the total economic impact™ of ibm pureflex system · ibm provided the customer names for the...

A Forrester Total Economic

Impact™ Study

Commissioned By IBM

Project Directors

Jon Erickson and Anish Shah

May 2014

The Total Economic

Impact™ Of IBM PureFlex

System Cost Savings And Business Benefits Enabled By Implementing IBM’s PureFlex System

Table Of Contents

Executive Summary .................................................................................... 1

Disclosures .................................................................................................. 2

TEI Framework And Methodology ............................................................ 3

Analysis ........................................................................................................ 4

Financial Summary ................................................................................... 15

IBM PureFlex System: Overview ............................................................. 16

Appendix A: Composite Organization Description .............................. 17

Appendix B: Total Economic Impact™ Overview ................................. 18

Appendix C: Glossary ............................................................................... 19

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1

Executive Summary

IBM commissioned Forrester Consulting to conduct a Total

Economic Impact™ (TEI) study and examine the potential

return on investment (ROI) enterprises may realize by

deploying PureFlex System. The purpose of this study is to

provide readers with a framework to evaluate the potential

financial impact of the PureFlex System on their

organizations.

To better understand the benefits, costs, and risks associated

with a PureFlex System implementation, Forrester interviewed

three customers and conducted an in-depth survey with

another customer. These customers have had nearly a year

of experience using the PureFlex System to streamline their infrastructure and energy costs, increase flexibility through

virtualization, reduce time to integrate new platforms, and to more efficiently provide hybrid cloud infrastructure

environments.

Prior to implementing PureFlex, customers had operated using blade servers in their data center environment for all their

networking and storage needs. However, prior attempts yielded limited success, leaving customers with limited flexibility to

respond to today’s business challenges. These limitations led to high energy costs, increase in IT staff to manage and

administer the environment, and increase in time to deploy cloud strategies. With PureFlex System, customers were able to

streamline and automate processes across key functions and lines of business, enabling them to meet their objectives,

increase productivity, and keep costs in check. Said one IT manager, “PureFlex System is a part of our company’s strategy

to be agile and flexible in addition to reducing our IT costs; it is an important solution for us.”

IBM PUREFLEX GENERATES COST SAVINGS AND INCREASES BOTH END USER AND IT PRODUCITIVITY

Our interviews with three existing customers, an in-depth survey, and subsequent financial analysis found that a composite

organization based on these interviewed organizations experienced the risk-adjusted ROI, benefits, and costs shown in

Figure 1. (See Appendix A for a description of the composite organization.)

The analysis points to benefits of about $560,000 in Year 1 and then $720,000 per year thereafter. On the cost side,

hardware, implementation, and integration costs are estimated at about $250,000 and annual costs in the first three years

which include support, administration, and software maintenance costs are estimated at about $100,000 per year. The total

three-year net present value (NPV) is about $1.05 million.

Beyond the financial benefits, organizations can more quickly deploy their cloud strategies and integrate new platforms onto

the PureFlex System while streamlining their response processes to business needs.

FIGURE 1

Financial Summary Showing Three-Year Risk-Adjusted Results

ROI: 194%

Total three-year NPV: $1.05 million

Payback: 8.5 months

Total three-year benefits: $1.6 million

IBM PureFlex System can help save energy costs,

improve IT staff productivity, and provide agility

and flexibility as the costs and benefits for a

composite organization of 1,200 employees,

based on customer interviews and surveys, are:

Hardware costs: $250,000

Implementation/integration costs: $50,000

Annual support, administration and

software maintenance costs: $100,000

Three-year NPV: over $1 million

2

Source: Forrester Research, Inc.

› Benefits. The composite organization experienced the following risk-adjusted benefits:

• Energy savings of 40% due to consolidation of servers into the PureFlex integrated solution. The composite

organization uses approximately 50 kWh of energy and would realize savings of $200,000 per year on its energy

costs.

• Reduction in application and database software licensing fees. Implementing PureFlex allows companies to

reduce their overall application and database software license fees by 20% due to consolidation. This benefit is

realized starting in Year 2 after implementation.

• Operational efficiencies by consolidating servers, storage systems, and networks. PureFlex significantly

reduces IT management and administration costs through virtualization and consolidation of servers. Our composite

organization can reduce its IT costs by three fully burdened equivalents or $360,000.

• Increase in end user productivity. PureFlex allows a company to manage one system that leads to reduction in

unplanned downtime, which can result in an increase in business productivity by $125,000.

› Costs. The composite organization experienced the following risk-adjusted costs:

• Hardware costs of $250,000. These are initial, one-time fees paid to IBM for purchasing, maintaining, and replacing

hardware to support the PureFlex System.

• Implementation/integration costs of $50,000. These include about 60 man-hours of time to implement the

PureFlex hardware, and integration costs which include data/application migration, professional service fees,

training costs, overlap server environments, and other transition costs.

• Annual support, administration, and software maintenance costs of $100,000. This includes software

maintenance and support costs paid to IBM each year as well as internal support and administration costs to

manage the PureFlex System on a yearly basis. It is important to note that Forrester does not estimate any

hardware maintenance costs to manage PureFlex in the first 3 years of implementation.

Disclosures

The reader should be aware of the following:

› The study is commissioned by IBM 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 report to determine the appropriateness of an

investment in IBM PureFlex System.

› IBM 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.

› IBM provided the customer names for the interview(s) but did not participate in the interviews.

3

TEI Framework And Methodology

INTRODUCTION

From the information provided in the interviews, Forrester has constructed a Total Economic Impact™ (TEI) framework for

those organizations considering implementing IBM PureFlex System. The objective of the framework is to identify the cost,

benefit, flexibility, and risk factors that affect the investment decision.

APPROACH AND METHODOLOGY

Forrester took a multistep approach to evaluate the impact that IBM PureFlex System can have on an organization (see

Figure 2). Specifically, we:

› Interviewed IBM marketing, sales, IT personnel, along with Forrester analysts, to gather data relative to PureFlex System

and the marketplace for PureFlex System.

› Interviewed three organizations and surveyed one organization currently using IBM’s PureFlex System to obtain data with

respect to costs, benefits, and risks.

› Designed a composite organization based on characteristics of the interviewed organizations (see Appendix A).

› Constructed a financial model representative of the interviews using the TEI methodology. The financial model is

populated with the cost and benefit data obtained from the interviews as applied to the composite organization.

› Risk adjustment is a key part of the TEI methodology. While interviewed organizations provided cost and benefit estimates,

some categories included a broad range of responses or had a number of outside forces that might have affected the

results. For that reason, some cost and benefit totals have been risk-adjusted, and is detailed in each relevant section.

Forrester employed four fundamental elements of TEI in modeling IBM PureFlex System’s service: benefits, costs, flexibility,

and risks.

Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester’s TEI

methodology serves to provide a complete picture of the total economic impact of purchase decisions. Please see Appendix

B for additional information on the TEI methodology.

FIGURE 2

TEI Approach


Perform due diligence

Conduct customer interviews

Design composite

organization

Construct financial

model using TEI framework

Write case study

4

Analysis

COMPOSITE ORGANIZATION

For this study, Forrester conducted a total of three interviews and one survey response with representatives from the

following companies, which are IBM PureFlex customers based across the globe:

› Children’s entertainment and consumer products company headquarted in Canada with about 1,000 employees. The

company has offices in multiple countries and distributes its content and products around the world.

› Airline company headquartered in Europe that has an airline fleet that operates mail and cargo flights for postal offices,

newspaper dispatches, and charter services for tour operators.

› Large mining services company based in Southeast Asia with $900 million in annual revenue and 1,000 employees. Does

work with multiple countries in the region.

Based on these interviews, Forrester constructed a TEI framework and an associated ROI analysis that illustrates the areas

these organizations identified as having the greatest financial impact and collected them into a single representative

organization model of costs and benefits.

The organizations began implementation of PureFlex in early 2013 and have been using the PureFlex solution for over six

months. The characteristics of a representative organization that implemented PureFlex include:

› A privately held services company headquartered in Europe.

› Total top line sales of $800 million.

› 1,200 employees across multiple geographies.

› Yearly IT budget of $80 million.

› Single data center environment with yearly opex and capex

budget of $15 million.

› Data center uses about 50 kWh of energy per month.

› Interested in investing into a two-chassis system.

INTERVIEW HIGHLIGHTS

Situation

In 2013, organizations were looking for additional flexibility and control over their infrastructure environment and were asked

to more quickly respond to business challenges. A key area of concern for organizations was managing the complexity within

their SAP application environment. As the SAP application environment continued to grow, organizations were looking at the

benefits of physical and virtual consolidation of their IT environment that supports their SAP applications. Their existing

environment was disintegrated and resulted in lots of skilled IT workers to ensure their systems were managed appropriately

and operated at the efficiencies that their business constituencies required. In addition, cost pressures to do more with less

forced IT executives at the organizations to explore new options. The organizations identified several key points they

considered before deciding to purchase PureFlex:

“The PureFlex solution allows

for our company’s IT

department to be more agile in

fulfilling the business’ needs.”

~IT director, mining services company

5

› Infrastructure-as-a-service (IaaS) platform that can combine

server, storage, and networking hardware needs into one

system.

› Energy cost savings involved with maintaining their blade

servers.

› Flexible environment that can be leveraged with an increased

focus on managing their suite of SAP applications and leveraging

their cloud strategy.

› Increase in IT staff productivity.

› Ease of deployment into their environment.

Solution

The composite organization selected PureFlex System because it is easy to deploy, assists in reducing data center costs,

and has the ability to meet today’s complex and ever-changing business demands.

Results

The organizations’ interview results were collected into a composite model summarizing the costs and benefits of a

representative organization:

› Energy cost savings of 40%. One of the most significant benefits experienced by the composite organization was the

immediate energy savings. These energy savings are realized because of the following features of the PureFlex System:

• The adaptive cooling controls which minimizes system cooling power consumption and airflow requirements, due to

more sophistication in server design with adaptive cooling components that require much less power than traditional

blade servers.

• The chassis data center energy management modes (AKA acoustic modes) which are used to balance acoustics

and airflow usage requirements against performance help optimize power usage.

• The ambient health awareness console which detects hot air recirculation (HAR sensor) and the chassis CFM usage

console which helps organizations manage their energy usage.

› Software license fees reduce by 20%. Because the PureFlex System combines server, storage, and networking into one

management infrastructure, the representative organization was

able to see reduced yearly fees on its software costs. PureFlex

was able to reduce both the application and database software

license costs for organizations. This benefit is realized starting in

Year 2 after implementing PureFlex.

› Increase in IT management and administration productivity.

The preconfigured and converged hardware system comes with

a very easy interface. The reduced time to manage means IT

organizations can re-shift their resources to more strategic items

than just “keeping the lights on.” The composite organization was

able to save up to three full-time equivalent staff members after

implementing PureFlex.

“PureFlex has an extremely

user-friendly interface which

makes it easy to manage our

storage and network.”

~IT director, airline operator

“With PureFlex, we have

reduced costs and increased

productivity.”

~IT director, airline operator

6

› Reduction in unplanned downtime improves end user productivity. The composite organization used to experience

approximately 10 outages a year across severity. These outages would have a severe effect on end user productivity, as

its key applications would go down for approximately one day. By implementing PureFlex, Forrester estimates that this

unplanned downtime is reduced by 50%, which directly impacts end user productivity. Due to its preconfigured and tested

environment, unplanned downtime is decreased due to human error and faster resource provisioning to get at the root of

an issue.

7

BENEFITS

The composite organization experienced a number of quantified benefits in this case study:

› Energy savings by utilizing less power.

› Reduced software licensed fees.

› Increase in IT management and administration productivity.

› Reduction in unplanned downtime of end user applications.

Another important benefit mentioned by interviewed organizations was the ease of which to deploy the system into their

environments. While implementation time depends on a number of factors, the organizations regarded the ease of working

with IBM’s implementation team to install PureFlex into their environment and realize an accelerated payback for their

investment

Energy Cost Savings

The composite organization indicated that a key benefit from the PureFlex implementation was the energy savings that it

experienced starting in Year 1. Prior to implementing PureFlex, the composite organization averaged using 50,000 watts, or

50 kWh, of energy per month to power its data center server environment. For the representative organization, this would

result in an energy bill of approximately $625,000 per year using $0.12/hour costs ($0.12/hour is the average cost based on

the input received from interviewed organizations) and 8,677 hours per year. During the first year, the representative

organization would save 120 hours of energy as it ramps up the PureFlex System into its operation. Starting in Year 2,

organizations can estimate to realize the full energy savings of 40% of their current costs. After implementing PureFlex and

consolidating its storage, server, and networking hardware into one system, the composite organization used 40% or 240

kWh less of energy per year in the steady state after Year 2 which translates in risk adjusted energy cost avoidance of

~$200,000 per year (see Table 1).

TABLE 1

Energy Cost Savings


Ref. Calculation Initial Year 1 Year 2 Year 3 Total

Present

Value

B1 Composite 0 240 240 240

B2 Composite $0.12 $0.12 $0.12 $0.12

B3 Composite 8,677 8,677 8,677 8,677

Bt B1*B2*B3 $0 $249,898 $249,898 $249,898

80%

Btr $0 $199,918 $199,918 $199,918 $599,754 $497,167

Energy Cost Avoidance

Metric

Energy cost avoidance (Risk-

Adjusted)

Amount of kWh energy saved

Energy cost avoidance

Risk Adjustment

Composite Organization uses 50,000 watts or 50 kWh per month or 600 kWh per year. PureFlex helps save 40% on Energy costs.

Average cost per kWh

Number of hours in a year

8

Reduced Software License Fees

The composite organization indicated that another key benefit from the PureFlex System implementation was a reduction in

its yearly software license costs. The organization was able to reduce its software license fees by 20% by having one

converged hardware infrastructure system (see Table 2). Prior to PureFlex, the composite organization averaged $200,000

per year in software license fees across its applications and database licenses. After implementing PureFlex, the yearly

software license fees for the composite organization went down to a risk-adjusted level of $160,000 beginning in Year 2.

TABLE 2

Reduced Software License Fees


Increase In IT Management And Administration Produtivity

Prior to PureFlex, the composite organization had six IT management and administration FTEs with a fully burdened cost of

$120,000 per year. Due to an increase in virtualization and integration of resources across networking, computing, and

storage with PureFlex, after implementation, the composite organization was able to reduce its FTE requirements by 50% in

the steady state. In addition, the organization was able to reduce two FTEs in Year 1 and then an additional FTE in

subsequent years (see Table 3). This result is $342,000 of risk-adjusted cost avoidance per year for the composite

organization after implementing PureFlex.


Present

Value

C1 Composite -$ 200,000$ 200,000$

C2 Composite 0% 20% 20%

Ct C1*C2 $0 $0 $40,000 $40,000

100%

Ctr $0 $0 $40,000 $40,000 $80,000 $63,110Software License Cost

Avoidance (Risk-Adjusted)

Fees Avoidance

Software License Cost Avoidance

Composite Organization averages $200,000 per year in software licencing fees. PureFlex helps reduce annual software licencing costs by 20%

Metric

Software Licence Fees

Software License Cost

Avoidance

Risk Adjustment

9

TABLE 3

IT Management And Administration Cost Savings


Increase In End User Productivity With Reduction In Unplanned Downtime

Prior to PureFlex, the composite organization used to experience approximately 10 outages a year across severity. These

outages had a matieral effect on end user productivity, as key applications would go down for approximately one day.

Implementing PureFlex, Forrester estimates that this unplanned downtime is reduced by 50% which directly results in an

increase in end user productivity (see Table 4). On average, each outage costs the composite organization $25,000 in

productivity, which results in $125,000 in cost savings per year. During the first year, the organization should expect to avoid

three outages and then subsequent years it can reach its optimal steady state by avoiding five outages per year. This nets a

three-year risk adjusted benefit of $308,750.


Present

Value

D1 Composite 2 3 3

D2 Composite 120,000$ 120,000$ 120,000$

D3 D1*D2 $0 $240,000 $360,000 $360,000

Dt 95%

Dtr $0 $228,000 $342,000 $342,000 $912,000 $786,176

IT support and admin FTE

reduction

IT management and administration savings

Composite Organization has 6 IT Management and Administration FTEs with a cost of $120,000/year. Increased integration of resources across

networking, computing, and storage with PureFlex can help an organization reduce 2 FTE in Year 1 and 3 FTEs in subsequent years.

Metric

IT management and admin FTE

savings

Risk Adjustment

IT management and admin

FTE savings (Risk-Adjusted)

Cost per FTE

10

TABLE 4

Increase in End User Productivity


Total Benefits

Table 5 shows the total of all benefits across the four areas listed above, as well as present values (PVs) discounted at 10%.

Over three years, the composite organization expects risk-adjusted total benefits to be a PV of approximately $1.6 million.

TABLE 5

Total Benefits (Risk-Adjusted)



Present

Value

E1 3 5 5

E2 25,000$ 25,000$ 25,000$

Et E1*E2*E3*E4 $0 $75,000 $125,000 $125,000

95%

Etr $0 $71,250 $118,750 $118,750 $308,750 $252,132

Increase in end user productivity with reduction in unplanned downtime

The composite organization used to experience approximately 10 outages a year across severity. These outages would have a severe effect on end

user productivity, as its key applications would go down for approximately 1 day. Implementing PureFlex, Forrester estimates that this unplanned

downtime is reduced by 50% which direcly results in end user producivity.

Metric

Outages Avoided per year

Increase in end-user

productivity per year (Risk-

Adjusted)

Risk Adjustment

Increase in end-user

productivity per year (Risk-

Adjusted) (Risk-Adjusted)

Producitivity impact per outage

per year

Ref. Initial Year 1 Year 2 Year 3 Total

Present

Value

Btr $0 $199,918 $199,918 $199,918 $599,754 $497,167

Ctr $0 $0 $40,000 $40,000 $80,000 $63,110

Dtr $0 $228,000 $342,000 $342,000 $912,000 $786,176

Etr $0 $71,250 $118,750 $118,750 $308,750 $252,132

$0 $499,168 $700,668 $700,668 $1,900,504 $1,598,585

Increase in end user productivity with reduction in

unplanned downtime

Software license cost avoidance

Benefit Category

Energy cost avoidance

IT management and administration savings

Total Benefits (Risk-Adjusted)

11

COSTS

The composite organization experienced a number of costs associated with the PureFlex System solution:

› Initial hardware cost.

› Implementation/integration cost.

› Annual support, administration, and software maintenance costs.

These represent the mix of internal and external costs experienced by the composite organization for initial planning,

implementation, and ongoing software maintenance associated with the solution.

Cost No. 1. Initial Hardware Cost

Initial purchase price for the composite organization for the PureFlex System is $250,000. This is reflective of a two chassis

system and the organization had a single data center.

TABLE 5

PureFlex Hardware Cost


Cost No. 2. Implementation/Integration Costs

To implement PureFlex, the composite organization had to spend approximately 60 man-hours to install the hardware into its

data system. Next, it hired an external professional services firm to assess its current system and present it with a transition

and execution plan to migrate all the data and applications onto the PureFlex System. Also, additional support from the

composite organization is required to project manage the transition into PureFlex. After implementation, the composite

organization invests time and costs to training its internal resources who will be managing the new PureFlex System.

Forrester estimates that during Year 1 there will be approximately $50,000 in implementation costs that reflect the hard costs

as well as the loss in productivity that will occur from internal resources that will shift their attention to managing a smooth

transition of PureFlex.


Present

Value

F1 250,000$ 0 0 0

Metric

PureFlex Hardware Costs

12

TABLE 6

Implementation And Integration Costs


Cost No. 3. Annual Support, Administration, and Software Costs

Each year, the composite organization incurred a maintenance fee for managing the PureFlex System. The maintenance fee

included 24x7 support and software upgrades developed by IBM that enhance core functionalities and expand the range of

industry-specific features. In addition to costs paid to IBM, the composite organization also had internal administration costs

of maintaining the PureFlex solution in their environment. In the first three years, Forrester does not expect any hardware

maintenance costs for PureFlex. The composite organization incurred $100,000 in annual support, administration and

software maintenance costs to manage the PureFlex System.

TABLE 7

Annual Support, Administration, and Software Costs



Present

Value

G1 0 50,000$ 0 0

G2 G1*G2 $0 $50,000 $0 $0

100%

Gtr $0 $50,000 $0 $0 $50,000 $45,455

Implementation and Integration Costs

PureFlex hardware impmentation and integratation costs including data migration, application configuration, training, outside professional service fees,

etc. to implement PureFlex

Metric

One-Time implementation

costsImplementation and Integration

Costs

Risk Adjustment

Implementation and

Integration Costs (Risk-

Adjusted)


Present

Value

H1 0 100,000 100,000 100,000

100%

Htr $0 $100,000 $100,000 $100,000 $300,000 $248,685

Risk Adjustment

Total Annual support,

administration, and software

support costs (Risk-Adjusted)

Metric

Yearly maintenance costs for

PureFlex (support, administration, and

software maintenance)

13

Total Costs

Table 8 shows the total of all costs as well as associated present values, discounted at 10%. Over three years, the

composite organization expects total costs to total a net present value of a little more than $2.5 million, or $3,862 per user.

TABLE 8

Total Costs (Risk-Adjusted)


FLEXIBILITY

Flexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned into business

benefit for some future additional investment. This provides an organization with the “right” or the ability to engage in future

initiatives but not the obligation to do so.

The PureFlex System combines system designs along with built-in expertise and integrates them into complete, optimized

solutions. This fully integrated infrastructure platform supports a mix of compute, storage, and networking resources to meet

the demands of your applications.

The solution is easily scalable with the addition of another chassis with the required nodes. With the PureFlex System

Manage, multiple chassis can be monitored from a single panel. This flexible chassis is simple to deploy, and can scale to

meet your needs in the future. PureFlex allows organizations to accelerate system deployment while simplifying cloud

service delivery. With PureFlex, organizations can accelerate their cloud service delivery by deploying in minutes and hours

rather than weeks or months and their scalable management capability manages up to 5 PureFlex racks to maximize

productivity.

RISKS

Forrester defines two types of risk associated with this analysis: “implementation risk” and “impact risk.” “Implementation risk”

is the risk that a proposed investment in PureFlex System may deviate from the original or expected requirements, resulting

in higher costs than anticipated. “Impact risk” refers to the risk that the business or technology needs of the organization may

not be met by the investment in PureFlex System, resulting in lower overall total benefits. The greater the uncertainty, the

wider the potential range of outcomes for cost and benefit estimates. Table 9 shows the variability in the benefit outcomes

that customers similar to the representative organization may achieve from implementing IBM PureFlex. For instance,

energy costs can differ by location and by existing contracts and Forrester estimates that the variability and the risk of this

benefit can be up to 20%. In addition, software license fees, IT management and administration savings, and IT end user

productivity are pretty standard and are likely to only deviate from the stated benefit by no more than 5%. The TEI analysis

shows that even with a risk adjustment the ROI and NPV of implementing PureFlex is highly positive.

Ref. Initial Year 1 Year 2 Year 3 Total

Present

Value

Ftr -$250,000 $0 $0 $0 -$250,000 -$250,000

Gtr $0 -$50,000 $0 $0 -$50,000 -$45,455

Htr $0 -$100,000 -$100,000 -$100,000 -$300,000 -$248,685

-$250,000 -$150,000 -$100,000 -$100,000 -$600,000 -$544,140

Annual Support, Administration, and Software Costs

Initial Hardware Costs

Cost Category

Total Costs (Risk-Adjusted)

Implementation and Integration Costs

14

TABLE 9

Risk Assessment: Benefits and Costs


TABLE 9

Benefit And Cost Risk Adjustments

Benefits Adjustment

Energy Cost Avoidance 20%

Software License Cost Avoidance 5%

IT Management and Administration Savings 5%

Increase in End-User Productivity 5%

15

Financial Summary

The financial results calculated in the Benefits and Costs sections can be used to determine the ROI, NPV, and payback

period for the organization’s investment in PureFlex System.

Table 10 below shows the risk-adjusted ROI, NPV, and payback period values. These values are determined by applying the

risk-adjustment values from Table 9 in the Risks section to the unadjusted results in each relevant Cost and Benefit section.

FIGURE 3

Cash Flow Chart (Risk-Adjusted)


TABLE 10

Cash Flow: Risk-Adjusted


-$400,000

-$200,000

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

Initial Year 1 Year 2 Year 3

Cas

h Fl

ows

Financial Analysis (risk-adjusted)

Total Costs Total Benefits Cumulative Total

Initial Year 1 Year 2 Year 3 Total

Present

Value

Total Costs (250,000)$ (150,000)$ (100,000)$ (100,000)$ (600,000)$ (544,140)$

$0 $499,168 $700,668 $700,668 $1,900,504 $1,598,585

-$250,000 $349,168 $600,668 $600,668 $1,300,504 $1,054,445

194%

8.5Payback Period (months)

Cash Flow Analysis (Risk-Adjusted Estimates)

Summary

Total Benefits

Total

ROI

16

IBM PureFlex System: Overview

The following information is provided by IBM. Forrester has not validated any claims and does not endorse IBM or its

offerings.

IBM PureFlex System is a complete, flexible cloud infrastructure system with integrated expertise. The system integrates and

optimizes all compute, storage and networking resources to deliver infrastructure-as-a-service (IaaS) out of the box.

› Integration by design: deeply integrated compute, storage, and networking resources so you can deploy in hours instead

of days.

› Built-in expertise: automated management and deployment expertise for physical and virtual resources so your experts

can focus on innovation.

› Simplified experience: optimized flexible configurations to accelerate purchase, deployment, and time to value for your

solution.

The IBM PureFlex System combines advanced IBM hardware and systems management software, integrating them into an

optimized configuration that is simple to acquire and deploy so you get fast time-to-value for your solution.

These fully integrated, optimized solutions can be configured for your specific business need and may be complemented by

a package of support services. These purchased services include flexible choices for warranty service upgrades (WSU), and

microcode analysis to ensure your PureFlex deployment maintains the latest levels of software and firmware.

17

Appendix A: Composite Organization Description

For this TEI study, Forrester has created a composite organization to illustrate the quantifiable benefits and costs of

implementing IBM’s PureFlex System. The composite company is intended to represent a privately held services company

headquartered in Europe with 1,200 employees and is based on characteristics of the interviewed customers.

The composite company has $800 million in annual sales and operates a single data center environment with yearly opex

and capex budget of $15 million. The composite company also uses 50 kWh of energy per month.

In purchasing PureFlex System, the composite company has the following objectives:

› To have a single data center environment that supports its long-term business objectives.

› Reduce the number of racks required for network storage to assist in reducing energy costs.

› Efficiently manage the company’s SAP architecture while reducing costs and increasing IT staff productivity.

› Reduce the time to deploy and install additional applications, and have the ability to align with the company’s goal to scale

through utilizing a more leveraged cloud strategy.

FRAMEWORK ASSUMPTIONS

Table 11 provides the model assumptions that Forrester used in this analysis.

The discount rate used in the PV and NPV calculations is10% and time horizon used for the financial modeling is three

years. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are

urged to consult with their respective company’s finance department to determine the most appropriate discount rate to use

within their own organizations.

TABLE 11

Model Assumptions

Ref. Metric Calculation Value

C1 Hours per week 40

C2 Hours per Year 8,677

C3 Cost per kWh $0.12

C4 Cost per fully burdened IT staff $120,000


18

Appendix B: Total Economic Impact™ Overview

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.

The TEI methodology consists of four components to evaluate investment value: benefits, costs, flexibility, and risks.

BENEFITS

Benefits represent the value delivered to the user organization — IT and/or business units — by the proposed product or

project. Often, product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze

the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal

weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on

the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand

the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established

between the measurement and justification of benefit estimates after the project has been completed. This ensures that

benefit estimates tie back directly to the bottom line.

COSTS

Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units

may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investments and

expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs

over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are

created.

FLEXIBILITY

Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be

the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an

investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the

initial investment already made. For instance, an investment in an enterprise wide upgrade of an office productivity suite can

potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration

feature may translate to greater worker productivity if activated. The collaboration can only be used with additional

investment in training at some future point. However, having the ability to capture that benefit has a PV that can be

estimated. The flexibility component of TEI captures that value.

RISKS

Risks measure the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two

ways: 1) the likelihood that the cost and benefit estimates will meet the original projections, and 2) the likelihood that the

estimates will be measured and tracked over time. TEI applies a probability density function known as “triangular distribution”

to the values entered. At a minimum, three values are calculated to estimate the underlying range around each cost and

benefit.

19

Appendix C: Glossary

Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Companies set

their own a discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of

10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment.

Readers are urged to consult their respective organizations to determine the most appropriate discount rate to use in their

own environment.

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.

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.

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.

Return on investment (ROI): A measure of a project’s expected return in percentage terms. ROI is calculated by dividing

net benefits (benefits minus costs) by costs.

A NOTE ON CASH FLOW TABLES

The following is a note on the cash flow tables used in this study (see the example table below). The initial investment

column contains costs incurred at “time 0” or at the beginning of Year 1. Those costs are not discounted. All other cash flows

in years 1 through 3 are discounted using the discount rate (shown in Framework Assumptions section) at the end of the

year. PV calculations are calculated for each total cost and benefit estimate. NPV calculations are not calculated until the

summary tables are the sum of the initial investment and the discounted cash flows in each year.

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