We’re often asked for input from potential clients on how to measure or show the Return on Investment (ROI) of an Enterprise Architecture Tool. The return you will get on your initial outlay will very much depend on the focus and objectives you have at the start of your initiative, plus there are also long-term benefits that can, and should, be taken into account. Typical scenarios we see for cost savings include IT rationalisation, reduction in duplicate work and avoidance of risk.
We’ve been involved in a number of IT rationalisation exercises and savings do vary, but normally we see savings in the range of 3-12% of the annual IT spend. We would caution against basing the savings on too high figures, as seen published in some articles, unless headcount reduction is part of the plan; in our experience typically they are not.
Reduction of duplicate work is an area where you can make real savings through reuse of existing knowledge, for example documenting processes, identifying application interfaces, identifying data sources and maintaining these in a tool such as Essential saves effort in performing detailed analysis, often multiple times.
Often people find it hard to quantify these savings, but we’ve seen real examples where organisations hire an army of analysts to assess an application estate and its interfaces for a programme, and then repeat the entire exercise a few years later as they didn’t maintain the original work. In one specific case, eight analysts worked for 18 months on a programme at a cost of ~$2M documenting system interfaces. Two years later, a new piece of work was initiated to do the same analysis work, as the original work had been lost on a file server somewhere and no one was sure how accurate it would still be. The cost to redo this work was another ~$2M. As a rough estimate five days effort per project could be saved through having the data available.
In terms of risk avoidance, the ability to highlight, and therefore mitigate, where risk exists in the architecture protects against issues such as data privacy breaches and cyber risk. Highlighting where client data exists, where client data flows from/to, if processes are in place and where projects are addressing any risks can mitigate against the risk of, for example, a GDPR fine which can be up to €20m or 4% of global turnover. Identifying technologies with vulnerabilities and the applications and processes that are, therefore, at risk can mitigate against client remediation costs that run at €242-€429 per client record and also the unquantifiable risk of reputational and brand damage.
These give some idea of savings, but what about the costs?
It’s usually difficult to get a clear idea of an EA tool’s upfront costs, which obviously makes it hard to measure the ROI! The good thing with Essential is that we come from an EA consultancy background rather than a tool vendor background and as such, we understand the frustration of this. You will, therefore, find that we are very transparent with our pricing, allowing you to be confident that your figures will not change.
We’ve included some example calculations below based on our estimates of savings and the cost of Essential, and we’ve provided some links to other examples of potential costs savings. You should, however, use these as an exemplar to identify your own figures.
Additional Cost Saving Examples
What Costs I should include?
Essential Platform Costs (https://enterprise-architecture.org/pricing.php for latest pricing)
Typical client investment of Essential Platform for 5 years, SAML, 5 Days Training and 10 days consulting have been included
Seeding of Platform and Ongoing Support Costs
Initial seeding of the platform to capture base data and setting up internal processes typically takes around 20-50 days of internal effort.
What Savings I should Include?
IT Rationalisation Savings Example
Assuming a 3% saving over 2-5 years, potential savings for different sized organisations would be:
|Annual IT Spend||Potential Annual IT Rationalisation Savings|
|£1M – £50M||$30K – $1.5M|
Reduction of Duplication of Work Savings Example
As a rough estimate, five days of effort per project saved vs not having the data available, will result in the following savings dependent on the size of the organisation and the number of projects undertaken:
|Projects||Potential Savings from reduced duplication of work|
Avoidance of Risk Savings Example
We’ve shown the potential cost of a data privacy or cyber breach, this is very dependent on company turnover and number of clients. For the calculation we have used a Cyber Risk example and based it on an organisation with ~3,000 clients and a ~£300 remediation cost per client.
|Risk||Potential Saving of NOT being fined the following amounts|
|Data Privacy||GDPR fine – $24.5M or up to 4% of global turnover|
|Cyber Risk||Brand damage plus remediation costs ($242-$429 per client record)|
ROI Example Calculations
What is the Formula I should use?
5 Year ROI Calculation (Tool only)
IT Rationalisation ROI Calculation Example
Reduction of Duplication of Work ROI Calculation Example
Cyber Risk ROI Calculation Example
These are some examples based on our experience and the indicative costs of Essential, if you’d like to discuss please contact us.