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Determining Return on Investment for LoadSprings CAM Console







Determining Return on Investment for LoadSprings CAM
Console

White Paper
September, 2002



Abstract
This paper examines the challenges with IT spending in our current economy and offers a comprehensive
approach to developing a sound Return on Investment analysis for outsourced IT solutions using the CAM
Console. This paper will detail the development of an accurate ROI analysis including detailed definitions for
the Tangible Benefits (Cost Savings) as well as Intangible Benefits of the CAM Console.

Who Should Read this Paper
This paper was written primarily for Business and Information Technology Managers and CXs who have
been challenged to reduce IT Expenditures while improving strategic business focus.




L o a d S p r i n g S o l u t i o n s
This paper provides general information related to the heading topic as of the date of
publication. This paper has been published by LoadSpring Solutions, Inc. and may
not be reproduced or transmitted in any form or by any means, electronic or
mechanical, including photocopying, recording, or by any information storage and
retrieval system without written permission from LoadSpring Solutions, Inc. The
information provided in this document is as-is and neither LoadSpring, nor its
partners warrant the information against errors or omissions. Although we have made
every attempt to ensure the accuracy of the information provided in this document, the
reader of the information in this document is advised to perform his/her own due
diligence with regard to the content contained herein. This document is owned by
LoadSpring Solutions, Inc., and is protected by state and local Copyright laws.



For more information, contact:

LoadSpring Solutions, Inc., 15 Union Street, #401, Lawrence, MA 01840
Phone:978.685.9715, Fax:978.685.9716, http://www.loadspring.com

Determining Return on Investment for LoadSprings CAM Console
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Introduction...............................................................................................................3
ROI - Overview.........................................................................................................3
Other Factors to Consider ........................................................................................4
Assumptions Before you Begin...............................................................................5
Evaluate a new way of doing business.....................................................................5
Security ....................................................................................................................6
Equipment/Service Availability .................................................................................7
Tangible Cost Benefits..............................................................................................7
Labor Savings ..........................................................................................................7
Capital Expense Reductions ....................................................................................8
Productivity Benefits.................................................................................................9
Adding it all up........................................................................................................10
Intangible Benefits ..................................................................................................11
Conclusions ............................................................................................................12

T
ABLE OF
C
ONTENTS

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This paper examines the factors to consider when evaluating the
Return on Investment (ROI) for the CAM Console. The goal of
this paper is to provide a standard framework upon which the
reader can successfully, and more objectively, evaluate the ROI
for the CAM Console as it relates to the specific needs of his/her
business.


Companies continually strive for an unfair competitive advantage
over their competition and therefore are seeking innovative ways to
deploy their applications over an increasingly diverse and complex
network. Information technology managers are being tasked with
improving efficiency and effectiveness when delivering applications
across the enterprise while maintaining the strategic business focus.

To further compound these issues, the slowing economy has forced
business executives to tighten budgets and demand a higher return
on investment for all IT expenditures, with metrics to prove it! Easier
said than done, especially for the small to medium sized businesses
without the time nor resources to effectively research all of the
tangible costs and cost benefits of the myriad of IT Solutions they
may be evaluating.

Determining the Return on Investment (ROI) for any project can be a
complex endeavor regardless of project type and more acutely so
when it comes to outsourcing IT solutions. There are many factors to
consider when examining the cost of an IT project including
personnel expenses, equipment and software, security concerns,
maintenance and availability, just to name a few. Unfortunately,
many of these costs can be difficult to estimate and certainly do not
apply to all organizations in the same way, especially when
considering the size of your company, implementation needs, current
infrastructure and sensitivity to risk.

This paper reviews the general concepts for determining Return On
Investment, ROI, and provides a detailed methodology for
determining ROI when considering an outsourced IT solution such as
LoadSprings CAM Console, which will enable effective comparison
and evaluation of comparable solutions regardless of the size of your
organization or the type of implementation needs you may have.
.



Calculating ROI involves comparing the Net Cost Benefits of a
proposed implementation with the Total Costs of the implementation,
typically over a period of three years. Included in the analysis would
be Total Cost Savings, Initial Costs (Non-Recurring costs) and
Management/Support costs (Recurring costs) over a period of time,
all of which are tangible values. In addition, consideration must be
given to more difficult to measure values termed intangible benefits
and risk mitigation, which completes the ROI analysis.
I
NTRODUCTION

ROI - O
VERVIEW


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An easy way to calculate tangible ROI is as follows:

ROI = (Net Cost Benefits / Total Cost ) * 100


where

N e t Cost Benefits = Cost Savings of proposed solution Total Costs
of proposed solution

Total Costs = Total non-recurring and recurring charges over a
period of time, typically 3 years.

Example: John Avery, an IT Manager for Nolls Construction,
estimates he can realize $50,000 per year of tangible IT cost savings
by implementing the CAM Console. The total cost per year for John
to implement the CAM Console is estimated to be $15,000 per year.
This represents a Net Cost Benefit of $35,000 per year ($50,000 -
$15,000), or $105,000 over the project term of three years. Since the
total cost of using the CAM Console over the same three year period
would be $45,000 (3 x $15,000), John can realize an ROI of 233%
(($105,000/$45,000) x 100).

O
THER
F
ACTORS TO
C
ONSIDER

There are several other factors to consider when completing a return
on investment analysis, including Net Present Value (NPV) of the Net
Cost Benefits, Internal Rate of Return of the Total Cost of the
Investment, the Breakeven period (how long it takes for the benefits
to exceed the costs) and Intangible benefits.

Net Present Value (NPV)
The value of the dollar today has more buying power than it will in the
future, therefore, determining the true time value of money over the
term of a project will provide a more accurate calculation of the Net
Cost Benefits over a period of time, which is typically three years for
standard ROI calculations.

Internal Rate of Return (IRR)
This is really an interest rate calculation which determines what a
similar investment would need to earn to compare with the returns of
the proposed solution. Many larger organizations have a minimum
IRR requirement for all IT investments, typically above 50%, in order
to mitigate the risk and improve the reliability of the decisions.

Breakeven Period
The breakeven period is simply the amount of time it takes before the
cost benefits of the proposed solution exceed the initial costs to
implement the solution. For example, if a solution has a very
attractive ROI of 400%, but it takes 2 years to breakeven, the
proposed solution may not be supportable from a cash flow
standpoint.


Determining Return on Investment for LoadSprings CAM Co