The Total Economic Impact™ Of Instruqt
Cost Savings And Business Benefits Enabled By Instruqt
A Forrester Total Economic Impact™ Study Commissioned By Instruqt, March 2024
Real-world, hands-on experiences are crucial before, during, and after buying a technical product. It is a continual learning cycle; relevant stakeholders need to trial, onboard, upskill, and learn to leverage a product’s valuable features. Tech vendors share product experiences in a variety of places, such as websites, learning portals, and documentation. Engagement with content must translate to ROI through product adoption, lead generation, or decreased costs.
Instruqt is a hands-on virtual IT lab platform for organizations’ customer journeys, spanning from lead-generating workshops to demos, proofs of concept (POCs), and training. The labs are not fake environments: the labs are actual, versioned software in a secure sandbox environment that enable outcomes such as improving sales team efficiency, improving client time to value, onboarding employees faster, and creating significant savings in your platform setup.
Instruqt commissioned Forrester Consulting to conduct a Total Economic Impact™ (TEI) study and examine the potential return on investment (ROI) enterprises may realize by deploying Instruqt. 1 The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of Instruqt on their organizations.
Return on investment (ROI)
244%
Net present value (NPV)
$4.56M
To better understand the benefits, costs, and risks associated with this investment, Forrester interviewed five representatives of four companies with experience using Instruqt. For the purposes of this study, Forrester aggregated the interviewees’ experiences and combined the results into a single composite organization that is a global cloud-native software provider with 4,500 employees and revenues of $1 billion per year.
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Interviewees said that prior to using Instruqt, their organizations spent a significant amount of time doing manual handholding. Employees spent many hours walking prospects, customers, partners, and other employees through a solution and its features, and the level of automation in training was not ideal. The organizations could spend weeks setting up POCs and learning content that typically couldn’t address clients’ requests or they created ineffective learning-by-doing approaches.
Previous training efforts yielded one-off deliverables with limited success, leaving the organizations with resource constraints, lack of scalability, and lack of standardization. Another issue with prior ways of working was the impossibility of measuring user progress. This limitation specifically led to many users to churn out after their first lab because they lacked support in their learning journey.
Interviewees reported that after the adoption of Instruqt, their organizations saw increased engagement with content as well as significant time and resource savings that allowed them to shift focus to higher-value tasks. They said Instruqt enabled their organizations to scale and standardize content to create repeatable workflows and that detailed analytics and reporting allowed for individual user-level measurement and progress tracking. The organizations also gained the ability to highlight users to target with further engagement.
Key results from the investment include increased platform setup savings as
well as improved client time to value by not having to focus as much time or
resources on lab installation, configuration, and management.
Key Findings
Quantified benefits . Three-year, risk-adjusted present value (PV) quantified benefits for the composite organization include:
- Improved sales team efficiency amounting to $875,000. Instruqt provides the composite organization’s sales teams with the capabilities to prioritize and focus on the most promising prospects. By seamlessly integrating into the presales process, Instruqt enhances lead generation efforts and enables prospects to have real-world, hands-on experiences with a product. This leads to faster purchase decisions and shortened sales cycles. Because each of the composite’s sales team members saves 8 hours per year, the organization saves more than $875,000 over three years.
- Improved client time to value amounting to $1.9 million. Prior to adopting Instruqt, the composite organization’s clients had to spend a significant amount of time navigating suboptimal documentation and installing and configurating labs. The onboarding and learning experience was arduous, time-consuming, and not tailored to specific clients’ needs and paces. With Instruqt, the composite’s clients have an intuitive hands-on experience and can work at their own pace.
- Faster employee onboarding amounting to $1.6 million. Employees at the composite organization use Instruqt to onboard new hires (e.g., sales, customer success managers, solution architects, engineers, partners). With a real-world product environment, they do not spend hours going through traditional onboarding sessions. Instead, Instruqt quickly prepares employees to engage with clients with trainees acting as a force multiplier. They can interact with and reply to clients’ queries more quickly after they are hired.
- Platform setup savings amounting to $2.1 million. With Instruqt, the composite organization doesn’t have to set up virtual IT labs from scratch in every individual situation. By taking advantage of ready-to-use templated environments, it creates a large number of assets in a short amount of time. Instruqt makes it easier for the composite’s training teams to formulate high-quality documentation, challenge exercises, and interactive assets to ensure an optimal learning experience. Having the ability to cost-effectively scale usage and measure progress leads to savings of $2.1 million over three years for the composite organization.
Unquantified benefits. Benefits that provide value for the composite organization but are not quantified for this study include:
- User interface/user experience (UI/UX) capabilities. Interviewees said Instruqt’s UI/UX capabilities are key for learner engagement, retention, and scalability. They also highlighted Instruqt’s ease of use, interface, interactivity, and compelling visual experience.
- Flexibility and ease of integration. Interviewees shared that Instruqt provided their organizations with flexibility when it comes to container architecture and the ability to integrate with different learning management systems.
- Quality of support and level of engagement. Interviewees declared that the level of engagement from Instruqt’s team is top notch. They said executives and team leaders respond in record times when an escalation is needed.
Costs. Three-year, risk-adjusted PV costs for the composite organization include:
- Platform costs of $255,000. The composite pays platform costs based on the number of units. It pays $11,000 initially and then between $88,000 and $110,000 from years 1 through 3. Over three years, the composite’s total platform costs are $255,000.
- Usage costs of $1.5 million. The composite pays usage costs on a per-hour pricing model that is agreed upon with Instruqt up front. For the composite, these costs total $1.5 million over three years.
- Lab setup costs of $143,000. The composite pays costs to set up Instruqt labs with appropriate educational materials. Because the organization sets up 165 labs per year, the total cost is $143,000 over three years.
The representative interviews and financial analysis found that a composite organization experiences benefits of $6.42 million over three years versus costs of $1.86 million, adding up to a net present value (NPV) of $4.56 million and an ROI of 244%.
“I think one of the coolest things about Instruqt is that it fills a need in a market that really struggles to find a way to educate people and has a problem with being fair about distributing knowledge.”
Director of customer success, platform orchestration
Key Statistics
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Return on investment (ROI)
244%
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Benefits PV
$6.42 million
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Net present value (NPV)
$4.56 million
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Payback
<6 months
Benefits (Three-Year)
Improved sales team efficiency Improved client time to value Faster employee onboarding Platform setup savingsTEI Framework And Methodology
From the information provided in the interviews, Forrester constructed a Total Economic Impact™ framework for those organizations considering an investment in Instruqt.
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 Instruqt can have on an organization.
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Due Diligence
Interviewed Instruqt stakeholders and Forrester analysts to gather data relative to Instruqt.
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Interviews
Interviewed five representatives at four organizations using Instruqt to obtain data about costs, benefits, and risks.
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Composite Organization
Designed a composite organization based on characteristics of the interviewees’ organizations.
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Financial Model Framework
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.
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Case Study
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.
Disclosures
Readers should be aware of the following:
This study is commissioned by Instruqt 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 Instruqt.
Instruqt 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.
Instruqt provided the customer names for the interviews but did not participate in the interviews.
Consulting Team:
Duncan Watkins
Salma Hamdani
Drivers leading to the Instruqt investment
Interviews
| Role | Industry | Region | Number of employees |
|---|---|---|---|
| Director of customer success | Platform orchestration | North America | <100 |
| Director of solutions engineering | Commercial software distribution | North America | <100 |
| VP of education, academia and documentation | Developer data | North America | 4,000+ |
| Director of public cloud product marketing | Backup, disaster recovery, and modern data protection | North America | 4,000+ |
Key Challenges
The interviewees noted how their organizations struggled with common challenges, including:
- Time-consuming tasks in product discovery. Each interviewee said their organization spent a significant number of hours in product discovery, onboarding, and training with prospects and customers. This resulted in resources being diverted from higher-value tasks.
- Lack of hands-on experience with product prior to adoption. Prior to adopting a product, the organizations’ customers couldn’t use it in a real-world environment and, therefore, couldn’t evaluate its features and scenarios on their own time.
- Lack of standardization and resource constraints. Interviewees’ organizations couldn’t continue to onboard clients manually while being growth-focused, which made scaling difficult. Also, measuring progress in training and product adoption was impossible, making it hard to present tailored solutions to customers depending on their needs and progress.
Solution Requirements/Investment Objectives
The interviewees’ organizations searched for a solution that could:
- Reduce the amount of time it takes for interviewees’ organizations clients to go through basic onboarding and training
- Combine learning with hands-on capability to accelerate product adoption
- Be standardized, used across multiple departments and be easily scalable while measuring customers’ progress through the whole onboarding and training cycle.
“Instruqt is a very modern way of using education truly as an enabler for product adoption”
VP of education, academia, and documentation, developer data
“Now that we’ve used Instruqt, it is undoubtedly an indispensable tool not only to our success, but to the success of our customers. It is a well-rounded, in-depth education and enablement platform for helping ... tenured and new technical professionals with getting hands-on experience in a real-world environment at a very, very low cost for us and at very low risk and effort for them.”
Director of public cloud product marketing, backup, disaster recovery, and modern data protection
Composite Organization
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 five 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 global company in the cloud-native software provider space. It has around 4,500 employees and overall annual revenue of $1 billion.
Deployment characteristics. The composite organization uses Instruqt to provide a hands-on experience for its product adoption, which gives its clients the ability to play with, learn about, and evaluate the product on their own and at their own pace.
Key Assumptions
- Software platform provider
- $1 billion annual revenue
- 4,500 employees
- 3-year relationship with Instruqt
Quantified benefit data as applied to the composite
Total Benefits
| Ref. | Benefit | Year 1 | Year 2 | Year 3 | Total | Present Value |
|---|---|---|---|---|---|---|
| Atr | Improved sales team efficiency | $352,000 | $352,000 | $352,000 | $1,056,000 | $875,372 |
| Btr | Improved client time to value | $752,400 | $752,400 | $752,400 | $2,257,200 | $1,871,107 |
| Ctr | Faster employee onboarding | $623,700 | $623,700 | $623,700 | $1,871,100 | $1,551,050 |
| Dtr | Platform setup savings | $855,000 | $855,000 | $855,000 | $2,565,000 | $2,126,258 |
| Total benefits (risk-adjusted) | $2,583,100 | $2,583,100 | $2,583,100 | $7,749,300 | $6,423,787 | |
Improved Sales Team Efficiency
Evidence and data. Interviewees pointed out that their organizations’ sales forces spent a significant number of hours teaching prospects about the basics of their products. They said that salespeople get access to powerful analytics by sending a link to Instruqt and allowing prospects to have hands-on experiences with a product and evaluate it on their own and at their own pace. By analyzing the data, salespeople can decide to prioritize prospects and focus on the most promising ones. By freeing up that time, sales teams can reach out to more high-intent prospects and clients more quickly.
Interviewees noted that prospects increasingly desire having the ability to test and play with products on their own before deciding to adopt them. They also shared that Instruqt allowed their organizations to respond to this demand by providing personalized learning environments and that hands-on learning experiences enable prospects to make more informed decisions and be confident that a product fits their needs and strategy.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
- The sales team is composed of 1,000 FTEs.
- The hourly rate of a sales team FTE is $55.
- With Instruqt, each sales team FTE saves 8 hours per year.
Risks. Forrester recognizes that the degree to which an organization may realize this benefit will vary based on characteristics of the company.
Results. To account for these risks, Forrester adjusted this benefit downward by 20%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $875,000.
“It was very much manual handholding. You’d spend 3 to 4 hours on a call with someone to walk them through how to do the basic stuff. ... We brought [in] Instruqt to reduce the overhead and the amount of time it takes us to do this basic onboarding.”
Director of customer success, platform orchestration
Improved Sales Team Efficiency
| Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|
| A1 | Sales team FTEs | Interviews | 1,000 | 1,000 | 1,000 | |
| A2 | Hourly rate per sales team FTE | TEI standard | $55 | $55 | $55 | |
| A3 | Time saved (hours) | Interviews | 8 | 8 | 8 | |
| At | Improved sales team efficiency | A1*A2*A3 | $440,000 | $440,000 | $440,000 | |
| Risk adjustment | ↓20% | |||||
| Atr | Improved sales team efficiency (risk-adjusted) | $352,000 | $352,000 | $352,000 | ||
| Three-year total: $1,056,000 | Three-year present value: $875,372 | |||||
Improved Client Time To Value
Evidence and data. Interviewees said their organizations’ clients had to spend a lot of time installing, configuring, and properly accessing labs with substandard documentation and that they often had to reach out to tech support to properly use a product. Interviewees explained that with Instruqt, clients can learn by doing with labs that offer real-world, hands-on, personalized experiences with products. They said clients can be self-guided and self-paced or they can utilize sessions led by live instructors so that they can explore the product by themselves without needing tech support, which saves valuable time both for themselves and for tech support teams.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
- The composite’s supported team consists of 1,200 FTEs.
- The hourly rate of a support team FTE is $55.
- With Instruqt, each support team FTE saves 12 hours per year.
Risks. Forrester recognizes that the degree to which an organization may realize this benefit will vary because some customers never contact support while others do frequently.
Results. To account for these risks, Forrester adjusted this benefit downward by 5%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $1.9 million.
“The real sort of key pain point prior to Instruqt internally for us was that about 30% to 40% of the learner support request were [for] straight-up setup installation or configuration. Learners were not even getting into doing the hands-on learning.”
Lab team head, developer data
Improved Client Time To Value
| Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|
| B1 | Support team FTEs | Interviews | 1,200 | 1,200 | 1,200 | |
| B2 | Hourly rate of a support team FTE | TEI standard | $55 | $55 | $55 | |
| B3 | Time saved (hours) | Interviews | 12 | 12 | 12 | |
| Bt | Improved client time to value | B1*B2*B3 | $792,000 | $792,000 | $792,000 | |
| Risk adjustment | ↓5% | |||||
| Btr | Improved client time to value (risk-adjusted) | $752,400 | $752,400 | $752,400 | ||
| Three-year total: $2,257,200 | Three-year present value: $1,871,107 | |||||
Faster Employee Onboarding
Evidence and data. Onboarding a new hire is a crucial process that can have an impact on an employee’s performance and how quickly they can contribute to business outcomes. Interviewees said in addition to using Instruqt externally to train customers on their products, they also use Instruqt internally to provide technical training to employees. They use the same materials and the same labs offered to customers, which interviewees said is a significant time saver because new hires don’t go through traditional and lengthy onboarding sessions. Interviewees explained that this helps new employees do their jobs better and contribute value faster while also helping with employee retention.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
- The composite onboards 525 new FTEs each year.
- The hourly rate of an FTE that needs to be onboarded is $55.
- With Instruqt, each new FTE saves 24 hours or three working days each year on internal technical training.
Risks. Forrester recognizes that the degree to which an organization may realize this benefit will vary based on characteristics of the company.
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 $1.6 million.
Faster Employee Onboarding
| Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|
| C1 | FTEs that require onboarding | Interviews | 525 | 525 | 525 | |
| C2 | Hourly rate per employee | TEI standard | $55 | $55 | $55 | |
| C3 | Time saved (hours) | Interviews | 24 | 24 | 24 | |
| Ct | Faster employee onboarding | C1*C2*C3 | $693,000 | $693,000 | $693,000 | |
| Risk adjustment | ↓10% | |||||
| Ctr | Faster employee onboarding (risk-adjusted) | $623,700 | $623,700 | $623,700 | ||
| Three-year total: $1,871,100 | Three-year present value: $1,551,050 | |||||
“We are providing technical training inside the company. … The way we look at this is that we [have] about 4,500 employees today and … if we train our own employees, that’s a force multiplier for us.”
Lab team head, developer data
Platform Setup Savings
Evidence and data. Interviewees said their organizations don’t spend as much time creating and curating their own templates and educational content from scratch as they did prior to adopting Instruqt. They explained that this enabled teams to focus on higher-value tasks while quickly and cost-effectively educating customers about new product features and assets.
Interviewees said using Instruqt for asset creation is a seamless experience and that what previously could take hours to create and edit in-house only takes minutes. One interviewee said: “[With my organization’s] old process with a poor technology stack, it would take months for a new [training] feature to be available. With Instruqt, we ship features ... in a couple of days, depending on how complex the feature is. So, our velocity is probably two orders faster. ... It’s not even comparable anymore.”
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
- The composite creates 120 assets each year.
- Each asset costs the organization $7,500.
Risks. Forrester recognizes that the degree to which an organization may realize this benefit will vary based on characteristics of the company.
Results. To account for these risks, Forrester adjusted this benefit downward by 5%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $2.1 million.
Platform Setup Savings
| Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|
| D1 | Assets | Interviews | 120 | 120 | 120 | |
| D2 | Cost per asset | Interviews | $7,500 | $7,500 | $7,500 | |
| Dt | Platform setup savings | D1*D2 | $900,000 | $900,000 | $900,000 | |
| Risk adjustment | ↓5% | |||||
| Dtr | Platform setup savings (risk-adjusted) | $855,000 | $855,000 | $855,000 | ||
| Three-year total: $2,565,000 | Three-year present value: $2, 126,258 | |||||
Unquantified Benefits
Interviewees mentioned the following additional benefits that their organizations experienced but were not able to quantify:
- UI/UX capabilities. Interviewees said these are key for learner engagement and scalability. They explained that having back-end and front-end capabilities make for a visually compelling, easy-to-use, and seamless experience.
- Flexibility and ease of integration . Interviewees said Instruqt has the ability to have a containerized architecture and integrates with different types of learning management systems (LMS) and customer relationship management (CRM) platforms.
- Quality of support and level of engagement. Interviewees said Instruqt’s teams are very responsive to their queries and that in case of escalation, there is a very high level of engagement with up to C-level executives.
Flexibility
The value of flexibility is unique to each customer. There are multiple scenarios in which a customer might implement Instruqt and later realize additional use cases and business opportunities, including:
- Impact on speed and agility of training. Instruqt allows customers to train on specific products at their own pace. Because there is little barrier to starting, customers can train quickly at a pace that suits them and in a manner that works around any existing work they need to deliver. Alternatively, Instruqt also enables virtual and in-person training led by instructors. This may free resources to focus on their primary roles to create a virtuous cycle of business growth.
- Multiple training channels. The flexibility of the Instruqt platform allows customers to insert a product into as many training channels as it can scale. It can then be used for hands-on experience, academic pathways, or specific certification. This can make customers more “sticky” as the platform becomes further embedded in multiple training channels.
- Technical flexibility. Instruqt is specifically designed to allow vendors to showcase their products in a real-world context, not a limited or cut-down test environment. This allows them to mimic specific technical setups, which may lead to a more realistic experience for end users. This also allows technical users to be hands-on with a product before buying or to learn and upskill in virtual sandboxes without consequences.
Flexibility would also be quantified when evaluated as part of a specific project (described in more detail in Appendix A ).
Quantified cost data as applied to the composite
Total Costs
| Ref. | Cost | Initial | Year 1 | Year 2 | Year 3 | Total | Present Value |
|---|---|---|---|---|---|---|---|
| Etr | Platform costs | $11,000 | $88,000 | $99,000 | $110,000 | $308,000 | $255,463 |
| Ftr | Annual usage | $67 | $527,999 | $594,000 | $659,997 | $1,782,063 | $1,466,841 |
| Gtr | Lab setup costs | $1,040 | $57,173 | $57,173 | $57,173 | $172,557 | $143,219 |
|
Total costs
(risk adjusted) |
$12,107 | $673,171 | $750,173 | $827,170 | $2,262,620 | $1,865,523 | |
Platform Costs
Evidence and data. Interviewees said their organizations incurred platform costs based on the number of units.
Modeling and assumptions. Based on the interviews, Forrester assumes the composite organization’s initial platform costs are $11,000.
Risks. Forrester recognizes that the degree to which this cost impacts an organization will vary based on characteristics of the company.
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 $255,000.
Platform Costs
| Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 |
|---|---|---|---|---|---|---|
| E1 | Platform costs | Interviews | $10,000 | $80,000 | $90,000 | $100,000 |
| E2 | Units | Interviews | 1 | 1 | 1 | 1 |
| Et | Platform costs | E1*E2 | $10,000 | $80,000 | $90,000 | $100,000 |
| Risk adjustment | ↑10% | |||||
| Etr | Platform costs (risk-adjusted) | $11,000 | $88,000 | $99,000 | $110,000 | |
| Three-year total: $308,000 | Three-year present value: $255,463 | |||||
Annual Usage
Evidence and data. Interviewees said their organizations paid annual usage fees to Instruqt based on per-hour pricing their companies agreed to up front.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
- The composite spends an increasing amount of time on Instruqt during the three-year period.
- The cost per hour is $3.60.
Risks . Forrester recognizes that the degree to which this cost impacts an organization will vary based on the amount of time spent on Instruqt.
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 $1.5 million.
Annual Usage
| Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 |
|---|---|---|---|---|---|---|
| F1 | Annual usage (hours) | Interview | 17 | 133,000 | 150,000 | 166,666 |
| F2 | Cost per hour | Interview | $3.60 | $3.60 | $3.60 | $3.60 |
| Ft | Annual usage | F1*F2 | $61 | $479,999 | $540,000 | $599,998 |
| Risk adjustment | ↑10% | |||||
| Ftr | Annual usage (risk-adjusted) | $67 | $527,999 | $594,000 | $659,997 | |
| Three-year total: $1,782,063 | Three-year present value: $1,466,841 | |||||
Lab Setup Costs
Evidence and data. Interviewees said their organizations incurred costs for setting up labs with appropriate educational material and assets.
Modeling and assumptions. Based on the interviews, Forrester assumes the following the composite organization sets up 165 labs per year .
Risks. Forrester recognizes that the degree to which this cost impacts an organization will vary based on the following:
- The number of labs set up.
- The amount of time required to set up one lab.
- The level of complexity in setting up a lab.
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 $143,000.
Lab Setup Costs
| Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 |
|---|---|---|---|---|---|---|
| G1 | Labs | Interviews | 3 | 165 | 165 | 165 |
| G2 | Hourly rate per employee | TEI standard | $5 | $55 | $55 | $55 |
| G3 | Lab setup time (hours) | Interviews | 6 | 6 | 6 | 6 |
| Gt | Lab setup costs | G1*G2*G3 | $990 | $54,450 | $54,450 | $54,450 |
| Risk adjustment | ↑5% | |||||
| Gtr | Lab setup costs (risk-adjusted) | $1,040 | $57,173 | $57,173 | $57,173 | |
| Three-year total: $172,557 | Three-year present value: $143,219 | |||||
Consolidated Three-Year Risk-Adjusted Metrics
Cash Flow Chart (Risk-Adjusted)
Total costs Total benefits Cumulative net benefits-
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.
Cash Flow Analysis (Risk-Adjusted)
| Initial | Year 1 | Year 2 | Year 3 | Total | Present Value | |
|---|---|---|---|---|---|---|
| Total costs | ($12,107) | ($673,171) | ($750,173) | ($827,170) | ($2,262,620) | ($1,865,523) |
| Total benefits | $0 | $2,583,100 | $2,583,100 | $2,583,100 | $7,749,300 | $6,423,787 |
| Net benefits | ($12,107) | $1,909,929 | $1,832,928 | $1,755,930 | $5,486,680 | $4,558,264 |
| ROI | 244% | |||||
| Payback | <6 months | |||||
Appendix A: Total Economic Impact
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.
Total Economic Impact Approach
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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.
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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.
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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.
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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.”
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PRESENT VALUE (PV)
The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total NPV of cash flows.
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NET PRESENT VALUE (NPV)
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.
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RETURN ON INVESTMENT (ROI)
A project’s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits less costs) by costs.
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DISCOUNT RATE
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%.
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PAYBACK PERIOD
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.
Appendix B: Endnotes
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.
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