A Forrester Total Economic ImpactTM Study Commissioned By Workday, July 2023
Switch between the study data and your organization's custom data below. Answering the questions on the Custom Data tab will allow you to customize the analysis and estimate the potential impact of using Workday Adaptive Planning at your organization. For a formal estimate, please contact Workday.
How many total employees does your organization have?
How many senior business managers are involved in planning and forecasting activities at your organization?
How many total employees does your organization have?
How many senior business managers are involved in planning and forecasting activities at your organization?
To keep up with the rapid pace of change, businesses need a clear view of their costs and resources and the ability to analyze scenarios to support timely decision-making. Workday Adaptive Planning provides a single source of truth for an organization’s financial, personnel, and operational data; reduces the manual effort for planning and analysis; and improves data quality. The results of implementing the solution include productivity improvements, cost optimizations, and better, faster decision-making.
Workday Adaptive Planning is an enterprise planning software-as-a-service (SaaS) solution for an organization’s financial, workforce, sales, as well as operational planning. It allows integrations with a wide variety of data sources and supports a more holistic view of the business. In addition, its modeling engine, analytics, and reporting capabilities enable faster, more detailed planning and better decision-making for financial planning and analysis (FP&A) teams and business leaders.
Workday commissioned Forrester Consulting to conduct a Total Economic Impact™ (TEI) study and examine the potential return on investment (ROI) enterprises may realize by deploying Adaptive Planning.1 The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of Adaptive Planning on their organizations.
To better understand the benefits, costs, and risks associated with this investment, Forrester interviewed five representatives with experience using Workday Adaptive Planning. For the purposes of this study, Forrester aggregated the interviewees’ experiences and combined the results into a single composite organization with $1 billion in annual revenue and 5,000 employees.
Prior to using Workday Adaptive Planning, these interviewees noted how their organizations relied largely on spreadsheets and manual processes for their financial planning and forecasting activities, either because they didn’t have other solutions in place or because their legacy planning solutions were difficult for them to use. Aggregating, manipulating, reconciling, and reporting on data was time-consuming and error-prone, limiting the depth of analysis the FP&A team could perform.
After the investment in Workday Adaptive Planning, the interviewees’ organizations were able to standardize processes, analyze and report on data more easily and at a more granular level, and add new value to business decisions. Key results from the investment include productivity improvements for the FP&A team and business managers and savings from cost optimization across the organization.
COOKIE ACCEPTANCE IS REQUIRED TO REGISTER FOR ACCESS TO DIGITAL ASSET
FP&A team productivity improvement by Year 3
20%
Quantified benefits.Three-year, risk-adjusted present value (PV) quantified benefits for the composite organization include:
For , improved FP&A productivity might be worth over three years.
For , increased business manager productivity related to planning activities might be worth over three years.
For , eliminated FP&A reliance on IT for financial reporting and analysis might be worth over three years.
For , cost optimization might 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 , subscription costs for Workday Adaptive Planning might total over three years.
For , implementation and training costs might total over three years.
For , ongoing management costs might total over three years.
The representative interviews and financial analysis found that a composite organization experiences benefits of $3.22 million over three years versus costs of $922,000, adding up to a net present value (NPV) of $2.30 million and an ROI of 249%.
might experience benefits of over three years compared to costs of . This adds up to a net present value of and an ROI of .
“It’s time savings, it’s confidence in the numbers, and it’s analysis. [It’s about] being able to look into the business at different cuts of data and being able to do that quickly. We couldn’t do it before. ... So the ability to drill down and into the data is a big win for us.”
Director of corporate planning, engineering services
Return on investment (ROI):
Benefits PV:
Net present value (NPV):
From the information provided in the interviews, Forrester constructed a Total Economic Impact™ framework for those organizations considering an investment Adaptive Planning.
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 Adaptive Planning can have on an organization.
Interviewed Workday stakeholders and Forrester analysts to gather data relative to Adaptive Planning.
Interviewed five representatives at organizations using Adaptive Planning 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 Workday 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 Adaptive Planning.
Workday 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.
Workday provided the customer names for the interviews but did not participate in the interviews.
Consulting Team:
Elizabeth Preston
Jonny Cook
Role | Industry | Annual revenue | Number of employees |
---|---|---|---|
HRIS solutions architect | Health technology | $19 billion | 77,000 |
Senior director of finance | Software | $130 million | 500 |
Senior director of FP&A | Technology | $750 million | 800 |
Director of corporate planning | Engineering services | $2 billion | 10,000 |
VP of finance | Food service | $430 million | 7,000 |
Prior to Workday Adaptive Planning, interviewees’ organizations largely relied upon spreadsheets and manual processes for their financial planning and analysis work. Their data resided in ERPs, HR management software, and other systems. FP&A teams then manually aggregated, reconciled, and analyzed the data to report on and support planning processes with the business. One interviewee noted that they had tried to use another FP&A tool, but their organization found it challenging to use and never fully adopted it.
The interviewees noted how their organizations struggled with common challenges, including:
“We couldn’t change much about the numbers, we couldn’t change much about our projections, we couldn’t change much about our workforce strategy. So we were entering this [multiweek headcount planning] exercise with a set of assumptions, but if those assumptions were proven otherwise during that period, we couldn’t really adjust to the changed assumption.”
HRIS solutions architect, health technology
The interviewees’ organizations searched for a solution that could:
“A big selling point for us was the ability to build models and not necessarily have to be a data scientist or write code in order to get it done. It can be more business-owned versus IT-owned.”
Director of corporate planning, engineering services
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 5,000-person organization has $1 billion in annual revenue and is growing an average of 5% per year. The FP&A team consists of 20 people, and 100 senior business managers participate in monthly, quarterly, and annual planning and forecasting activities throughout the year. The composite organization previously relied on manual data downloads from its ERP, HR software, and other systems and used spreadsheets for data consolidation and analysis. The FP&A team required individuals from IT to support advanced data and reporting needs.
Deployment characteristics. The composite organization rolls out Workday Adaptive Planning over four months. Its initial use cases are for planning, forecasting; reporting expenses, revenue, and headcount; and generating the balance sheet, income statement, and statement of cashflows. The primary integration is with the ERP system, while data from other systems, such as HR and payroll, are uploaded by the FP&A team. Deployment is done over four months, and the FP&A team, as well as senior business managers, are trained on how to use the system.
Ref. | Benefit | Year 1 | Year 2 | Year 3 | Total | Present Value |
---|---|---|---|---|---|---|
Atr | FP&A productivity improvements | $171,900 | $270,743 | $378,180 | $820,823 | $664,159 |
Btr | Business manager productivity improvements | $109,350 | $126,299 | $144,342 | $379,991 | $312,235 |
Ctr | IT savings | $87,705 | $87,705 | $87,705 | $263,115 | $218,109 |
Dtr | Cost optimization | $340,000 | $714,000 | $1,499,400 | $2,553,400 | $2,025,695 |
Total benefits (risk-adjusted) | $708,955 | $1,198,747 | $2,109,627 | $4,017,329 | $3,220,198 |
Evidence and data. Interviewees noted that Workday Adaptive Planning significantly reduced the manual effort their FP&A teams needed to spend on non-value-add activities, freeing up time for more analysis and partnership with the business. They also shared that Workday Adaptive Planning had enabled their FP&A teams to absorb more work relative to the growth of the business.
The senior director of FP&A in technology said: “A business like ours would definitely have two or three additional people to have the same level of accuracy and response [that we have with Workday Adaptive Planning]. Even then, I don’t think you would get what this multidimensional planning tool provides.”
Some specific examples of this benefit include:
“[We can] do things that we wouldn’t have been able to do before because of how the data is organized and how efficiently you can run these ad hoc reports.”
VP of finance, food service
“If we were trying to provide the level of support that we were doing over the last three years, we wouldn’t have been able to keep the team as small as it was without Adaptive.”
Senior director of finance, software
“There are just some parts [in the forecasting process] I don’t have to check anymore to make sure that inputs are right, like the headcount number or order assumptions. … I can trust that the model itself is working. … I think I’ve definitely saved a lot of time and also accuracy.”
Senior director of finance, software
Modeling and assumptions. For the composite organization, Forrester assumes:
has FP&A employees in Year 1.
“[Without Workday Adaptive Planning] we wouldn’t have that visibility into which vendors to expect and at what dollar amounts across the organization at the level at which we do right now.”
Senior director of finance, software
Risks. An organization’s realization of benefits from FP&A productivity improvements will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $664,000.
For , this benefit might have a three-year, risk-adjusted total PV (discounted at 10%) of .
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|
A1 | Number of FP&A FTEs | Composite | 20 | 21 | 22 | |
A2 | Productivity improvements due to Workday Adaptive Planning | Interviews | 10% | 15% | 20% | |
A3 | Finance team average fully burdened annual salary | TEI standard | $95,500 | $95,500 | $95,500 | |
At | FP&A productivity improvements | A1*A2*A3 | $191,000 | $300,825 | $420,200 | |
Risk adjustment | ↓10% | |||||
Atr | FP&A productivity improvements (risk-adjusted) | $171,900 | $270,743 | $378,180 | ||
Three-year total: $820,823 | Three-year present value: $664,159 |
Evidence and data. While the FP&A teams at interviewees’ organizations were the primary users of Workday Adaptive Planning, managers from the business also saw productivity improvements related to planning and forecasting processes.
The director of corporate planning in engineering services noted that their organization had improved its planning processes for smaller-scale projects and expenses with Workday Adaptive Planning:
Interviewees also shared that Workday Adaptive Planning improved business leaders’ annual headcount planning processes by allowing them to streamline the process, improve data visibility and consistency, and reduce back-and-forth conversations.
“[With Workday Adaptive Planning], we could not only have manager self-service [for headcount planning] in the tool without the involvement of HR and finance. But they could also see how they are doing against their targets. They could see how a simulated model would look — if, for example, they shifted their workforce from one location to another, or if they would shift some capabilities from one location to another, or if they would carry on with the assumptions they had.” [Without Workday Adaptive Planning] we wouldn’t have that visibility into which vendors to expect and at what dollar amounts across the organization at the level at which we do right now.”
HRIS solutions architect, health technology
Modeling and assumptions. For the composite organization, Forrester assumes:
has senior business managers participating in cost and headcount planning and forecasting activities in Year 1.
Risks. An organization’s realization of benefits from business manager productivity improvements will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $312,000.
For , this benefit might have a three-year, risk-adjusted total PV (discounted at 10%) of .
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|
B1 | Number of senior business managers | Composite | 100 | 105 | 110 | |
B2 | Percent of time spent on forecasting, planning, and headcount activities | Composite | 15% | 15% | 15% | |
B3 | Productivity improvement with Workday Adaptive Planning | Interviews | 10% | 11% | 12% | |
B4 | Productivity recapture | TEI standard | 50% | 50% | 50% | |
B5 | Senior business manager average fully burdened annual salary | TEI standard | $162,000 | $162,000 | $162,000 | |
Bt | Business manager productivity improvements | B1*B2*B3*B4*B5 | $121,500 | $140,333 | $160,380 | |
Risk adjustment | ↓10% | |||||
Btr | Business manager productivity improvements (risk-adjusted) | $109,350 | $126,299 | $144,342 | ||
Three-year total: $379,991 | Three-year present value: $312,235 |
Evidence and data. One of the significant benefits interviewees experienced came from Workday Adaptive Planning being a finance-owned system. The interviewees’ organizations’ finance and management teams were able to access and report on the data they needed without relying on other teams, such as IT.
Modeling and assumptions. For the composite organization, Forrester assumes:
has members of the IT team spending 50% of their time supporting the FP&A team’s data and reporting needs.
Risks. An organization’s realization of benefits related to IT savings will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $218,000.
For , this benefit might have a three-year, risk-adjusted total PV (discounted at 10%) of .
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|
C1 | Number of IT FTEs supporting FP&A before Workday Adaptive Planning | Composite | 2 | 2 | 2 | |
C2 | Percent of time dedicated | Composite | 50% | 50% | 50% | |
C3 | Productivity improvement with Workday Adaptive Planning | Interviews | 100% | 100% | 100% | |
C4 | IT average fully burdened annual salary | TEI standard | $97,450 | $97,450 | $97,450 | |
Ct | IT savings | C1*C2*C3*C4 | $97,450 | $97,450 | $97,450 | |
Risk adjustment | ↓10% | |||||
Ctr | IT savings (risk-adjusted) | $87,705 | $87,705 | $87,705 | ||
Three-year total: $263,115 | Three-year present value: $218,109 |
Evidence and data. Interviewees shared that being able to plan, forecast, and report on costs at a detailed level (including the vendor and employee levels) offered significant benefits to their organizations. In addition to the time savings Workday Adaptive Planning provided in this area, it allowed the interviewees’ FP&A teams to work with their business partners to optimize spending across their organizations. Interviewees highlighted several examples where Workday Adaptive Planning supported their ability to optimize costs.
The senior director of finance in software explained that with Workday Adaptive Planning, “Each function is budgeting for and reviewing their costs down to the vendor, [product line,] and headcount levels.” They continued, saying: “[As a result,] we’ve been able to maintain really good cost guardrails so that the teams are operating where they said they’re going to [operate]. Then we’re able to identify any areas of risk or areas [in which] they want to invest more than anticipated. We’re able to have really structured conversations around that.”
The senior director of finance in software also said, “I think we’ve pushed back on unnecessary spend or at least had conversations that really pushed people on the business case or value they [wanted].” They noted tools and subscriptions as types of costs they were able to control with better visibility and conversations with business partners.
“Now, when I meet with a manager, I open up the P&L in Adaptive, and then we have a conversation about the operating expenses and the hiring plan. We make real-time adjustments as necessary, and then I go back to the P&L and show them what the impact of those changes are.”
Senior director of FP&A, technology
Modeling and assumptions. For the composite organization, Forrester assumes:
has in annual revenue and a operating margin.
Risks. An organization’s realization of benefits related to cost optimization will depend upon a variety of factors, including::
Results. To account for these risks, Forrester adjusted this benefit downward by 20%, yielding a three-year, risk-adjusted total PV of $2.0 million.
For , this benefit might have a three-year, risk-adjusted total PV (discounted at 10%) of .
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|
D1 | Operating expenses | Composite | $850,000,000 | $892,500,000 | $937,125,000 | |
D2 | Cost optimization Workday Adaptive Planning | Composite | 0.05% | 0.10% | 0.20% | |
Dt | Cost optimization | D1*D2 | $425,000 | $892,500 | $1,874,250 | |
Risk adjustment | ↓20% | |||||
Dtr | Cost optimization (risk-adjusted) | $340,000 | $714,000 | $1,499,400 | ||
Three-year total: $2,553,400 | Three-year present value: $2,025,695 |
Interviewees mentioned the following additional benefits that their organizations experienced but were not able to quantify:
“Since we’ve implemented Workday Adaptive Planning, I don’t think we’ve made a single manual error in what we reported to our stakeholders.”
Senior director of finance, software
“One of the things I really appreciate [about Workday Adaptive Planning] is there are no inconsistencies in the data. If I’m reporting on something at a consolidated view or if I want to zero in on a particular service line, the data that I’m presenting to the executive team is the exact same data that the service line is presenting.”
Director of corporate planning, engineering services
The value of flexibility is unique to each customer. There are multiple scenarios in which a customer might implement Workday Adaptive Planning 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).
“When you flash up the level of investment in certain product lines versus the level of success you’re seeing, it becomes apparent on the fringes where we need to make some shifts, especially over a two- or three-year period of what we’re actually investing in.”
Senior director of finance, software
Ref. | Cost | Initial | Year 1 | Year 2 | Year 3 | Total | Present Value |
---|---|---|---|---|---|---|---|
Etr | Subscription | $43,750 | $131,250 | $131,250 | $131,250 | $437,500 | $370,149 |
Ftr | Implementation fee, internal labor, and training | $396,911 | $7,480 | $11,220 | $11,563 | $427,174 | $421,671 |
Gtr | Ongoing management | $0 | $52,525 | $52,525 | $52,525 | $157,575 | $130,622 |
Total costs (risk-adjusted) | $440,661 | $191,255 | $194,995 | $195,338 | $1,022,249 | $922,442 |
Modeling and assumptions. Workday provided an indicative range of pricing for Workday Adaptive Planning for organizations similar to the composite organization. For the financial model, Forrester assumed a price in the middle of the range. Much of Workday’s pricing, particularly at the enterprise level, is based on the organization’s number of FTEs. However, Workday also offers seat-based licensing models, which are often utilized by smaller organizations or where use cases are not companywide. Pricing may vary. Contact Workday for additional details.
might pay Workday per year for a Workday Adaptive Planning subscription.
Risks. An organization’s costs related to the subscription price for Workday Adaptive Planning will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this cost upward by 5%, yielding a three-year, risk-adjusted total PV of $370,000.
For , this cost might have a three-year, risk-adjusted total PV (discounted at 10%) of .
Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 |
---|---|---|---|---|---|---|
E1 | Subscription | Vendor | $41,667 | $125,000 | $125,000 | $125,000 |
Et | Subscription | E1 | $41,667 | $125,000 | $125,000 | $125,000 |
Risk adjustment | ↑5% | |||||
Etr | Subscription (risk-adjusted) | $43,750 | $131,250 | $131,250 | $131,250 | |
Three-year total: $437,500 | Three-year present value: $370,149 |
Evidence and data. Interviewees’ organizations worked with an implementation partner — either directly with Workday or with a third party — in addition to their internal resources for the deployment of Workday Adaptive Planning. Interviewees provided their existing financial models to the partner, identified the data sources that would be included in Workday Adaptive Planning, and worked with the partner to validate and test work as it was completed. In general, interviewees shared that the implementation happened in steps over a few months, since different modules or models built off each other. Once the system was deployed, users from FP&A received in-depth training to navigate the full scope of its capabilities, including updating model assumptions and reporting. Business users received less training because their use cases were more limited.
Modeling and assumptions. For the composite organization, Forrester assumes:
For , the implementation fee might be .
For , FP&A employees might spend 80% of their time during those four months dedicated to the implementation. senior business managers might spend 25% of their time during that period to support the implementation.
For , all FP&A might receive 40 hours of training for basic functionality and advanced modeling assumptions. business managers might receive 4 hours of training in basic functionality to support their use of the system for planning.
Risks. An organization’s costs related to implementation and training will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this cost upward by 10%, yielding a three-year, risk-adjusted total PV of $422,000.
For , this cost might have a three-year, risk-adjusted total PV (discounted at 10%) of .
Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 |
---|---|---|---|---|---|---|
F1 | Implementation fee | Vendor | $125,000 | |||
F2 | Implementation months | Interviews | 4 | |||
F3 | Core team members (FP&A) | Composite | 5 | |||
F4 | Percent of time dedicated | Interviews | 80% | |||
F5 | Core team fully burdened monthly salary | TEI standard | $7,958 | |||
F6 | Extended team members (senior business managers) | Composite | 3 | |||
F7 | Percent of time dedicated | Interviews | 25% | |||
F8 | Extended team fully burdened monthly salary | TEI standard | $13,500 | |||
F9 | Subtotal: Implementation costs | F1+F2*F3*F4*F5+ F2*F6*F7*F8 | $292,828 | |||
F10 | Number of finance team members trained on system | Composite | 20 | 2 | 3 | 3 |
F11 | Hours of training for finance users | Interviews | 40 | 40 | 40 | 40 |
F12 | Finance team average fully burdened hourly salary | TEI standard | $46 | $46 | $46 | $46 |
F13 | Number of senior business managers trained on system | Composite | 100 | 10 | 15 | 16 |
F14 | Hours of training for business users | Interviews | 4 | 4 | 4 | 4 |
F15 | Senior business manager average fully burdened hourly salary | TEI standard | $78 | $78 | $78 | $78 |
F16 | Subtotal: Training costs | F10*F11*F12+F13*F14*F15 F10*F11*F12+F13 *F14*F15 | $68,000 | $68,000 | $68,000 | $68,000 |
Ft | Implementation fee, internal labor, and training | F9+F16 | $360,828 | $6,800 | $10,200 | $10,512 |
Risk adjustment | ↑10% | |||||
Ftr | Implementation fee, internal labor, and training (risk-adjusted) | $396,911 | $7,480 | $11,220 | $11,563 | |
Three-year total: $427,174 | Three-year present value: $421,671 |
Evidence and data. Interviewees felt that the ongoing management of Workday Adaptive Planning took relatively little effort. Activities included maintaining process setups, integrations, and data feeds, as well as performing formula and quality checks and updating assumptions. Ongoing management was generally performed by a member of the FP&A team.
Modeling and assumptions. For the composite organization, Forrester assumes:
For , FP&A employees might spend 50% of their time on ongoing maintenance of Workday Adaptive Planning.
Risks. An organization’s costs related to ongoing management depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this cost upward by 10%, yielding a three-year, risk-adjusted total PV of $131,000.
For , this cost might have a three-year, risk-adjusted total PV (discounted at 10%) of .
Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 |
---|---|---|---|---|---|---|
G1 | Number of finance FTEs administering Workday Adaptive Planning | Composite | 1 | 1 | 1 | |
G2 | Percent of time dedicated to management | Interviews | 50% | 50% | 50% | |
G3 | Finance team average fully burdened annual salary | TEI standard | $95,500 | $95,500 | $95,500 | |
Gt | Ongoing management | G1*G2*G3 | $0 | $47,750 | $47,750 | $47,750 |
Risk adjustment | ↑10% | |||||
Gtr | Ongoing management (risk-adjusted) | $0 | $52,525 | $52,525 | $52,525 | |
Three-year total: $157,575 | Three-year present value: $130,622 |
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 | ($440,661) | ($191,255) | ($194,995) | ($195,338) | ($1,022,249) | ($922,442) |
Total benefits | $0 | $708,955 | $1,198,747 | $2,109,627 | $4,017,329 | $3,220,198 |
Net benefits | ($440,661) | $517,700 | $1,003,752 | $1,914,289 | $2,995,080 | $2,297,756 |
ROI | 249% |
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.
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.
Cookie Preferences
Accept Cookies
Decline
Close
This website uses cookies to deliver functionality and enhance your experience. GDPR requires that we obtain your consent before activating these cookies. Please accept the use of cookies or review your cookie settings now.
A cookie is a small text file that a website saves on your computer or mobile device when you visit the site. It enables the website to remember your actions (data inputs, website navigation), so you don’t have to re-enter data when you come back to the site or browse from one page to another.
Behavioral information collected by our web analytics vendor is used to analyze data pertaining to visitor trends, plan website enhancements, and measure overall website effectiveness. We may also use cookies or web beacons to help us offer you products, programs, or services that may be of interest to you and to deliver relevant advertising. We may use third-party advertising companies to help tailor website content to users or to serve ads on our behalf. These companies may also employ cookies and web beacons to measure advertising effectiveness.
Please accept cookies and the collection of behavioral information to receive full functionality and enhance your experience. If you decline cookies, some features of the website may not function normally.
Please see our
Privacy Policy for more information.