Epic has been an industry standard for providing hospitals and healthcare systems with comprehensive electronic medical and health record management. Administrators, physicians and other medical practitioners, and numerous other provider staff utilize many value-added aspects of Epic. However, providers more and more are moving to the cloud to increase productivity and manage significant costs associated with on-prem deployments, and thus utilize Azure as a viable option for cloud migration.
Microsoft commissioned Forrester Consulting to conduct a Total Economic Impact™ (TEI) study and examine the potential return on investment (ROI) enterprises may realize by deploying Epic on Azure.1 The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of Epic on Azure on their organizations.
To better understand the benefits, costs, and risks associated with this investment, Forrester interviewed four representatives with experience using Epic on Azure. For the purposes of this study, Forrester aggregated the interviewees’ experiences and combined the results into a single composite organization that is a healthcare organization with a revenue of $2 billion per year.
Prior to using Epic on Azure, interviewees explained that their organizations hosted Epic on servers located in on-prem data centers. They would buy hardware they needed for the next five years of growth but would then need to refresh their hardware. After the investment in Epic on Azure, interviewees migrated their Epic environment to Azure cloud.
Key Findings
Quantified benefits. Three-year, risk-adjusted present value (PV) quantified benefits for the composite organization include:
- Annual savings from sunsetting hardware, worth $10.3 million over three years. Hosting Epic on Azure frees the composite organization from needing to refresh its infrastructure every five years, so it can avoid having to buy additional hardware in advance to prepare for growth.
- Increased productivity from reduction in effort to build and manage network and storage capabilities, worth $6.4 million over three years. Hosting the Epic system on Azure reduces the amount of redundant work for the composite’s employees, such as building and managing network and storage capabilities. This allows employees to spend that time on higher-value tasks and nonredundant work.
- Reduction in effort to deploy virtual machines and projects, worth $329,000 over three years. The deployment of Epic on Azure enables the composite organization to rapidly deploy virtual machines (VMs) by leveraging automation that was not possible in an on-prem environment.
Unquantified benefits. Benefits that provide value for the composite organization but are not quantified in this study include:
- Reduced risk. Interviewees reported that another benefit of migrating their Epic platform to the Azure cloud enabled their organizations to much more easily enact Zero Trust security since retrofitting legacy data centers with modern security features is more difficult.
- Resource optimization. Hosting Epic on Azure cloud helped interviewees’ organizations to understand how their resources are being allocated.
Costs. Three-year, risk-adjusted PV costs for the composite organization include:
- Initial implementation costs. The composite organization typically incurs initial implementation costs of $1 million for Epic on Azure.
- Azure licensing costs. The composite organization typically incurs licensing costs of $3.7 million for Epic on Azure over three years.
- Consulting and support expenses. The composite organization typically pays consulting and support expenses of $1.2 million for Epic on Azure.
- Training expenses. The composite organization typically incurs training expenses of $914,000 for Epic on Azure.
- Data storage expenses. The composite organization typically incurs data storage expenses of $305,000 for Epic on Azure.
The representative interviews and financial analysis found that a composite organization experiences benefits of $17.01 million over three years versus costs of $7.09 million, adding up to a net present value (NPV) of $9.92 million and an ROI of 140%.
Key Statistics
-
Return on investment (ROI):
140%
-
Benefits PV:
$17.01M
-
Net present value (NPV):
$9.92M
-
Payback:
<6 months
Benefits (Three-Year)
Annual savings from sunsetting on-premises hardware Increased productivity from reduction in effort to build and manage network and storage capabilities Reduction in effort to deploy VMS and projectsTEI Framework And Methodology
From the information provided in the interviews, Forrester constructed a Total Economic Impact™ framework for those organizations considering an investment Epic on Azure.
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 Epic on Azure can have on an organization.
-
Due Diligence
Interviewed Microsoft stakeholders and Forrester analysts to gather data relative to Epic on Azure.
-
Interviews
Interviewed four representatives at organizations using Epic on Azure to obtain data about costs, benefits, and risks.
-
Composite Organization
Designed a composite organization based on characteristics of the interviewees’ organizations.
-
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.
-
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 Microsoft 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 Epic on Azure.
Microsoft 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.
Microsoft provided the customer names for the interviews but did not participate in the interviews.
Consulting Team:
Roger Nauth
Otto Leichliter
Drivers leading to the Epic on Azure investment
Interviews
| Role | Industry | Region | Employees |
|---|---|---|---|
| CISO and ACISO | Healthcare | $490 million | 2,300 |
| Director of infrastructure | Healthcare | $1.5 billion | 6,000 |
| CFO | Healthcare | $2.5 billion | 10,500 |
| Specialist | Healthcare | $2 billion | 14,000 |
Key Challenges
Prior to migrating Epic to Azure, interviewees’ organizations struggled to refresh old and expensive hardware that became outdated before it was time to be refreshed and struggled with server downtime.
The interviewees noted how their organizations struggled with common challenges, including:
- High cost and short lifecycle of on-prem hardware. Interviewees explained that a driving factor for migrating Epic to Azure was the high cost to refresh their hardware. The CISO said, “[It] was an immediate issue that it was time for us to refresh our hardware, and we were looking at probably a $10 million to $12 million refresh course.”
- On-prem servers experienced downtime and were lacking performance. Interviewees mentioned that their performance has improved and they experienced less downtime after migrating from Epic on-prem to Azure. The CFO said: “When we hosted Epic on our infrastructure on-prem, we had more frequent downtimes. Overall performance has improved.”
Solution Requirements/Investment Objectives
The interviewees’ organizations searched for a solution that could:
- Reduce their organizations’ spending on hardware and on-prem infrastructure.
- Allow for quickly scaling up and down to meet the organizations’ needs as they change.
- Enable automation and processes to increase efficiency.
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 four interviewees, and it is used to present the aggregate financial analysis in the next section.
Description of composite. The US-based healthcare organization has more than $2 billion in annual revenues and 9,000 employees across the country. The composite organization has a strong brand and approximately 200 hospital and provider locations.
Deployment characteristics. The composite typically migrates its Epic platform to Azure cloud over the span of four months and is able to sunset approximately 80% of its legacy on-prem hardware.
Quantified benefit data as applied to the composite
Total Benefits
| Ref. | Benefit | Year 1 | Year 2 | Year 3 | Total | Present Value |
|---|---|---|---|---|---|---|
| Atr | Annual savings from sunsetting on-premises hardware | $3,420,000 | $4,560,000 | $4,560,000 | $12,540,000 | $10,303,681 |
| Btr | Increased productivity from reduction in effort to build and manage network and storage capabilities | $2,565,000 | $2,565,000 | $2,565,000 | $7,695,000 | $6,378,775 |
| Ctr | Reduction in effort to deploy VMs and projects | $132,192 | $132,192 | $132,192 | $396,576 | $328,742 |
| Total benefits (risk-adjusted) | $6,117,192 | $7,257,192 | $7,257,192 | $20,631,576 | $17,011,198 |
Annual Savings From Sunsetting On-Premises Hardware
Evidence and data. Interviewees’ organizations were able to avoid expensive hardware refresh cycles and reliance on buying equipment in advance to be prepared to scale when needed.
Modeling and assumptions. To calculate the value of this benefit, Forrester assumes the following:
- Approximately $6 million is spent annually on on-prem hardware across the composite organization prior to Epic on Azure.
- Sixty percent of hardware is sunsetted in Year 1, and 80% of hardware is sunsetted in Years 2
Risks. The value of this benefit can vary across organizations due to differences in:
- Organizations’ spending on on-prem infrastructure prior to migrating to Azure.
- The percentage of hardware an organization sunsets when migrating to Azure.
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 $10.3 million.
Annual Savings From Sunsetting On-Premises Hardware
| Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|
| A1 | Previous spend for on premise hardware | Composite | $6,000,000 | $6,000,000 | $6,000,000 | |
| A2 | Percentage sunsetted | Composite | 60% | 80% | 80% | |
| At | Annual savings from sunsetting on-premises hardware | A1*A2 | $3,600,000 | $4,800,000 | $4,800,000 | |
| Risk adjustment | ↓5% | |||||
| Atr | Annual savings from sunsetting on-premises hardware (risk-adjusted) | $3,420,000 | $4,560,000 | $4,560,000 | ||
| Three-year total: $12,540,000 | Three-year present value: $10,303,681 | |||||
Increased Productivity From Reduction In Effort To Build And Manage Network And Storage Capabilities
Evidence and data. After deploying Epic on the Azure cloud, interviewees’ organizations realized increased productivity when building and managing network and storage capabilities.
- Instead of needing multiple people with different expertise to build network and storage capabilities on-prem, the same work could be done faster and by fewer people since it could all be done by cloud engineers.
- The CISO of a healthcare organization explained: “When we have new project rollouts, I don’t need to go back and get 10 different roles of people to deploy these 10 different things. I can usually get two or three people and get the same amount of work accomplished, and honestly, it’s faster because you have one or two people doing the majority of that work.”
Modeling and assumptions. To calculate the value of this benefit, Forrester assumes the following:
- Prior to moving Epic to Azure, the number of FTEs performing similar or redundant work is 23.
- After migrating to Azure, the number of FTEs performing similar or redundant work is five.
- The average fully burdened annual salary of solutions and data engineer FTEs involved is $150,000.
Risks. The value of this benefit can vary across organizations due to differences in:
- The number of FTEs conducting redundant work due to on-prem solutions.
- Geographic or market differences in annual salaries for employees conducting redundant or similar work.
Results. To account for these risks, Forrester adjusted this benefit downward by 5%, yielding a three-year, risk-adjusted total PV of $6.4 million.
Increased Productivity From Reduction In Effort To Build And Manage Network And Storage Capabilities
| Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|
| B1 | FTEs required to build and manage network and storage capabilities prior to Azure deployment | Interviews | 23 | 23 | 23 | |
| B2 | FTEs required to build and manage network and storage capabilities after to Azure deployment | Interviews | 5 | 5 | 5 | |
| B3 | Net change in FTEs managing network and storage capabilities | B1-B2 | 18 | 18 | 18 | |
| B4 | Annual blended salary of experienced solutions and data engineer FTEs | TEI standard | $150,000 | $150,000 | $150,000 | |
| Bt | Increased productivity from reduction in effort to build and manage network and storage capabilities | B3*B4 | $2,700,000 | $2,700,000 | $2,700,000 | |
| Risk adjustment | ↓5% | |||||
| Btr | Increased productivity from reduction in effort to build and manage network and storage capabilities (risk-adjusted) | $2,565,000 | $2,565,000 | $2,565,000 | ||
| Three-year total: $7,695,000 | Three-year present value: $6,378,775 | |||||
Reduction In Effort To Deploy VMs And Projects
Evidence and data. Evidence and data. Hosting Epic on Azure enabled interviewees’ organizations to rapidly deploy VMs by leveraging automation that was not feasible on-prem.
- The CISO said: “[For] the automation of deploying a VM, we never had that on-prem. Now I can answer 15 questions, deploy a VM in 25 minutes, and turn over my application teams, and they’re ready to go — it’s in the domain, fully patched, security is good, [and it’s] ready to roll. [With] on-prem, it would have taken me 2 or 3 hours to do some of that stuff.”
Modeling and assumptions. To calculate the value of this benefit, Forrester assumes the following:
- Before Azure, the time to deploy VMs or projects via on-premises is 180 minutes.
- After Azure, the time to deploy VMs or projects is 25 minutes.
- The time savings to deploy VMs and projects per implementation of virtual machines is 3 hours.
- The composite organization performs 48 VM and project implementations each year.
- The composite organization requires 12 FTEs to implement VMs and projects.
- Implementing VMs and projects requires senior analyst FTEs.
Risks. The value of this benefit can vary across organizations due to differences in:
- Organizations’ size and requirements for the number of VMs and projects.
- Organizations’ efficiency in leveraging their technical teams, which may impact requirements for the number of FTEs per VM and project implementation.
Results. To account for these risks, Forrester adjusted this benefit downward by 15%, yielding a three-year, risk-adjusted total PV of $329,000.
Reduction In Effort To Deploy VMs And Projects
| Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|
| C1 | On prem deployment time for new VM or project (minutes) | Interviews | 180 | 180 | 180 | |
| C2 | Time to deploy a new VM or project via Azure (minutes) | Interviews | 25 | 25 | 25 | |
| C3 | Savings in time to deploy new project (minutes) | C1-C2 | 155 | 155 | 155 | |
| C4 | Savings in time to deploy new project (hours) | C3/60 | 3 | 3 | 3 | |
| C5 | Number of projects (including VMs and servers) | Composite | 48 | 48 | 48 | |
| C6 | Number of FTEs per implementation | Interviews | 12 | 12 | 12 | |
| C7 | Total number of hours saved in deploying VMs and projects (hours) | C4*C5*C6 | 1,728 | 1,728 | 1,728 | |
| C8 | Fully burdened average hourly salary for senior analyst involved in deploying VMs and projects | TEI standard | $90 | $90 | $90 | |
| Ct | Reduction in effort to deploy VMs and projects | C7*C8 | $155,520 | $155,520 | $155,520 | |
| Risk adjustment | ↓15% | |||||
| Ctr | Reduction in effort to deploy VMs and projects (risk-adjusted) | $132,192 | $132,192 | $132,192 | ||
| Three-year total: $396,576 | Three-year present value: $328,742 | |||||
Unquantified Benefits
Interviewees mentioned the following additional benefits that their organizations experienced but were not able to quantify:
- Reduced risk. Interviewees reported that another benefit of migrating their Epic platform to Azure was enabling their organizations to much more easily enact Zero Trust security since retrofitting legacy data centers with modern security features is more difficult. The director of infrastructure said, “We did not have the level of segregation in our on-prem data center that we would like because it’s not something you can really retrofit easily. The decision to put it on our Azure landing zone upfront was a key decision for us.”
- Improved resource optimization. Hosting Epic on Azure cloud allowed interviewees’ organizations to understand how their resources were being allocated. The CISO explained: “[We find value in] our ability to understand how our resources are being used because the reporting on the cloud is just so much better. The cloud gave us the information, so we are now able to make intelligent decisions.”
Flexibility
The value of flexibility is unique to each customer. There are multiple scenarios in which a customer might implement Epic on Azure and later realize additional uses and business opportunities, including:
- Scaling up cost-effectively and rapidly when needed. There are times when health organizations need the agility to rapidly expand their server capacity. During the COVID-19 pandemic, health organizations needed to have the ability to rapidly stand up new environments. The CISO explained: “During COVID, when we had to stand up very quickly in an environment where we had a lot of remote workers, remote televisits, and everything else that was going on remote, we were able, within half an hour, to stand up additional servers for capacity for remote infrastructure. We would never have been able to handle that during the timeframe that we did on-prem. If we had the hardware, we would have been lucky. We would have had to get somebody to the data center to go and get [everything] figured out. It would have taken at least a day or two.”
- Leveraging data more dynamically. The director of infrastructure said, “Some of the other benefits that we see around our long-term world map around data — and particularly having our reporting environments and our data warehouse environments and being able to leverage data in a more dynamic way and flex up our infrastructure — is something that we see [as a benefit].”
- Improving performance and service quality. Interviewees explained that cloud integration has made everything at their organizations faster and easier. A specialist said: “At the end of the day, this is all in the service of patient care. So that’s one thing. The other thing is that integrations have been easier and faster now that we’re in the cloud.”
- Enabling the use of generative AI. Migrating to the Azure cloud has enabled organizations to investigate beginning to leverage generative AI. A specialist said: “Today, we use a different vendor for data warehousing, and in the future, we may look at their data warehouse platform called Synapse. There are other services that we are looking at, and we may look at down the road as Microsoft matures and provides that offering.”
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 |
|---|---|---|---|---|---|---|---|
| Dtr | Initial Implementation Costs | $1,000,000 | $0 | $0 | $0 | $1,000,000 | $1,000,000 |
| Etr | Azure licensing costs | $0 | $1,470,000 | $1,470,000 | $1,470,000 | $4,410,000 | $3,655,672 |
| Ftr | Consulting and support | $0 | $490,000 | $490,000 | $490,000 | $1,470,000 | $1,218,557 |
| Gtr | Training | $0 | $367,500 | $367,500 | $367,500 | $1,102,500 | $913,918 |
| Htr | Data storage | $0 | $122,500 | $122,500 | $122,500 | $367,500 | $304,639 |
| Total costs (risk-adjusted) | $1,000,000 | $2,450,000 | $2,450,000 | $2,450,000 | $8,350,000 | $7,092,786 |
Initial Implementation Costs
Evidence and data. The composite organization was charged an initial implementation cost of $1 million for Epic on Azure.
Modeling and assumptions. This cost is valued using data provided by the composite and Forrester’s insight into similar implementations.
Risks. The value of this cost can vary across organizations based on their previous experience migrating from on-prem solutions to cloud deployments.
Results. To account for these risks, Forrester did not adjust this cost, yielding a three-year total PV (discounted at 10%) of $1 million.
Initial Implementation Costs
| Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|---|
| D1 | Initial Implementation Costs | Assumption | $1,000,000 | ||||
| Dt | Initial Implementation Costs | D1 | $1,000,000 | $0 | $0 | $0 | |
| Risk adjustment | 0% | ||||||
| Dtr | Initial Implementation Costs (risk-adjusted) | $1,000,000 | $0 | $0 | $0 | ||
| Three-year total: $1,000,000 | Three-year present value: $1,000,000 | ||||||
Azure Licensing Costs
Evidence and data. The composite organization was charged a licensing cost of $3.7 million for Epic on Azure over three years.
Modeling and assumptions. This cost is valued using data provided by the composite and Forrester’s insight into similar implementations.
Risks. The value of this cost can vary across organizations due to:
- Whether or not the organization uses preferred pricing if the customer is a desirable tier 1 client Risk #2.
- Changes in pricing as the organization grows and requires additional functionality.
Results. To account for these risks, Forrester did not adjust this cost, yielding a three-year total PV of $3.7 million.
Azure Licensing Costs
| Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|---|
| E1 | Azure licensing costs | Assumption | $1,470,000 | $1,470,000 | $1,470,000 | ||
| Et | Azure licensing costs | E1 | $0 | $1,470,000 | $1,470,000 | $1,470,000 | |
| Risk adjustment | 0% | ||||||
| Etr | Azure licensing costs (risk-adjusted) | $0 | $1,470,000 | $1,470,000 | $1,470,000 | ||
| Three-year total: $4,410,000 | Three-year present value: $3,655,672 | ||||||
Consulting And Support
Evidence and data. The composite organization was charged consulting and support expenses of $1.2 million for Epic on Azure.
Modeling and assumptions. This cost is valued using data provided by the composite and Forrester’s insight into similar implementations.
Risks. The value of this cost can vary across organizations due to:
- The organization’s scope of services.
- The organization’s required professional support services for ongoing implementation and change management.
Results. To account for these risks, Forrester did not adjust this cost, yielding a three-year total PV of $1.2 million.
Consulting And Support
| Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|---|
| F1 | Consulting and support | Assumption | $490,000 | $490,000 | $490,000 | ||
| Ft | Consulting and support | F1 | $0 | $490,000 | $490,000 | $490,000 | |
| Risk adjustment | 0% | ||||||
| Ftr | Consulting and support (risk-adjusted) | $0 | $490,000 | $490,000 | $490,000 | ||
| Three-year total: $1,470,000 | Three-year present value: $1,218,557 | ||||||
Training
- Evidence and data. The composite organization was charged training expenses of $914,000 for Epic on Azure.
- Modeling and assumptions. This cost is valued using data provided by the composite and Forrester’s insight into similar implementations.
- Risks. The value of this cost can vary across organizations due to:
- Organizations’ previous experience with Epic on-prem or Epic cloud deployments
- The size and scale of organizations, including the number of departments where Epic on Azure is deployed.
- The scope of implementations such as whether Epic on Azure is deployed for disaster recovery (DR) or full stack.
Results. To account for these risks, Forrester did not adjust this cost, yielding a three-year total PV of $914,000.
Training
| Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|---|
| G1 | Training | Assumption | $367,500 | $367,500 | $367,500 | ||
| Gt | Training | G1 | $0 | $367,500 | $367,500 | $367,500 | |
| Risk adjustment | 0% | ||||||
| Gtr | Training (risk-adjusted) | $0 | $367,500 | $367,500 | $367,500 | ||
| Three-year total: $1,102,500 | Three-year present value: $913,918 | ||||||
Data Storage
Evidence and data. The composite organization incurred data storage expenses of $305,000 for Epic on Azure.
Modeling and assumptions. This cost is valued using data provided by the composite and Forrester’s insight into similar implementations.
Risks. The value of this cost can vary across organizations due to:
- Organizations’ scope of Epic on Azure implementation, including whether it is deployed only for DR or full stack.
- The size and scale of organizations’ deployment of Epic on Azure.
Results. To account for these risks, Forrester did not adjust this cost, yielding a three-year total PV of $305,000.
Data Storage
| Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|---|---|---|
| H1 | Data storage | Assumption | $122,500 | $122,500 | $122,500 | ||
| Ht | Data storage | H1 | $0 | $122,500 | $122,500 | $122,500 | |
| Risk adjustment | 0% | ||||||
| Htr | Data storage (risk-adjusted) | $0 | $122,500 | $122,500 | $122,500 | ||
| Three-year total: $367,500 | Three-year present value: $304,639 | ||||||
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 Estimates)
| Initial | Year 1 | Year 2 | Year 3 | Total | Present Value | |
|---|---|---|---|---|---|---|
| Total costs | ($1,000,000) | ($2,450,000) | ($2,450,000) | ($2,450,000) | ($8,350,000) | ($7,092,786) |
| Total benefits | $0 | $6,117,192 | $7,257,192 | $7,257,192 | $20,631,576 | $17,011,198 |
| Net benefits | ($1,000,000) | $3,667,192 | $4,807,192 | $4,807,192 | $12,281,576 | $9,918,412 |
| ROI | 140% | |||||
| Payback period (months) | <6 |
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
-
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 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.
PDF
