoing implementation costs may have a three-year, risk-adjusted total PV of .
The following table shows custom results for .
Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 |
---|---|---|---|---|---|---|
E1 | Business users involved in ongoing implementation effort | InterviewsScaled according to A5 | 2020 | 2020 | 2020 | 2020 |
E2 | Percentage of time spent on implementation tasks | InterviewsTEI case study | 50%50% | 35%35% | 20%20% | 5%5% |
E3 | Fully-loaded salary of a business user | TEI standard | $124,800 $124,800 | $124,800 $124,800 | $124,800 $124,800 | $124,800 $124,800 |
E4 | IT users involved in ongoing implementation tasks | InterviewsScaled according to B1 | 22 | 22 | 22 | 22 |
E5 | Percentage of IT user time spent on ongoing implementation tasks | InterviewsTEI case study | 100%100% | 75%75% | 50%50% | 25%25% |
E6 | IT user annual salary | B2 | $150,000 $150,000 | $150,000 $150,000 | $150,000 $150,000 | $150,000 $150,000 |
Et | Total ongoing implementation effort costs | (E1*E2*E3)+(E4* E5*E6) | $1,548,000 $1,548,000 | $1,098,600 $1,098,600 | $649,200 $649,200 | $199,800 $199,800 |
Risk adjustment | ↑5% | |||||
Etr | Total ongoing implementation effort costs (risk-adjusted) | $1,625,400 $1,625,400 | $1,153,530 $1,153,530 | $681,660 $681,660 | $209,790 $209,790 | |
Three-year total: $3,670,380 $3,670,380 | Three-year present value: $3,395,037 $3,395,037 |
Evidence and data. Interviewees told Forrester that they paid an annual subscription to use Teamcenter X.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could impact the size of this cost for organizations include the following:
Results. To account for these risks, Forrester adjusted this cost upward by 10%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $1.1 million.
For , subscription fees may have a three-year, risk-adjusted total PV of . Please note that this is based on a high-level estimation and does not represent a quote. For more details, please contact Siemens.
The following table shows custom results for .
Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 |
---|---|---|---|---|---|---|
F1 | Teamcenter X subscription fees | CompositeScaled according to A5 | 00 | $250,000 $250,000 | $375,000 $375,000 | $562,500 $562,500 |
Ft | Teamcenter X subscription fees | F1 | $0 $0 | $250,000 $250,000 | $375,000 $375,000 | $562,500 $562,500 |
Risk adjustment | ↑10% | |||||
Ftr | Teamcenter X subscription fees (risk-adjusted) | $0 $0 | $275,000 $275,000 | $412,500 $412,500 | $618,750 $618,750 | |
Three-year total: $1,306,250 $1,306,250 | Three-year present value: $1,055,785 $1,055,785 |
The financial results calculated in the Benefits and Costs sections can be used to determine the ROI, NPV, and payback period for the composite organization’s investment. Forrester assumes a yearly discount rate of 10% for this analysis.
These risk-adjusted ROI, NPV, and payback period values are determined by applying risk-adjustment factors to the unadjusted results in each Benefit and Cost section.
Initial | Year 1 | Year 2 | Year 3 | Total | Present Value | |
---|---|---|---|---|---|---|
Total costs | ($1,625,400)($1,625,400) | ($1,428,530)($1,428,530) | ($1,094,160)($1,094,160) | ($828,540)($828,540) | ($4,976,630)($4,976,630) | ($4,450,822)($4,450,822) |
Total benefits | $0 $0 | $2,186,820 $2,186,820 | $3,468,780 $3,468,780 | $4,800,420 $4,800,420 | $10,456,020 $10,456,020 | $8,461,405 $8,461,405 |
Net benefits | ($1,625,400)($1,625,400) | $758,290 $758,290 | $2,374,620 $2,374,620 | $3,971,880 $3,971,880 | $5,479,390 $5,479,390 | $4,010,583 $4,010,583 |
ROI | 90%90% | |||||
Payback period | 17.017.0 months | |||||
Total Economic Impact is a methodology developed by Forrester Research that enhances a company’s technology decision-making processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and other key business stakeholders.
Benefits represent the value delivered to the business by the product. The TEI methodology places equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization.
Costs consider all expenses necessary to deliver the proposed value, or benefits, of the product. The cost category within TEI captures incremental costs over the existing environment for ongoing costs associated with the solution.
Flexibility represents the strategic value that can be obtained for some future additional investment building on top of the initial investment already made. Having the ability to capture that benefit has a PV that can be estimated.
Risks measure the uncertainty of benefit and cost estimates given: 1) the likelihood that estimates will meet original projections and 2) the likelihood that estimates will be tracked over time. TEI risk factors are based on “triangular distribution.”
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 NPV of cash flows.
The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made unless other projects have higher NPVs.
A project’s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits less costs) by costs.
The interest rate used in cash flow analysis to take into account the time value of money. Organizations typically use discount rates between 8% and 16%.
The breakeven point for an investment. This is the point in time at which net benefits (benefits minus costs) equal initial investment or cost.
The initial investment column contains costs incurred at “time 0” or at the beginning of Year 1 that are not discounted. All other cash flows are discounted using the discount rate at the end of the year. PV calculations are calculated for each total cost and benefit estimate. NPV calculations in the summary tables are the sum of the initial investment and the discounted cash flows in each year. Sums and present value calculations of the Total Benefits, Total Costs, and Cash Flow tables may not exactly add up, as some rounding may occur.
1 Total Economic Impact is a methodology developed by Forrester Research that enhances a company’s technology decision-making processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and other key business stakeholders.
Forrester provides independent and objective research-based consulting to help leaders deliver key transformation outcomes. Fueled by our customer-obsessed research, Forrester’s seasoned consultants partner with leaders to execute on their priorities using a unique engagement model that tailors to diverse needs and ensures lasting impact. For more information, visit forrester.com/consulting.
© 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, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies.
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Please see our
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https://mainstayadvisor.com/go/mainstay/gdpr/policy.html