The Total Economic Impact of moving to JBoss...

1 Entire contents © 2009 Forrester Research, Inc. All rights reserved.

The Total Economic Impact of moving to JBoss EAPAn overview of results from a Forrester Consulting study

Aaron DarcyDirector, JBoss Product Line ManagementRed [email protected]@darcyaaron

Sadaf Roshan Bellord

Senior ConsultantForrester [email protected]

mailto:[email protected]


2

Insight into Red Hat's JBoss Enterprise Middleware strategy

Background into why customers select JBoss Enterprise Application Platform (EAP)

In depth review of Forrester's TEI Study

Q & A

Today's Objectives

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Comprehensive Middleware PortfolioJBoss Enterprise Middleware

4

JBoss Application Platform SolutionsJBoss Enterprise Middleware

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Focus “release early, release often”

100+ projects with different release schedules, dependencies, versions etc.

100,000+ registered developers

Community support via forums, project developers, wiki, issue trackers, etc.

Use case driven platforms that integrate multiple projects into a single distribution

Focus on long- term stability, security, supportability, & sustainability

Longer product support lifecycles that maintain application compatibility

Up to 24x7 enterprise support for mission critical applications

Community Enterprise

JBoss Development Model

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JBoss Enterprise MiddlewareExample Partners

Extensive JBoss partner ecosystem that certifies, services and supports JBoss Enterprise Middleware solutions.

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JBoss Enterprise MiddlewareExample customers

Selected JBoss for superior flexibility, improved performance, benefits of open source, better support & lower TCO

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“GEICO rocks better because of JBoss. It has benefited us tremendously.” --Jess Reid, GEICO CIO

Reduced costs by more than $7m over three years Increased transactions by 9% & reduced required CPUs by 66% Eliminated licensing fees & increased customer satisfaction

Why Did They Switch To JBoss?

“We love JBOSS – it allows us to do more with less.” - Unmesh Kulkarni, Director of Software Architecture and Delivery Covad Communications Group, Inc.

Reduce hardware and software costs by more than $500,000 annually Enabled cost-effective SOA modernization Improved performance of existing systems & maintained 99.9% uptime Reduced time-to-market of new products

Customer Stories: http://customers.press.redhat.com/

Total Economic Impact Of JBoss Enterprise Application PlatformSadaf Roshan Bellord

Senior Consultant

Forrester Consulting

December 16, 2009

For internal use only


Agenda

•Executive summary

•Background / rationale for the case study

•Study overview – What is TEI?

•Difference between TEI and TCO

•Summary findings

•Questions and answers


Theme

In the presence of perceived value, cost is a secondary concern


Executive Summary

In September 2009, Red Hat commissioned Forrester Consulting to examine the potential return on investment of JBoss Enterprise Application Platform.

Financial metrics summary:• Achieved risk-adjusted five year ROI of 63%

• Reached break-even on the investment in 19 months

• Realized total (risk-adjusted) Net Present Value of $906,417

• Used a triangular distribution low, medium, and high to risk-adjust costs and benefit estimates.

• The study found that by spending $1,434,509 over three years the organization realized risk-adjusted benefits of $2,340,926 resulting from:

Operational IT cost savings

IT productivity gain resulting from improvement in product time-to-market

Incremental gross revenue


Study Overview / Forrester Approach

• The study was commissioned by Red Hat and delivered by the Forrester Consulting group.

• Leveraged data from existing Forrester research.

• Leveraged data from secondary research.

• Interviewed Red Hat marketing and sales management.

• Conducted a series of in-depth, phone-based interviews with an existing JBoss customer to understand the financial impact of investing in JBoss Enterprise Application Platform.

• Constructed a financial model that is pre-populated with default values and research values gathered from the customer interviews.


Total Economic Impact (TEI)

Costs (TCO)

Benefits

Flexibility

RISK

Total Economic

Impact(TEI)

Business Value•Quantified and valued

•Measured outside of IT

•BU accountability

“Options” Created•Base for future•Valued financially•Communicated

Technology Cost•IT budget•IT accountability

Uncertainty•Impact of “assumptions”•More accuracy•Higher success


TEI extends the concepts of ROI and TCO

Traditional TCOROI

(costs/benefits)

IT impact

Business impact

Risk/uncertainty

Strategic impact

IT costs

IT cost savings

User efficiency

Business effectiveness

Risk mitigation

Risk versus reward

Scalability

Flexibility

TEI

ROI = 76% ROI = 63%ROI = 38%


Overview of cost categories

Vendor costs:

JBoss annual subscription

Premium Support Subscription

Network Operation Monitoring Subscription

Annual Training

Internal costs:

Pre implementation costs

Planning

Technical evaluation

Implementation costs including IT effort for software migration

Ongoing administrative support and maintenance costs

Maintenance effort necessary to support legacy platform

Maintenance effort required to support JBoss


Total Cost Breakdown

CategoriesInitial cost

Year 1 Year 2 Year 3 TotalPresent value

Pre-implementation ($251,250) ($212,250) ($212,250)

IT effort for software migration

($446,250) ($52,500) ($26,250) ($525,000) ($468,792)

JBoss annual subscription

($91,000) ($76,000) ($71,000) ($238,000) ($198,881)

Ongoing administrative support and maintenance*

($123,750) ($247,500) ($247,500) ($618,750) ($502,996)

Total costs ($251,250) ($661,000) ($376,000) ($344,750) ($1,597,00

0) ($1,385,91

9)

ROI = 76% Payback = 18 months

Source: Forrester Research, Inc.

* The Year 1 ongoing administrative effort is equally divided between legacy platform and JBoss, each presenting 50% of $123,750 or $61,875.

Total costs – non-risk-adjusted


Three Year – Total costs – Non-Risk-Adjusted


“Three-Year present value of the total costs is $1,385,919”


Pre-implementation And IT Effort For Software Migration Costs


“IT resource allocation to planning, discovery, and implementation”


Overview of benefit categories

IT benefits: IT operation cost avoidance

IT productivity gain

Business benefit: Incremental gross revenue

Category Year 1 Year 2 Year 3

Percent of benefit captured 50% 100% 100%






Total Benefit Breakdown

CategoriesInitial cost

Year 1 Year 2 Year 3 TotalPresent value

Direct cost avoidance – cost savings from maintenance and support fees

- $375,000 $825,000 $907,500 $2,107,500 $1,704,545

IT productivity gain – improvement in product time-to-market

- $110,000 $220,000 $330,000 $660,000 $529,752

Incremental gross revenue - $16,667 $83,333 $166,667 $266,667 $209,241

Total benefits - $501,667 $1,128,333 $1,404,167 $3,034,167 $2,443,538



Total benefits – non-risk-adjusted


Three Year – Total benefits – Non-Risk-Adjusted


“Three-Year present value of the total benefits is $2,443,538”


Key Metrics

Benefit 1: Reduced IT operation fees Saved maintenance and support

Percent cost increase annually

Percent captured

Benefit 2: IT productivity gain Number of developers

Average annually fully loaded salary

Improvement in productivity

Percent captured

Benefit 3: Incremental Gross Revenue Average annual revenue

Number of months per year

Average monthly revenue

Number of months reduced when product time-to-market was shortened

Percent captured


Components of IT Investment Risk

Adjust original cost/benefit estimates:• Implementation risk – Risk to cost estimates

• Impact risk – Risk to benefit estimates

All IT projects are impacted by some risk:• Project size and scope

• Technology risk

• Vendor risk

• Education risk

• Cultural/behavioral risk

• Training risk

• Organizational risk

• External or environmental risk

Benefit risk estimates

High Low

High 100% 50%

Medium 103% 80%

Low 105% 90%

None 100% 100%

Cost risk estimates

High Low

High 125% 100%

Medium 115% 100%

Low 105% 98%

None 100% 100%


Risk-adjusted models

Cash Flow Initial cost Year 1 Year 2 Year 3 TotalPresent value

Total Costs ($251,250) ($661,000) ($376,000) ($344,750) ($1,597,000) ($1,385,919)

Total

Benefits$501,667 $1,128,333 $1,404,167 $3,034,167 $2,443,538

Total ($215,250) $159,333 $752,333 $1,059,417 $1,437,167 $1,057,619

Cash Flow Initial cost Year 1 Year 2 Year 3 TotalPresent value

Total Costs ($215,250) ($689,500) ($391,000) ($358,438) ($1,654,188) ($1,434,509)

Total Benefits

$481,967 $1,085,933 $1,338,067 $2,905,967 $2,340,926

Total ($215,250) $207,533 $694,933 $979,629 $1,251,779 $906,417

UNADJUSTED FOR RISK

ADJUSTED FOR RISK




Components of Flexibility

• Represents an investment in additional capability today that could be turned into future Business benefits with some future incremental cost.

Metrics Calculation

Asset value (benefit)IT or business costs avoided, revenue generated, capital saved, productivity gained

Cost to acquire optionPlanning and discovery, subscription, annual maintenance are example of costs to consider

Expiration Time to expire, in years

Flexibility Black-Scholes option pricing model



+1 617.613.6108

[email protected]

www.forrester.com

Summary result


+1 617.613.6108

[email protected]

www.forrester.com


+1 617.613.6108

[email protected]

www.forrester.com

• The study found that by spending $1,434,509 over three years the organization realized risk-adjusted benefits of $2,340,926 resulting from:

Operational IT cost savingsIT productivity gain resulting from improvement in

product time-to-marketIncremental gross revenue

• Achieved risk-adjusted five year ROI of 63%

• Reached break-even on the investment in 19 months

• Realized total (risk-adjusted) Net Present Value of $906,417


The Total Economic Impact of moving to JBoss EAPAn overview of results from a Forrester Consulting study

Aaron DarcyDirector, JBoss Product Line ManagementRed [email protected]@darcyaaron


Senior ConsultantForrester [email protected]



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