InFin-IT (Infosys Financial Model for IT Investment Valuation)

Does Migrating to Linux Add Business Value? Sameer Bhagat Dr. Joseph Shields Why do firms look at migrating to alternative OS platforms? Improved Governance Lower security risk Better software quality Higher Productivity Meeting Customer Demands Capital and Asset Utilization Increased Computational Power Pricing Pressures Questions to ask while evaluating benefits of migration to Linux Is Linux really cheaper to established OSes such as Windows and proprietary Unix? To answer this questions and justify the investment, two types of financial metrics are commonly used: Total Cost of Ownership (TCO) Return on Investment (ROI) While TCO measures both direct and indirect costs of alternative implementations, it makes no measure of the benefits gained from that implementation. Return on Investment, in comparison, includes cost factors but also includes the value of the resulting benefits to the enterprise attributable to the investment. It projects the value of the product, not simply the cost. Getting a good view of ROI Building blocks of ROI Estimation View of Benefits Suggested approach for cost benefit analysis  Multiple stakeholder view  IT Manager’s view of benefits  End user’s (customer interfacing manager) view of the benefits  Business champion’s view of the benefits  Provision for spreading the investments and capturing the benefits upto 5 years  Risk exposure  Strategic risks  Operational risks  Technology risks  Multiple scenario analysis  Measurement of cash flows using proxies  DCF and NPV analysis for measuring returns  IRR and payback period calculations for future investments Cost Categories Costs of System Procurement Costs of Migration Costs of Educating Users Costs of Customer Training Maintenance Costs Professional Fees The above cost categories are used for TCO Estimation Costs of System Procurement Deinstallation and disposal of earlier systems • Decommissioning the system • Removal of equipments and other peripherals • Erasing and shifting sensitive data • Disposal of the equipment Hardware : Hardware Purchase Software (operating system) : Software Purchase and License Database : Database Purchase and License Network Software : Network Software Purchase and License Security Systems Costs of Migration Hardware Installation ( Costs for setting up the server and Hardware Upgrade costs) Software Installation Testing Fees Manpower costs incurred during procurement Shipment / Transportation Costs Support Manpower costs Loss of productivity during transition • Notional loss due to downtime during implementation/ upgradation/ transition • Notional loss due to time lost during process redesign Personnel Costs Asset management administration Database installation/ management Network installation/ management Cost of customizing and redesigning services / layout of the facility Costs of Educating Users Material Costs (Manuals and Handbooks) Manpower Costs for training • Hardware Training • Software Training • Integration Training • Network Administration Training • Database Administration Training • Other Training Subscription fees for Business Publications Productivity loss of staff for time spent in training Costs of Customer Training Marketing and Sales manpower costs Advertising on benefits of the new technology change • Collaterals • Travel • Client workshops • Communication costs - telephone, electronic communication, postage etc. • Material and shipping costs Maintenance Costs General Administration Costs Insurance Maintenance Fees for Hardware Maintenance Fees for Software Stationary & Printing costs Infrastructure improvement and maintenance Help-desk services fees Database Maintenance Network Maintenance Planning and management System backup costs Costs due to system interruption, downtime and breakdown Disaster recovery costs Costs incurred due to threats from virus attacks Administration Costs Professional Fees Business Consulting Services Market Research Process Redesign IT Strategy Consultancy Future Project Based Outsourced services Legal consulting services Benefit Categories Operational Efficiency Benefits Cost reduction due to improvements in the internal processes of a firm and the resulting (reduction in time and material costs) Ecosystem Benefits Cost reduction and additional sales due to benefits to the partners and external stakeholders of the firm (suppliers and customers) Business Innovation Benefits Benefits of better decision making, innovation in business processes, additional business lines, geographic spread etc. Customer Surplus Benefits Additional sales due to customers perceiving higher quality about the services and offerings of the firm using IT for its operations The above benefits categories are used for ROI Estimation Operational Efficiency Benefits Reduction in workload Improvement in Systems, Applications, Database, Network administration and IT support staff productivity (Time the administrators and IT staff spends identifying and fixing the causes of outages is reduced) Reduction in ongoing support costs from vendor User productivity during downtimes Reduction in downtime of individual systems or networks (For reasons apart from virus attacks) Reduction in Help Desk Support Costs (The number of help desk calls are reduced which results in help desk support savings) Opportunity cost during system downtime Ecosystem Benefits Sale of unused hardware/ equipments Reduced Floor space for storage Reduced Development Costs Reduced Infrastructure and Communication Costs Reduction in software upgradation costs Reduction in staff, reduced hiring and training of new staff Increased Security Benefits (Savings due to reduction in virus attacks and their scope, response and resolving time, end user downtime due to security incidents) Benefits due to wireless networking Reduced IT Employee training costs Business Innovation Benefits Additional revenues due to freed/higher up computational power Customer Surplus Benefits Additional revenues due to improved perception of customers about the low cost and high efficiency computing system Additional revenue due to ease of integration of networks between the firm and its customers Thank you sameer_bhagat@infosys.com Joseph_shields@infosys.com