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money and return on investment with an ea tool

Unlocking Spectacular ROI with the Essential EA Management Tool

EAS Business Planning, Enterprise Architecture, General, Management Agenda

We often talk to people that are tasked with creating a business case for an EA Tool and want to understand how to calculate ROI.  We published a detailed blog on this a couple of years ago but have included an updated summary below.  For the full version see – https://enterprise-architecture.org/about/thought-leadership/roi-for-an-ea-management-tool-2/

The calculation for ROI over 5 years is:

Calc1

So, the first step is to define your savings over 5 years and the costs you will incur over five years.

Costs

Let’s starts with the costs, these are made up of tool costs, onboarding costs and your internal costs to set up, capture and maintain the initial data set. We’re using Essential for our example, but you will need to use your own tool costs:

  • Tool Costs – With Essential this is easy to calculate as it is offered for an annual subscription that includes unlimited users, unlimited EA data and technical support, so you know what you will pay (annual RPI increase applies). Current price list can be found here – https://enterprise-architecture.org/products/pricing-comparison/
    Watch out with other tools as their pricing often increases as you mature and add data or users, so you will need to factor this into your five-year costs.
  • Onboarding Costs – Essential is offered on a self-service basis, so we find that the onboarding costs are lower than with most tools. Most clients take SAML, Training for 10 users, our Onboarding Pack and ~10 days consultancy – we have included these costs in our calculations.
  • Seeding and Ongoing Support – we find this typically takes between 20 and 50 days of internal effort in the first year, depending on the size of the organisation. We have estimated an on-going additional cost of 2 hours per project.

 

Example Costs to use in your Calculation 

Year 1 Year 2 Year 3 Year 4 Year 5
Essential Platform And Onboarding US$53,263 US$19,759* US$20,550* US$21,372* US$22,227*
Seeding and ongoing support $40,000
(50 days (worst case) @ $800 per day)		 $16000
(~$200 per project @ 80 projects)		 $16000
(~$200 per project @ 80 projects)		 $16000
(~$200 per project @ 80 projects)		 $16000
(~$200 per project @ 80 projects)

*rounded and includes 5 year discount and indicative annual increase in line with UK RPI of 4% 

Savings

The savings will obviously depend on your initial objectives and the scale of your organisation.  Typical savings examples we see are IT Rationalisation, Reduction of Duplicate Work and Avoidance of Risk:

  • IT Rationalisation – assume a 3% saving on your total Annual IT spend over 5 years.
  • Reduction of Duplicate Work – assume a five-day saving of effort per project – we have used an estimate of $4,000 per project, but clearly this depends on the size of project and your day rate.
  • Avoidance of Risk – examples of risk costs are a GDPR fine for a breach, which can be as much as $24.5m or 4% of global turnover, or remediation costs for a cyber breach, which can be in the region of $242-$429 per client record.
    For our calculation we have used the Cyber Risk example and based it on an organisation of ~3,000 customers and a remediation cost of $300 per client record.

You can find more details and links to additional sources of costs saving examples in the main blog.

Example ROI Calculations

Using a 5-year cost of investing in Essential of $241,171
(Platform cost plus the cost of the internal people required to do the work)

IT Rationalisation ROI Calculation Example

Roi It Rat 23

Reduction of Duplication of Work ROI Calculation Example

Roi Dup 23

Cyber Risk ROI Calculation Example

Roi Cyber 23 

Summary

In summary, calculating the ROI for your tool is quite easy, importantly:

  • Don’t be overly ambitious, remember to under promise and over deliver on your enterprise architecture
  • Look at previous internal projects to see what savings were made, where duplication of effort occurred, etc and use those in your case, ‘If we’d captured data as part of project X back then we wouldn’t have had to repeat it for project Y’
  • Use industry figures, e.g. use Google or speak to analysts such as Gartner to work out potential savings for your enterprise architecture initiatives
  • Remember to include the internal costs, it’s not just the tool but also the effort to implement and deliver the work – your Finance team will know your internal rate to use for your staff
  • Make sure you frame the case as a story that you can communicate to your CXO
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