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Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
Total Economic Impact™ IBM System Storage SAN, Volume Controller
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Total Economic Impact™ IBM System Storage SAN, Volume Controller

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In June 2011, IBM commissioned Forrester Consulting to examine the total economic impact and potential return on investment (ROI) enterprises may realize by deploying System Storage SAN Volume …

In June 2011, IBM commissioned Forrester Consulting to examine the total economic impact and potential return on investment (ROI) enterprises may realize by deploying System Storage SAN Volume Controller (SVC). The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of System Storage SAN Volume Controller on enterprise organizations. SVC is designed to simplify and centralize storage infrastructure and offer benefits of storage virtualization for large enterprises.

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  • 1. A Forrester Total Economic Impact™ Study Prepared For IBMTotal Economic Impact™ IBM System Storage SANVolume ControllerProject Director: Sadaf Roshan BellordContributors: Jon EricksonMay 2012
  • 2. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerTABLE OF CONTENTSExecutive Summary ................................................................................................................................................................................. 2  IBM SAN Volume Controller Reduces IT Capital And Operating Costs ............................................................................... 2  Factors Affecting Benefits And Costs ............................................................................................................................................. 3  Disclosures ........................................................................................................................................................................................... 4 TEI Framework And Methodology...................................................................................................................................................... 5 Analysis ...................................................................................................................................................................................................... 6  Interview Highlights .......................................................................................................................................................................... 6  Costs...................................................................................................................................................................................................... 8  Benefits ............................................................................................................................................................................................... 10  Flexibility............................................................................................................................................................................................ 14  Risk...................................................................................................................................................................................................... 15 Financial Summary................................................................................................................................................................................ 17 IBM System Storage SAN Volume Controller: Overview.............................................................................................................. 18 Appendix A: Composite Organization Description ....................................................................................................................... 18 Appendix B: Total Economic Impact™ Overview ............................................................................................................................ 19 Appendix C: Glossary ........................................................................................................................................................................... 20 Appendix D: Endnotes.......................................................................................................................................................................... 20 © 2012, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources.Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and TotalEconomic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additionalinformation, go to www.forrester.com.About Forrester ConsultingForrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging inscope from a short strategy session to custom projects, Forrester’s Consulting services connect you directly with research analysts who applyexpert insight to your specific business challenges. For more information, visit www.forrester.com/consulting.Page 1
  • 3. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerExecutive SummaryIn June 2011, IBM commissioned Forrester Consulting to examine the total economic impact and potential return oninvestment (ROI) enterprises may realize by deploying System Storage SAN Volume Controller (SVC). The purpose ofthis study is to provide readers with a framework to evaluate the potential financial impact of System Storage SANVolume Controller on enterprise organizations. SVC is designed to simplify and centralize storage infrastructure andoffer benefits of storage virtualization for large enterprises.IBM SAN Volume Controller Reduces IT Capital And Operating CostsOur interviews and surveys with 11 existing customers and subsequent financial analysis found that a compositeorganization based on the organizations interviewed experienced the risk-adjusted ROI, costs, and benefits shown inTable 1.1 See Appendix A for a description of the composite organization. (All numbers have been rounded).Table 1Composite Organization Three-Year Risk-Adjusted ROI ROI Payback Total benefits Total costs Net present period (PV) (PV) value 75% 18 months $6,151,813 ($3,520,622) $2,631,191Source: Forrester Research, Inc.  Benefits. The composite organization experienced the following benefits that represent those experienced by the interviewed and surveyed companies: o Capital cost avoidance. This benefit represents the capital costs avoidance associated with reduction of 650 TB of storage. o Reduction in expected staff growth. This benefit represents the savings associated with managing future headcount growth while the storage environment is rapidly growing. o Improved efficiency of existing IT staff. This benefit represents the reduction in administrative costs of managing storage compared to the prior environment. o Improving data availability to end users. This benefit represents improvement in system availability for end users.  Costs. The composite organization experienced the following costs: o Total software license and maintenance fees. This cost represents the investment in software licenses and support costs for SVC implementation.Page 2
  • 4. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume Controller o Total hardware and support costs. This cost represents the investment in hardware and its related support costs. o Internal implementation costs. This cost represents the internal resources used to support the implementation. o Administrative costs. This cost represents the ongoing administrative effort associated with the deployment of IBM SVC.Figure 1Composite Organization Three-Year Risk-Adjusted ROI $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 Risk‐adjusted  Costs breakeven point  Benefits $4,000,000 at 18 months $3,000,000 $2,000,000 $1,000,000 $0 Initial Year 1 Year 2 Year 3Source: Forrester Research, Inc.Factors Affecting Benefits And CostsTable 1 illustrates the risk-adjusted financial results that were achieved by the composite organization. The risk-adjusted values take into account any potential uncertainty or variance that exists in estimating the costs and benefits,Page 3
  • 5. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume Controllerwhich produces more conservative estimates. The following factors may affect the financial results that an organizationmay experience:  IT efficiency. Improvements in IT process efficiency are variable and are largely based on getting staff to change their behavior to the new environment. Possible factors that might affect the magnitude of the gains from IT efficiency include the staff skill set, what new tasks staff members are transferred to do, as well as the speed to implement the new solution.  Impact of availability. The overall benefit of improved availability will depend on the type of supported application as well as the productive value of the type and number of end users.  Capital cost impact. Reducing capital cost of storage is dependent in part on the current per terabyte cost of storage, the pre investment growth of storage, as well as how quickly the organization can move to the new environment.DisclosuresThe reader should be aware of the following:  The study is commissioned by IBM and delivered by the Forrester Consulting group.  Forrester makes no assumptions as to the potential return on investment that other organizations will receive. Forrester strongly advises that readers should use their own estimates within the framework provided in the report to determine the appropriateness of an investment in IBM System Storage SAN Volume Controller.  IBM reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester’s findings or obscure the meaning of the study.  The customers for the interviews were provided by IBM and an external third-party organization.Page 4
  • 6. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerTEI Framework And MethodologyIntroductionFrom the information provided in the interviews, Forrester has constructed a Total Economic Impact™ framework forthose organizations considering implementing IBM System Storage SAN Volume Controller. The objective of theframework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision.Approach And MethodologyForrester took a multistep approach to evaluate the impact that IBM System Storage SAN Volume Controller can haveon an organization (see Figure 2). Specifically, we:  Interviewed IBM marketing, sales, and consulting personnel and Forrester analysts to gather data relative to System Storage SAN Volume Controller and the marketplace for System Storage SAN Volume Controller.  Received primary data from a combination of in-depth customer interviews as well as a broader survey of customers who are currently using IBM System Storage SAN Volume Controller to obtain data with respect to costs, benefits, and risks.  Designed a composite organization based on characteristics of the interviewed and surveyed organizations (see Appendix A).  Constructed a financial model representative of the interviews using the TEI methodology. The financial model is populated with the cost and benefit data obtained from the interviews as applied to the composite organization.Figure 2TEI Approach Conduct Construct financial Perform due Design composite Write case customer model using TEI diligence organization study interviews frameworkSource: Forrester Research, Inc.Forrester employed four fundamental elements of TEI in modeling IBM/System Storage SAN Volume Controller’sservice: 1. Costs. 2. Benefits to the entire organization. 3. Flexibility.Page 5
  • 7. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume Controller 4. Risk.Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester’sTEI methodology serves the purpose of providing a complete picture of the total economic impact of purchasedecisions. Please see Appendix B for additional information on the TEI methodology.AnalysisInterview HighlightsIn-depth interviews were conducted for this study, involving representatives from: 1. A large regional US-based financial institution with more than $170 billion worth of assets managing over 1,600 retail branches and 2,800 ATMs. The organization services clients nationally and offers a full selection of technology-based banking channels including online, customer service centers, and the latest mobile devices. 2. A survey-based interview with 10 enterprise clients of SVC located within North America. These organizations had between 200 TB and 1,500 TB of storage within their environment and had been using the IBM SVC product for at least 12 months.Interactions with SVC clients uncovered the following characteristics which formed the basis of the financial model:  All of the interviewed organizations were large enterprise clients with at least 200 TB of primary storage within their environment prior to the investment in SVC. In most cases, storage assets and storage administrators were distributed across multiple geographical locations, increasing the complexity of the storage environment.  A common recurring theme across the interviewed organizations was the need to better react to increasing demands from business owners for increased storage. For many organizations, the storage volume was increasing roughly 15% to 30% per year, particularly for data-rich applications.  While these organizations struggled with the increased capital cost burden from the growth of storage, they also felt increased pressure to increase staff to manage the increasingly complex storage environment. However, many organizations could not effectively ramp staffing to meet the growth of storage either due to lack of skilled staff or budget cutbacks across the enterprise. As a result, organizations were faced with a growing storage environment that became less efficient to maintain over time while they were also unable to increase staff.  Organizations invested in SVC to improve the efficiency and effectiveness of their IT storage environment. SVC allowed organizations to improve the efficiency of their existing staff while at the same time better manage the demand for additional staffing resources as the demand for storage capacity grew. Organization could perform specific storage administrator functions including provisioning new storage, storage maintenance, as well as scheduled and unscheduled backups and recovery more efficiently with SVC.Page 6
  • 8. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume Controller  In terms of improved effectiveness, organizations could now better control and manage storage capacity, reducing spiraling upward trends around storage growth and allowing the organization to postpone future investments in storage assets. Organizations can better utilize existing storage through SVC’s thin provisioning features.  While the interviewed organizations did note a positive return from their investment, the decision to go ahead with SVC was not without risk. In particular, organizations noted the importance of effective planning and change management within storage environment to realize benefits quickly and demonstrate value rapidly in an environment of ongoing cost-cutting.Composite OrganizationBased on in-depth interviews with an existing customer provided by IBM and surveys of 10 customers using IBM SVC,Forrester constructed a TEI framework, a composite company, and an associated ROI analysis that illustrates the areasfinancially affected. The composite organization that Forrester synthesized from these results represents a largeorganization with 5,000 employees that is managing more than 4 PB of data. The organization deployed IBM SVC tobetter manage its growing storage needs.Framework AssumptionsTable 2 provides the model assumptions that Forrester used in this analysis.Table 2Model Assumptions Ref. Metric Calculation Value A1 Hours per week 40 A2 Weeks per year 52 A3 Hours per year (M-F, 9-5) A1*A2 2,080 A5 Average fully loaded salary of storage administrator $120,000 A6 Fully loaded hourly rate of storage administrator (A5/A3) $58 A7 Average fully loaded salary of end user $100,000 A8 Fully loaded hourly rate of end user (A7/A3) $48Source: Forrester Research, Inc.The discount rate used in the PV and NPV calculations is 10% and time horizon used for the financial modeling is threeyears. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers arePage 7
  • 9. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume Controllerurged to consult with their respective company’s finance department to determine the most appropriate discount rateto use within their own organizations.CostsThis section describes and lists the costs related to planning, testing, and implementing IBM SVC over the three-yearperiod. Cost consumptions are based on detailed interviews with an organization using IBM SVC and a surveycompleted with 10 existing IBM SVC customers. All costs are based on list prices and recommended vendor discount.These costs do not include any negotiated discounts. The following cost model for the composite organization serves asa framework for other organizations.Total Software License And Maintenance FeesThis category represents 79% of the overall investment. There are three components to the software costs: base systemsoftware, FlashCopy, and Remote Mirror. IBM recommends 45% as a representative vendor discount for softwarepurchased for this investment. The software maintenance costs for Year 1 are included in the initial software licensingcost. The maintenance cost starts in Year 2 and equates to 20% of the software license list price. Table 3 illustrates thecalculation.Table 3Total Software License And Maintenance Fees Ref. Metric Calculation Initial Year 1 Year 2 Year 3 B1 Base pricing $1,056,000 $0 $211,200 $211,200 B2 FlashCopy — source only $356,224 $0 $71,245 $71,245 Remote Mirror — source and B3 $682,083 $0 $136,417 $136,417 target Total software license and Bt B1+B2+B3 $2,094,307 $0 $418,862 $418,862 maintenance feesSource: Forrester Research, Inc.Total Hardware And Support CostsThis category represents 6% of the overall investment in IBM SVC. It includes hardware costs and related maintenancecosts for SVC engines without SSD. IBM recommends 45% as a representative vendor discount for hardware purchasedfor this investment. Table 4 presents the calculation.Page 8
  • 10. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerTable 4Total Hardware And Support Costs Ref. Metric Calculation Initial Year 1 Year 2 Year 3 C1 Hardware $154,000 $0 $30,800 $30,800 Total hardware and Ct C1 $154,000 $0 $30,800 $30,800 support costsSource: Forrester Research, Inc.Internal Implementation CostsThe next component of costs is internal implementation costs. It describes the internal resources required to plan andimplement IBM SVC. During this phase, the organization used the equivalent of three full-time resources allocated 30%of their time to planning, testing, and implementation. The organizations interviewed and surveyed used SVC tosimplify their storage environment and eliminate downtime resulting from outdated equipment. This categoryrepresents 3% of the overall investment. Table 5 illustrates the calculation.Table 5Internal Implementation Costs Ref. Metric Calculation Per period D1 Number of people 3 D2 Average fully loaded hourly rate $120,000 D3 Percent of time spent 30% Dt Internal implementation costs D1*D2*D3 $108,000Source: Forrester Research, Inc.Temporary Administrative SupportThe final category of costs represents the temporary resources to manage hardware migration. It represents 12% of theoverall investment. Organizations interviewed used equivalent of two full-time contractors for two years to supportplanning, testing, and deployment. These individuals were tasked to provision new hardware and decommission oldhardware. Table 6 presents this calculation.Page 9
  • 11. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerTable 6Temporary Administrative Costs Ref. Metric Calculation Initial Year 1 E1 Number of people 2 E2 Hourly rate per person $110,000 Et Temporary administrative costs E1*E2 $220,000 $220,000Source: Forrester Research, Inc.Total CostsTable 7 summarizes costs associated with the implementation of IBM SVC.Table 7Total Costs — Non-Risk-Adjusted Present Costs Initial Year 1 Year 2 Year 3 Total value Total software license and ($2,094,307) ($418,862) ($418,862) ($2,932,029) ($2,755,170) maintenance fees Total hardware and support costs ($154,000) ($30,800) ($30,800) ($215,600) ($202,595) Internal implementation costs ($108,000) ($108,000) ($108,000) Temporary administrative costs ($220,000) ($220,000) ($440,000) ($420,000) Total costs ($2,576,307) ($220,000) ($449,662) ($449,662) ($3,695,629) ($3,485,765)Source: Forrester Research, Inc.BenefitsThe benefits that we had sufficient data to quantify financially were: 1) capital cost avoidance; 2) reduction in expectedstaff growth; 3) improved efficiency of existing staff; and 4) improved data availability to end users. These benefitsrepresent business and IT operating savings and capital savings that represented a three-year risk-adjusted PV of$6,151,813. Readers should note that these benefits represent the values that the interviewed and surveyed organizationsreceived from deployment of IBM SVC.Page 10
  • 12. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerCapital Costs AvoidanceCustomers interviewed have been able to decommission as much as 650 TB of storage or 15% of overall storage as aresult of freeing up unused capacity as well as reducing growth of storage within their environment. For existing assets,organizations indicated improved flexibility to increase capacity utilization within the storage pool, using existingstorage more efficiently rather than purchasing new storage. In addition, improved flexibility allows organizations tocontrol their storage growth by rightsizing their environment to the storage needs of current applications. This capitalsavings over three years of investment equates to roughly $5,000,000 driven by an improvement of capacity utilizationof between 20% and 30% as well as a yearly reduction in the growth of storage by on average 15%. The savings includeshardware costs savings and resources required to manage and provision. Table 8 illustrates this calculation. Thiscategory represents 62% of the overall benefits.Table 8Capital Costs Avoidance Ref. Metric Calculation Year 1 Year 2 Year 3 Capital cost avoided associated with F1 $1,000,000 $1,500,000 $2,500,000 decommissioned terabytes of storage Ft Capital costs avoidance F1 $1,000,000 $1,500,000 $2,500,000Source: Forrester Research, Inc.Reduction In Expected Staff GrowthOrganizations interviewed and surveyed have shown double-digit growth in the volume of data that they are managingwhile keeping their staff size flat. In the pre-SVC environment, organizations struggled to keep up with data growth,resulting in the need to increase staff at the same rate as data. The increase in staff was necessary to manage theescalation in physical storage equipment.After implementing SVC, its virtualization capability enabled the organizations to better manage capacity between theirprimary and secondary storage environment. These organizations were able to manage physical storage equipment ofdifferent brand through a single source. It allowed storage administrators to manage and control a greater share ofstorage per staff member over a multiple locations. As a result, the organization did not have to hire additional staff atthe same rate as the baseline data growth.To estimate this saving for the composite organization, we assume that the organization would have been required tohire five people in various IT roles to manage the growth within the storage environment. The reduction in staff growthisn’t limited to storage administrators and will include staff who would be involved in planning, provisioning, andongoing management. Table 9 demonstrates the calculation used. This category represents 23% of the overall benefits.Page 11
  • 13. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerTable 9Reduced Staff Growth Ref. Metric Calculation Yearly G1 Number of workers saved 5 G2 Annual fully loaded salary $120,000 Reduction in expected staff Gt G1*G2 $600,000 growthSource: Forrester Research, Inc.Improved Efficiency Of Existing StaffIn addition to trimming the growth of staff, organizations also noted their existing storage administration staff wasmade more efficient through the use of SVC tools. For example, the use of thin provisioning features allowed staff toreduce the time it took to make changes or updates to the storage environment.For the composite organization, we estimate that 10 IT staff members with fully loaded annual salary of $120,000allocated 70% of their time to provisioning and ongoing management. Interviewed and surveyed organizations citedthat their teams experienced 26% in staff efficiency improvement as compared to the prior environment. To remainconservative, we estimate that the organization realized 50% of benefits in Year 1, 75% in Year 2, and 100% in Year 3.Table 10 exhibits this calculation. This category represents 7% of the overall benefits.Table 10IT Productivity Savings Ref. Metric Calculation Initial Year 2 Year 3 H1 Number of workers 10 10 10 H2 Annual fully loaded salary $120,000 $120,000 $120,000 Percent of time allocated to H3 provisioning and ongoing 70% 70% 70% management Percent improvement in staff H4 efficiency compared with 26% 26% 26% previous environment H5 Percent of benefit realized 60% 100% 100% Improved efficiency of Ht H1*H2*H3*H4*H5 $131,040 $218,400 $218,400 existing staffPage 12
  • 14. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerSource: Forrester Research, Inc.Improving Data Availability To End UsersWith increased complexity within the storage environment, another area affected by the investment in SVC was backupand recovery of data. Interviewed organizations noted that with the increase in data growth, the time to performscheduled backups increased at a constant rate. For many organizations, having storage across multiple geographiescompounded the time and effort to perform scheduled backups. In particular, several organizations noted that many ofthe actual backups went beyond the expected backup windows, impacting the productivity of users accessing data.Several organizations noted that using SVC to virtualize has improved availability of data access to applications.Organizations interviewed cited the ability to move application data between storage resources within a virtualizedenvironment without having to take the application offline has significantly reduced downtime. By maintainingapplication availability to storage resources, organizations were able to maintain consistently high levels of uptimeversus the environment prior to SVC.For the composite organization, we estimate on average 1,500 employees at a fully loaded hourly rate of $48experienced 20 hours of downtime annually prior to the investment in SVC. This downtime was specifically a result ofincreasing backup and recovery windows. The downtime affected end users’ ability to access data and reduced systemavailability. Data from interviews and surveys revealed that organizations’ ability to get new storage capacityoperational has improved by 17% as compared to the prior environment. Table 11 illustrates the calculation. Thiscategory represents 8% of the overall benefits.Table 11Improving Data Availability To End Users Ref. Metric Calculation Initial Year 2 Year 3 I1 Total number of employees 1,500 1,500 1,500 I2 Average fully loaded hourly rate $48 $48 $48 Average time spent on backup I3 20 20 20 and recovery Percent improvement to get new storage capacity I4 17% 17% 17% operational faster as compared to previous environment I5 Percent of benefit realized 60% 100% 100% It Improving data availability to G1*G2*G3*G4 $146,880 $244,800 $244,800Page 13
  • 15. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume Controller end usersSource: Forrester Research, Inc.Total BenefitsTable 12 summaries the total quantitative benefits associated with implementation of IBM SVC.Table 12Total Benefits — Non-Risk-Adjusted Benefits Year 1 Year 2 Year 3 Total PV Capital costs avoidance $1,000,000 $1,500,000 $2,500,000 $5,000,000 $4,027,047 Reduction in expected staff $600,000 $600,000 $600,000 $1,800,000 $1,492,111 growth Improved efficiency of existing $131,040 $218,400 $218,400 $567,840 $463,710 staff Improving data availability to $146,880 $244,800 $244,800 $636,480 $519,763 end users Total benefits $1,877,920 $2,563,200 $3,563,200 $8,004,320 $6,502,632Source: Forrester Research, Inc.FlexibilityAs defined by Forrester, flexibility represents an investment in additional capacity or capability that could be turnedinto business benefit for some future additional investment. This provides an organization with the “right” or the abilityto engage in future initiatives but not the obligation to do so. There are multiple scenarios in which a customer mightchoose to implement SVC and later realize additional uses and business opportunities. Flexibility would also bequantified when evaluated as part of a specific project (described in more detail in Appendix A).If the following metrics are available — the asset value by measuring the benefits (that is, costs avoided or saved,revenue generated, and/or capital saved), the costs to acquire the solution, and the number of years to measure theinvestment — we can estimate the flexibility option by using the Black-Scholes option pricing model.Page 14
  • 16. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerTable 13Flexibility Benefit Framework Metric CalculationAsset value (benefit) IT or business costs avoided, revenue generated, capital savedCost to acquire option Planning and discovery, subscription, and annual maintenance are examples of costs to considerExpiration Time-to-expire (in years)Flexibility Black-Scholes option pricing modelSource: Forrester Research, Inc.RiskForrester defines two types of risk associated with this analysis: implementation risk and impact risk. “Implementationrisk” is the risk that a proposed investment in IBM System Storage SAN Volume Controller may deviate from theoriginal or expected requirements, resulting in higher costs than anticipated. “Impact risk” refers to the risk that thebusiness or technology needs of the organization may not be met by the investment in SAN Volume Controller,resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for costand benefit estimates.Quantitatively capturing investment and impact risk by directly adjusting the financial estimates results in moremeaningful and accurate estimates and a more accurate projection of the ROI. In general, risks affect costs by raisingthe original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should betaken as “realistic” expectations since they represent the expected values considering risk.The following implementation risks that affect costs are identified as part of this analysis:  The implementation costs could vary based on the internal skill set and competencies.  The implementation costs could take longer than anticipated due to lack of planning and testing of the solution.The following impact risks that affect benefits are identified as part of the analysis:  The improvement in administrative effort could vary depending on the prior infrastructure and virtualization effort.  The amount of excess capacity reclaimed and the level of storage growth reduced could be lower than originally anticipated, leading to reduced storage cost savings.  The level of downtime reduced could be lower than originally anticipated.Page 15
  • 17. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerTable 14 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates. The TEI model uses atriangular distribution method to calculate risk-adjusted values. To construct the distribution, it is necessary to firstestimate the low, most likely, and high values that could occur within the current environment. The risk-adjusted valueis the mean of the distribution of those points. Readers are urged to apply their own risk ranges based on their owndegree of confidence in the cost and benefit estimates.Table 14Cost And Benefit Risk Adjustments Most Costs Low High Mean likely Total software license and maintenance fees 98% 100% 105% 101% Total hardware and support costs 98% 100% 105% 101% Internal implementation costs 98% 100% 105% 101% Administrative costs 98% 100% 105% 101% Most Benefits Low High Mean likely Capital cost avoidance 80% 100% 103% 94% Reduction in expected staff growth 80% 100% 103% 94% Improved efficiency of existing staff 90% 100% 105% 98% Improving data availability to end users 90% 100% 105% 98%Source: Forrester Research, Inc.Readers are urged to apply their own risk ranges based on their own degree of confidence in the cost and benefitestimates.Page 16
  • 18. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerFinancial SummaryThe financial results calculated in the Costs and Benefits Sections can be used to determine the return on investment,net present value, and payback period for the organization’s investment in SAN Volume Controller. These are shown inTable 15 below.Table 15Cash Flow — Non-Risk-Adjusted Categories Initial Year 1 Year 2 Year 3 Total PV Costs ($2,576,307) ($220,000) ($449,661) ($449,661) ($3,695,629) ($3,485,765) Benefits $1,877,920 $2,563,200 $3,563,200 $8,004,320 $6,502,632 Net benefits ($2,576,307) $1,657,920 $2,113,539 $3,113,539 $4,308,691 $3,016,867 ROI 87% Payback period 17 monthsSource: Forrester Research, Inc.Table 16 below shows the risk-adjusted ROI, NPV, and payback period values. These values are determined by applyingthe risk-adjustment values from Table 14 in the Risk section to the cost and benefits numbers in Tables 7 and 12.Table 16Cash Flow — Risk-Adjusted Categories Initial Year 1 Year 2 Year 3 Total PV Costs ($2,602,070) ($222,200) ($454,158) ($454,158) ($3,732,585) ($3,520,622) Benefits $1,776,362 $2,427,936 $3,367,936 $7,572,234 $6,151,813 Net benefits ($2,602,070) $1,554,162 $1,973,778 $2,913,778 $3,839,648 $2,631,191 ROI 75% Payback period 18 monthsSource: Forrester Research, Inc.Page 17
  • 19. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerIBM System Storage SAN Volume Controller: OverviewSAN Volume Controller is a storage virtualization system that enables a single point of control for storage resources tohelp support improved business application availability and greater resource utilization. The objective is to managestorage resources in the IT infrastructure and to make sure they’re used to the advantage of business — and do itquickly, efficiently, in real time, while avoiding increases in administrative costs.SAN Volume Controller provides an easy-to-use graphical interface for central management. With this single interface,administrators can perform configuration, management and service tasks in a consistent manner over multiple storagesystems, even from different vendors, which help to improve productivity.Because it hides the physical characteristics of storage from host systems, SAN Volume Controller is designed to helpinsulate host applications from physical changes to the storage pool. This ability can help applications continue to runwithout disruption while changes are made to the storage infrastructure, which can help businesses increase availabilityto customers.Storage and server virtualization are complementary technologies that help enable organizations to build a completelyvirtualized infrastructure. When used together, server and storage virtualization are intended to enable businesses toderive greater benefit from each technology than if they deployed them alone.Appendix A: Composite Organization DescriptionFor this TEI study, Forrester has created a composite organization to illustrate the quantifiable costs and benefits ofimplementing System Storage SAN Volume Controller. The composite company is intended to represent a largeorganization with 5,000 employees and is based on characteristics of the interviewed and surveyed customers.The composite company has more than 4 PB of storage existing within the environment. In purchasing System StorageSAN Volume Controller, the composite company had the following objectives:  Manage disparate storage assets. Use a single management platform to reduce the cost around storage growth and improve the efficiency of storage administrators, while at the same time maintaining high levels of availability for end user applications.  Improve existing storage capacity utilization. As their storage environments grew, the capital cost required to increase physical storage space increased. Interviewed and surveyed organizations also saw the need to pool their existing resources through virtualization, allowing them to better maximize the use of their existing assets by having the flexibility to shift data to less costly resources.  Pressure to do more with existing staff. Another common theme among the interviewed organizations was the need to control storage administration costs with increasing amount of storage under management. Storage virtualization allowed the interviewed organizations to centralize their storage administration leading to higher levels of efficiency.Page 18
  • 20. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume ControllerFor the purpose of the analysis, Forrester assumes that the organization had invested in SVC as part of an overallinitiative to contain the overall costs of storage management while increasing the availability and scalability of primaryand secondary storage.Appendix B: Total Economic Impact™ OverviewTotal Economic Impact is a methodology developed by Forrester Research that enhances a company’s technologydecision-making processes and assists vendors in communicating the value proposition of their products and servicesto clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives toboth senior management and other key business stakeholders.The TEI methodology consists of four components to evaluate investment value: benefits, costs, risks, and flexibility.BenefitsBenefits represent the value delivered to the user organization — IT and/or business units — by the proposed productor project. Often product or project justification exercises focus just on IT cost and cost reduction, leaving little room toanalyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial modelplace equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect ofthe technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the userorganization to understand the specific value that is created. In addition, Forrester also requires that there be a clear lineof accountability established between the measurement and justification of benefit estimates after the project has beencompleted. This ensures that benefit estimates tie back directly to the bottom line.CostsCosts represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the businessunits may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all theinvestments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI capturesany incremental costs over the existing environment for ongoing costs associated with the solution. All costs must betied to the benefits that are created.RiskRisk measures the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measuredin two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections, and 2) the likelihoodthat the estimates will be measured and tracked over time. TEI applies a probability density function known as“triangular distribution” to the values entered. At minimum, three values are calculated to estimate the underlyingrange around each cost and benefit.FlexibilityWithin the TEI methodology, direct benefits represent one part of the investment value. While direct benefits cantypically be the primary way to justify a project, Forrester believes that organizations should be able to measure thePage 19
  • 21. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume Controllerstrategic value of an investment. Flexibility represents the value that can be obtained for some future additionalinvestment building on top of the initial investment already made. For instance, an investment in an enterprisewideupgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reducelicensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated.The collaboration can only be used with additional investment in training at some future point in time. However,having the ability to capture that benefit has a present value that can be estimated. The flexibility component of TEIcaptures that value.Appendix C: GlossaryDiscount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although theFederal Reserve Bank sets a discount rate, companies often set a discount rate based on their business and investmentenvironment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discountrates between 8% and 16% based on their current environment. Readers are urged to consult their respectiveorganization to determine the most appropriate discount rate to use in their own environment.Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (thediscount rate). A positive project NPV normally indicates that the investment should be made, unless other projectshave higher NPVs.Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate(the discount rate). The PV of costs and benefits feed into the total net present value of cash flows.Payback period: The breakeven point for an investment. The point in time at which net benefits (benefits minus costs)equal initial investment or cost.Return on investment (ROI): A measure of a project’s expected return in percentage terms. ROI is calculated bydividing net benefits (benefits minus costs) by costs.A Note On Cash Flow TablesThe following is a note on the cash flow tables used in this study (see the example table below). The initial investmentcolumn contains costs incurred at “time 0” or at the beginning of Year 1. Those costs are not discounted. All other cashflows in Years 1 through 3 are discounted using the discount rate (shown in Framework Assumptions section) at theend of the year. Present value (PV) calculations are calculated for each total cost and benefit estimate. Net present value(NPV) calculations are not calculated until the summary tables and are the sum of the initial investment and thediscounted cash flows in each year.Appendix D: EndnotesPage 20
  • 22. Forrester ConsultingTotal Economic Impact™ IBM System Storage SAN Volume Controller1 Forrester risk-adjusts the summary financial metrics to take into account the potential uncertainty of the cost andbenefit estimates.Page 21

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