In this dissertation I will apply The Total Economic Impact™ Methodology: A Foundation For Sound Technology Investments by Forrester that is described in (Gliedman 2008) (Erickson & Hughes 2004) and in (Leaver 2009). The Total Economic Impact (TEI) methodology is the product of field practitioners and industry analysts' work with Forrester. The goal of this methodology is to provide a practical and compelling framework that embraces all the critical components of quantified—as opposed to fuzzy—risk and flexibility analysis of a business case template for ICT investments.
Given the increasing sophistication that enterprises have regarding cost analysis related to ICT projects, Forrester's TEI methodology provides a complete picture of the total economic impact of an ICT project by looking at four fundamental financing decision points with associated tools and methodologies for quantification.
Benefits : the TEI methodology calculates the benefit of a technology investment decision in a given use-case scenario. TEI quantifies both tangible and intangible benefits and their dependencies over the period of analysis by identifying and calculating their positive business impacts, such as efficiency or revenue gains over the period of analysis.
Cost : TEI looks to determine the cost of investing in a new initiative, application, or technology by analyzing the change to ICT and business operations caused by the new technology investment compared with the cost of maintaining the current environment over a given period that can include planning, implementation, maintenance, and the associated internal efforts and resources.
Risk : to reduce the marginal error of the estimated benefit and cost, TEI quantifies the impact of risk to establish a more realistic view of likely outcomes by tempering initial benefit estimates to compensate for environmental and technical uncertainty. The result is a risk-adjusted estimate that is most likely a more accurate predictor of the future.
Flexibility : to provide visibility into the investment life cycle, TEI values the future options that are created by the investment decision and estimates the future likely impact of ICT investments by monetizing values of future options created that often result from infrastructure, application architectures, excess capacity and similar platform investments.
The TEI quantification of benefits, cost, risk and flexibility is illustrated in the illustration below:
The Four Elements of TEI: Benefits, Cost, Risk and Flexibility for Financial Analysis (Graphic courtesy of Forrester Research, Inc.)
Benefits Measure Future Positive Impacts of the Project
The TEI methodology applies a rigorous process and best practices to improve accuracy in valuing technology benefits as described in (Gliedman 2008) and (Erickson & Hughes 2004), which consist in:
· Establishing categories of tangible benefits to quantify.
· Establishing quantifiable metrics for each benefit.
· Establishing current baselines and future projections for each metric.
· Establishing an “exchange rate” for the metric.
Given the increasing sophistication that enterprises have regarding cost analysis related to ICT projects, Forrester's TEI methodology provides a complete picture of the total economic impact of an ICT project by looking at four fundamental financing decision points with associated tools and methodologies for quantification.
Benefits : the TEI methodology calculates the benefit of a technology investment decision in a given use-case scenario. TEI quantifies both tangible and intangible benefits and their dependencies over the period of analysis by identifying and calculating their positive business impacts, such as efficiency or revenue gains over the period of analysis.
Cost : TEI looks to determine the cost of investing in a new initiative, application, or technology by analyzing the change to ICT and business operations caused by the new technology investment compared with the cost of maintaining the current environment over a given period that can include planning, implementation, maintenance, and the associated internal efforts and resources.
Risk : to reduce the marginal error of the estimated benefit and cost, TEI quantifies the impact of risk to establish a more realistic view of likely outcomes by tempering initial benefit estimates to compensate for environmental and technical uncertainty. The result is a risk-adjusted estimate that is most likely a more accurate predictor of the future.
Flexibility : to provide visibility into the investment life cycle, TEI values the future options that are created by the investment decision and estimates the future likely impact of ICT investments by monetizing values of future options created that often result from infrastructure, application architectures, excess capacity and similar platform investments.
The TEI quantification of benefits, cost, risk and flexibility is illustrated in the illustration below:
The Four Elements of TEI: Benefits, Cost, Risk and Flexibility for Financial Analysis (Graphic courtesy of Forrester Research, Inc.)
Benefits Measure Future Positive Impacts of the Project
The TEI methodology applies a rigorous process and best practices to improve accuracy in valuing technology benefits as described in (Gliedman 2008) and (Erickson & Hughes 2004), which consist in:
· Establishing categories of tangible benefits to quantify.
· Establishing quantifiable metrics for each benefit.
· Establishing current baselines and future projections for each metric.
· Establishing an “exchange rate” for the metric.
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