Evaluating the TCO and ROI of an Intranet Portal

INSIDE

INTRODUCTION

1 Key Figures

2 Bitrixreg Intranet stands up and stands out

3 Total Cost of Ownership (TCO)

31 Implementation Costs

32 Maintenance Costs

33 Summary of TCO Estimations for Different Companies

34 Evaluating Risk-adjusted TCO

35 Summary of TCO Risk Adjusted Values

4 Return On Investment (ROI)

41 ROI Case Studies

42 Evaluating Bitrix Intranetrsquos ROI

43 Other Economic Metrics (IRR NPV)

5 CONCLUSION

2

3

5

6

7

10

13

14

15

16

16

18

20

23

White Paper

EXECUTIVE SUMMARY

Intranets are of great benefit to any organization in terms of improving in-ternal communications and collaboration performance tracking and staff awareness and motivation However a customer may find confusing the stunning number of offerings that differ in functionality licensing and prices Leaving aside other business advantages the key element to consider when buying a social collaboration solution is understanding its real cost Not the price of software acquisition but the total cost of ownership (TCO) including all associated expenses giving a comprehensive look how much the solution truly costs in the long-term Despite the debates surrounding intranet TCO this white paper provides a practical approach to assessing an intranetrsquos key financial indicators and offers an free online calculator that confirms that an intranet is a profitable IT investment that pays off in a 2-3 year horizon

This white paper has tweetable references To tweet the content simply click the button wherever it appearstweet

Evaluating the TCO and ROI of an Intranet Portal2

While striving for innovations and technology they forget about the custom-errsquos fundamental needs Most customers have no particular desire to know about the technology or standards a developer utilizes in their products The two questions of the greatest concern for a client are obviously how much the system will cost and what the return on investment will be

These two questions have been under discussion for years concerning most types of software products The stumbling block is usually the lack of agree-ment concerning the methodology of measurement of financial indicators Indeed this should be expected since every single implementation of an IT system occurs in a unique business and IT environment

The intranet portal market did not escape this difficulty In fact dissent in this sector is possibly even more discordant than in others given the multifaceted nature of the product Just as a brief example portal vendors prefer to rely on empirical conclusions speculating quite reasonably that efficiency brings fi-nancial benefit This implies an lsquoideal customerrsquo who will indeed benefit from all the features included Customers driven by the urgent need to solve one or two issues may end up comparing highly disparate products like a point solution and a full-featured portal overlooking quite a lot of real value in the process

This whitepaper depicts the Bitrix approach to measuring and calculating the two principal financial indicators of an intranet project TCO (Total Cost of Ownership) and ROI (Return on Investment) Other things being equal we believe that this approach based upon generalized constructions that are consistence with the experience of our clients adheres to common sense and can be applied to real life Our approach is especially applicable to small and medium-sized companies the segments which comprise the majority of Bitrixrsquo customers

The first-tier audiences for this research are people who are in charge of initiating intranet development projects CEOrsquos and financial and IT directors Furthermore technicians will find it useful for better understanding of the economical aspects of system implementation or proving financial benefit when presenting Bitrix Intranet to management We have developed and im-plemented a web-based version of a TCOROI calculator for the Bitrix Intranet according to the methodology elaborated in this work The calculator is avail-able here

INTRODUCTION

Many companies involved in development and de-ployment of information systems including intranet portals are still making the same mistake over and over again

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Evaluating the TCO and ROI of an Intranet Portal3

bull Bitrix Intranetrsquos TCO (total cost of ownership) over a three-year time period ranges between $22016 (25 users) to $198807 (1000 users)1 The value of TCO per user decreases dramatically as the scale of implementa-tion grows

Scale IndicatorMoment of installation

Year 1 Year 2 Year 3 Total

25 usersTCO 5606 6233 4964 5213 22016

TCO per user 224 249 199 209 881

50 usersTCO 8343 8828 7097 7452 31720

TCO per user 167 177 142 149 634

100 usersTCO 13371 12622 10384 10903 47280

TCO per user 134 126 104 109 473

250 usersTCO 27368 20574 17846 18738 84526

TCO per user 109 82 71 75 338

500 usersTCO 49550 30214 27753 29140 136657

TCO per user 99 60 56 58 273

1000 usersTCO 72510 45074 39621 41602 198807

TCO per user 73 45 40 42 199

bull Investment return (economy) after the installation of Bitrix Intranet over a three-year time period varies from $37239 (25 users) to $1489556 (1000 users)2 Because we base this measurement exclusively on time saved value per user remains constant regardless of the scale of implementation

Scale IndicatorMoment of installation

Year 1 Year 2 Year 3 Total

25 users TCO ndash 11813 12403 13023 37239

50 users TCO ndash 23625 24806 26047 74478

100 users TCO ndash 47250 49613 52093 148956

250 users TCO ndash 118125 124031 130233 372389

500 users TCO ndash 236250 248063 260466 744778

1000 users TCO ndash 472500 496125 520931 1489556

KEY FIGURES FOR BITRIX INTRANET PORTAL

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This research includes three main parts

bull Sections 1 and 2 give quantitative and qualitative information about the Bitrix Intranet its features and advantages

bull Section 3 introduces the methodology of evaluating an in-tranetrsquos total cost of ownership and gives an example of calcu-lation of TCO

bull Section 4 gives a review of existing approaches to estimation of ROI and shows examples of calculation of this and other financial indicators (NPV IRR)

1 If a company conforms to reference parameters (Salary Upkeep etc) Read more

2 On the stipulation that portal implementation will save each employee 3 minutes of working time daily

All values shown in USD

1

Evaluating the TCO and ROI of an Intranet Portal4

bull Bitrix Intranet is exceptional in the intranet market as an economically sound solution for organizations of almost any size The three-year ROI is between 69 and 649 IRR comes in at 100 to 594

Scale IndicatorMoment of installation

Year 1 Year 2 Year 3

25 users

TCO USD 5606 11839 16803 22016

ROI 0 44 69

IRR 0 75 100

NPV USD -5606 -292 6455 13202

50 users

TCO USD 8343 17171 24268 31720

ROI 38 100 135

IRR 77 159 181

NPV USD -8343 5750 21812 37875

100 users

TCO USD 13371 25993 36377 47280

ROI 82 166 215

IRR 159 244 263

NPV USD -13371 19608 55190 90771

250 users

TCO USD 27368 47942 65788 84526

ROI 146 268 341

IRR 256 344 360

NPV USD -27368 65538 161851 258164

500 users

TCO USD 49550 79764 107516 136657

ROI 196 350 445

IRR 316 404 419

NPV USD -49550 146675 346503 546330

1000 users

TCO USD 72510 117584 157205 198807

ROI 302 516 649

IRR 489 582 594

NPV USD -72510 334562 748625 1162688

bull For any organization with 50 or more users Bitrix Intranet will pay for itself as early as one year after launch

bull Even for a 25-user company Bitrix Intranet will pay for itself within a three-year period if the users save a very modest 2 minutes of working time per day Companies with over 100 users will need to show just one minute of savings per day to pay off the investment

Scale

Minimum efficient time saving

Moment of instal-lation

Year 1 Year 2 Year 3

25 users ndash 301 208 177

50 users ndash 218 150 128

100 users ndash 165 113 095

250 users ndash 122 082 068

500 users ndash 101 067 055

1000 users ndash 075 049 040

Evaluating the TCO and ROI of an Intranet Portal5

The system utilizes common web technologies used in the Internet today but adapted for internal business operations Simply speaking an intranet portal is analogous to the companyrsquos website but for internal functions not external

In the current business environment intranet portals have become standard equipment in companies with a critical mass of network users meriting imple-mentation According to an estimate by IDC3 the worldwide intranet portal market has stepped over the $1 billion mark and is going to reach $15 billion by 2011 Moreover the market has shown growth even through the global fi-nancial crisis there are new vendors appearing while the pioneers have been increasing sales

This trend is clearly brought on by the value created by an intranet Simply looking at one of the single most basic functions of an Intranet file sharing value is readily apparent for anyone who has looked through several different shared folders searching for the most recent copy of a document or had to make sure that all employees are aware of the most recent policies current advertising campaigns or standard operating procedures Just this single fea-ture saves a noticeable amount of time and a high-end intranet brings much much more to the table

Despite this positive trend there are a number of factors which can delay the implementation of an intranet portal ndash a condition which is always true of new technologies whether they are replacing old technologies or pushing the frontier In the case of intranet portals some of the main factors are initial cost maintenance expenses compatibility with legacy infrastructure and of course the question of what is that critical mass the cut-off point at which an intranet becomes a worthwhile investment

Bitrix Intranet stands out in the arena for its approach to these issues As an out-of-the-box software product it allows set-up of a fully functional intranet portal in shortest time possible with as little assistance from IT specialists as possible The ease of operation and integration rich functionality and low total cost of ownership come together to make Bitrix Intranet the ideal solu-tion for small businesses much more advantageous than many cumbersome corporate platforms or expensive ready-to-go solutions Nonetheless Bitrix Intranet supports the full spectrum of business communication technologies and features toolsets which surpass these competitors in most cases all without massive monetary investments

Bitrix Intranet is based on the peerless Bitrix Platform ndash a leading content management system that powers over 50000 websites worldwide

Properly executed an intranet is a solution for communication teamwork and information exchange within a company that provides each employee with a high-performance workplace to motivate increase productivity and concentrate knowledge

BITRIXreg INTRANET STANDS UP AND STANDS OUT

2

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3 IDC Worldwide Enterprise Portal Software 2007-2011 Forecast Update Read more

Evaluating the TCO and ROI of an Intranet Portal6

We shall use a TCO methodology which was first introduced by Gartner back in 19874 The idea behind it is as simple as possible calculation of all possi-ble costs a company could bear during the system life cycle

A carefully-reasoned methodology requires a clear classification of these expenditures According to the definition freely available in Wikipedia5 they can be grouped into explicit and implicit expense items Both the explicit and implicit expenditures can be one-time (generally at the time of install) or peri-odic (occurring afterwards) In analysis of the TCO of Bitrix Intranet herein the distinction between occasional and periodic expenses is given priority over explicit and implicit expenses as far as displaying the data

Thus a standard evaluation of an IT systemrsquos TCO includes the following steps

bull Assessment of implementation costs paid by the customer be-fore the system is put into operation These are one-time expens-es which can be regarded as an initial investment

bull Assessment of maintenance costs (periodic expenditures) Though these kinds of expenditures may seem less important they can exceed implementation costs significantly especially over several years This research considers a three-year horizon for maintenance costs

bull Finally estimations are adjusted for implementation risks The purpose of the adjustment is to reduce inaccuracy which arises from possible implementation delays (which are nearly inevitable as practice shows) Itrsquos worth mentioning that only the implicit expenditures require adjustment because the explicit costs are predetermined and rarely change

The analytical method developed below is shown as functions of a set of param-eters thus making the approach nearly universal and allowing evaluation of TCO for virtually any company regardless of industry sector or scale This methodol-ogy is available in an online calculator on the Bitrix website which can be used to calculate key financial indicators by providing the required input parameters

Sections 31ndash33 show the estimation of main expenditures for Bitrix Intranet

The first step in estimat-ing the profitability of any project is to evaluate costs required for the system ownership and use

TOTAL COST OF OWNERSHIP (TCO)3

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4 About Gartner TCO Read more

5 Read more

Total cost of ownership (TCO) is a financial estimate whose purpose is to help organizations determine direct and indi-rect costs of a product When incorporated in any financial benefit analysis TCO provides a cost basis for determining the economic value of an investment

Evaluating the TCO and ROI of an Intranet Portal7

6 Bitrix Intranet supports VMwareб Hyper-V Virtuozzo and Amazon EC2 virtualization technologies This allows the system to share the same hardware on which an e-mail server proxy server andor website is installed

TABLE 1 The Bitrix Intranet pricelist

31 Implementation Costs

In a general case implementation costs include the following main expendi-ture items

bull Software license(s) This is an explicit expenditure and is defined by the cost of the software license required for the solution de-ployment Additionally this item may include the cost of infra-structure software (if using additional commercial products)

bull Hardware This is also an explicit expenditure and is defined by the current market price for the required server hardware This item might be irrelevant for customers which already have adequate hardware to run the intranet portal6 Here we assume that a new server is going to be purchased for the deployment of Bitrix Intranet

bull System setup and configuration This is an implicit expenditure The total cost is determined using the time required by IT special-ists to install the system and complete initial configuration It is important not to include content creation and system mainte-nance costs here

bull System testing and content population These are implicit expen-ditures The total cost is determined by the time required to test and initialize the system

bull Training and education This implicit expenditure is determined by the time required for system users to get acquainted with the system functions and features Since the user interface is highly intuitive and the online training courses included inside the soft-ware product this eliminates the need for expensive training with an instructor

311 Software Licenses

Table 1 shows the current Bitrix Intranet pricelist To evaluate TCO we are using the Office edition because it includes all the features small and medium companies require in the majority of cases

Bitrix Intranet License Price

25-user base pack $1799

Additional user $40

Unlimited user license $20799

Evaluating the TCO and ROI of an Intranet Portal8

7 This calculation presumes that Bitrix Intranet is installed on a free infrastructure software (aka LAMP Linux Apache MySQL PHP) When using the Microsoft platform add the costs for Windows Server MS SQL and MS IIS You will get a precise indication for this software from an authorized Microsoft retailer or distributor

8 Larger project implementations would require a special evaluation according to the customerrsquos IT infrastructure details

TABLE 2 Examples of Bitrix Intranet license prices

TABLE 3 Hardware costs for different organizations

Thus the total amount of this item is (in USD)

(1) License Costs = 1 799 + (Users ndash 25) x 40

where Users is the number of system users

The formula (1) is valid if Users is over 25 and less than 500 If the number of intranet users is below or above the range specified the license price is fixed $1799 or $20799 respectively7

Users 25 50 100 250 500 1000

License price (USD) 1799 2799 4799 10799 20799 20799

312 Hardware

Bitrix Intranet has modest hardware requirements The platform performance has been proven by tens of thousands of heavily trafficked sites as well as special performance tests Notably to serve small organizations the system can be installed on an ordinary office computer rather than a pricey dedicated server

Generally the cost of hardware is directly dependent on the scale of imple-mentation According to an evaluation done by Bitrix engineers these ex-penses can vary from $1000 to $10000 depending on the number of users and the system load The maximum figure ($10000) corresponds to relatively large-scale projects in organizations with 3000 or more users8 A simple lin-ear model can be used to evaluate the cost of hardware

(2) Hardware Costs = 1000 + Users x 3

where Users is the number of intranet users

Users 25 50 100 250 500 1000

License price (USD) 1799 2799 4799 10799 20799 20799

This evaluation is subject to correction according to the customerrsquos demands or specific IT policy

313 System Setup Configuration and Testing Content Population

As previously mentioned the cost of preparatory work is implicit and hence be calculated using time spent To calculate this expenditure item we need to estimate the work time and the unit cost (the cost of a man-hour)

Evaluating the TCO and ROI of an Intranet Portal9

9 Strictly speaking the salary of IT personnel (namely the employees to deploy the system) may differ from the average value significantly This research uses a simplified approach and assumes equal compensation of all the portal users

Determining the unit cost is relatively simple It is derived from the total cost of an employee This is a product of gross salary and maintenance expendi-tures (rent office furniture and hardware stationery training etc) ndash the so-called upkeep coefficient The practical formula is as follows (3)

(3) Employee Cost = Salary x Upkeep

where Salary is the average wage of the co1mpanyrsquos employees9 and Upkeep is a coefficient which experience shows to be between 15 and 3

Now we need to estimate the time involved It is obvious that the main fac-tor here is the project complexity which is hard to measure for an abstract organization The only concrete metrics would be the size of an organization in this case ndash the number of intranet users

As speculated by Bitrix specialists the best model to derive the time inputs from the number of users is an exponential function with a factor of 12 that is the square root This model surmises that for example increasing the number of users four times will raise the time costs twice The following for-mula represents the formalization of this approach

(4) Configuration Costs (man-hours)=k x radicUsers

where Users is the number of intranet users k is a normalizing factor

The k factor here is an empirically derived figure which closely approximates cumulative data from successfully completed projects According to our research the system setup and configuration time for a reference 250-user organization is max 40 man-hours the testing and content population time is max 80 man-hours In practice these indicators can be even less a quali-fied system administrator can deploy the system in its entirety within 1 or 2 working days

The considerations disclosed above are sufficient to produce a true estima-tion of the costs Examples of calculated results for organizations of different scale are summarized in the table 4 The calculations were made assuming the average Salary is $3000 per month and the Upkeep factor is 2

Time

Users

Linear model

Exponential modelFIGURE 1 Exponential and linear time cost models

Evaluating the TCO and ROI of an Intranet Portal10

Users 25 50 100 250 500 1000

Time (set-up and configuration) man-hours 126 179 253 400 566 800

Monetary costs (setup and configuration) USD 457 647 914 1446 2045 2892

Time costs (testing content population) man-hours 253 358 506 800 1131 1600

Money costs (testing content population) USD 914 1293 1829 2892 4089 5783

Since these expenses are implicit they will be adjusted for possible risks and delays (see chapter 43)

314 Training and Education

The last item among implementation costs is the training of personnel Simi-lar to the deployment training expenses are estimated via the time invested However the exponential function is inapplicable here because training must be delivered to all employees without exception

Thus the following formula (5) can be used to measure the training and edu-cation costs

(5) Education costs = Users x Education Hours x Hourly Cost

where Users is the number of intranet users Education Hours is the average of training hours and Hourly Cost is the average cost of a man-hour

Bitrix asserts that only one hour is required to get an initial understanding of the system and take the online training course using the built-in e-Learning module It is to be emphasized again that Bitrix Intranet users do not need to take an instructor-lead course

The examples of calculation results for organizations of different scale are summarized in the table 5 The calculations were made assuming an average Salary of $3000 and an Upkeep factor of 2

Users 25 50 100 250 500 1000

Education costs USD 904 1807 3614 9036 18072 36145

32 Maintenance Costs

The following main constituents can be distinguished in maintenance costs Note again that we are using a three-year horizon for maintenance costs

bull Technical support This is an explicit expenditure whose possible values are specified in the Bitrix Intranet pricelist Note that the software licenses (see 411) already include a one-year techni-cal support subscription

TABLE 4 The time and money costs for system setup configuration testing and content population

TABLE 5 The education and training costs

Evaluating the TCO and ROI of an Intranet Portal11

bull Hardware maintenance This is an explicit expenditure defined by the server maintenance costs placement costs spare parts costs and electricity consumed

bull System administration This implicit expenditure is simply a measure of the time the system administrator(s) spends for the system management over the period of operation Note that this does not include the time required for content management

bull Content management This implicit expenditure is defined by the time required to add edit or delete the intranet portal content This includes updating of content and moderating (enforcement of content and use policies)

bull Ongoing education This implicit expenditure is determined by the time new intranet users (ie the new employees) spend for learning the basics of intranet operation Note that the initial education (performed at system start-up) has already been in-cluded in the implementation costs

The estimation of maintenance costs is in absolute monetary values all the expenses occurring in subsequent years will be inflation adjusted (a rate of 5 will be used as an example)

321 Technical Support

The cost of technical support for Bitrix Intranet for one year is 2210 of the license price11 So to get quotes for this expenditure item we need to get the existing license prices (411) multiply by the technical support rate and adjust for inflation Note that all new licenses include a one-year subscription to updates and technical support

Users 25 50 100 250 500 1000

Technical support expenses (years 2 and 3) USD

895 1392 2386 5370 10342 10342

322 Hardware Maintenance

Generally the cost of hardware maintenance and allocation is defined by the vendorrsquos price and the customerrsquos data center properties However an ade-quate estimation of this item can be reached by using the model for technical support Our experience shows that companies do not spend more than 25 of the server price for maintenance and allocation This includes the server allocation in a data center ventilation electricity repairs ndash anything required for normal server operation

10 As currently indicated in the pricelist

11 Note that a discount is available when buying a technical support subscription for three years The present calculation implies however that a company extends the subscription yearly

TABLE 6 Cost of technical support

Evaluating the TCO and ROI of an Intranet Portal12

Thus to obtain hardware maintenance costs we will calculate 25 of the existing purchase price quotes (412) and adjust for inflation

Users 25 50 100 250 500 1000

Maintenance costs (3 years) USD 890 952 1076 1448 2069 3310

323 System Administration and Content Management

The evaluation of system administration and content management costs is similar to that of system configuration and testing The evaluation is based on the following assumptions

bull The time expense in the first year is 50 greater than that of the second and third years This considers the fact that as adminis-trators and users become acclimated to the system processes run more smoothly and that experienced users require less sup-port from administrators

bull The man-hour cost is adjusted for inflation

bull According to Bitrixrsquo observations the time spent for system administration during the first year for a sample 250-user organi-zation are 80 man-hours content management costs are 240 man-hours

Table 7 shows the results of example calculations made for cases involving different numbers of users The calculations were made assuming the average Salary is $3000 and the Upkeep factor is 2

Users 25 50 100 250 500 1000

Time costs (system administration) man-hours 3 years

89 125 177 280 396 560

Monetary costs (system administration) USD 3 years

3507 4959 7014 11090 15683 22179

Time costs (content management) man-hours 3 years

177 250 354 560 792 1120

Monetary costs (content management) USD 3 years

7014 9919 14027 22179 31366 44358

324 Ongoing Education

The evaluation of ongoing education and training costs is similar to the initial training costs To obtain the values we discount the initial training costs for staff turnover and then adjust for inflation

TABLE 6 Cost of hardware maintenance and allocation

TABLE 7 System administration and content management costs

Evaluating the TCO and ROI of an Intranet Portal13

Table 8 shows the results of calculations made for different number of us-ers The calculations were made assuming the average Salary is $3000 the Upkeep factor is 2 and the staff turnover factor is 20 per year

Users 25 50 100 250 500 1000

Education and training USD 598 1196 2393 5982 11964 23929

33 Summary of TCO Estimation

Table 9 summarizes the results obtained in chapters 31 ndash 32

Company Size

Expense itemMoment of installation

Year 1 Year 2 Year 3 Total

25 users

Software 1799 0 436 458 2694

Hardware 1075 282 296 311 1965

System administration and maintenance

1372 4321 3024 3176 11892

Education and training 904 190 199 209 1502

TCO 5149 4792 3956 4154 18052

TCO per user 206 192 158 166 722

50 users

Software 2799 0 679 713 4191

Hardware 1150 302 317 333 2102

System administration and maintenance

1940 6110 4277 4491 16818

Education and training 1807 380 398 418 3004

TCO 7696 6792 5671 5955 26114

TCO per user 154 136 113 119 522

100 users

Software 4799 0 1164 1222 7185

Hardware 1300 341 358 376 2376

System administration and maintenance

2743 8641 6049 6351 23784

Education and training 3614 759 797 837 6007

TCO 12457 9741 8368 8786 39352

TCO per user 125 97 84 88 394

250 users

Software 10799 0 2619 2750 16169

Hardware 1750 459 482 506 3198

System administration and maintenance

4337 13663 9564 10042 37606

Education and training 9036 1898 1992 2092 15018

TCO 25922 16020 14658 15391 71991

TCO per user 104 64 59 62 288

500 users

Software 20799 0 5045 5297 31141

Hardware 2500 656 689 724 4569

System administration and maintenance

6134 19322 13525 14202 53183

Education and training 18072 3795 3985 4184 30037

TCO 47505 23773 23244 24406 118929

TCO per user 95 48 46 49 238

TABLE 8 Ongoing education and training costs

TABLE 9 Summary of TCO Estimations

Evaluating the TCO and ROI of an Intranet Portal14

Company Size

Expense itemMoment of installation

Year 1 Year 2 Year 3 Total

1000 users

Software 20799 0 5045 5297 31141

Hardware 4000 1050 1103 1158 7310

System administration and maintenance

8675 27325 19128 20084 75212

Education and training 36145 7590 7970 8368 60073

TCO 69618 35966 33245 34907 173736

TCO per user 70 36 33 35 174

34 Evaluating Risk-adjusted TCO

In the closing stage of TCO evaluation the calculated values need to be adjusted for implementation risks to account for impediments and difficulties an organization may encounter while developing and deploying the intranet portal

The TCO adjustment is conducted according to methodology proposed by Forrester12 This methodology distinguishes three values for each implicit expenditure13

bull Base ndash unadjusted expenses

bull Minimum ndash these are also unadjusted expenses because such projects in fact never finish ahead of schedule so it will not happen that money is saved on expenses that are time-based

bull Maximum ndash expenses multiplied by a certain risk factor Accord-ing to experience of the Bitrix 200 is a realistic maximum fac-tor and this value will be used for final calculations

Practice indicates that the most probable costs can be estimated by a sim-ple average of the base minimum and maximum expenses Table 10 shows example values for different companies

Users 25 50 100 250 500 1000

System administration and maintenance costs 3 years base value USD

11892 16818 23784 37606 53183 75212

System administration and maintenance costs 3 years risk adjusted value USD

15856 22424 31712 50141 70911 100283

TABLE 9 Summary of TCO Estimations

TABLE 10 Implicit expenses base and risk adjusted values

12 Forrester The Total Economic Impact Read more

13 Excluding education and training costs Though these are also implicit costs they are transparent and predictable hence fixed

Evaluating the TCO and ROI of an Intranet Portal15

35 Summary of TCO Risk Adjusted Values

Table 11 summarizes the final risk-adjusted TCO values for example compa-nies These results will hereinafter be used to estimate the projectrsquos invest-ment indicators

Company Size

Expense itemMoment of installation

Year 1 Year 2 Year 3 Total

25 users

Software 1799 0 436 458 2694

Hardware 1075 282 296 311 1965

System administration and maintenance

1829 5761 4032 4234 15856

Education and training 904 190 199 209 1502

TCO 5606 6233 4964 5213 22016

TCO per user 224 249 199 209 881

50 users

Software 2799 0 679 713 4191

Hardware 1150 302 317 333 2102

System administration and maintenance

2586 8147 5703 5988 22424

Education and training 1807 380 398 418 3004

TCO 8343 8828 7097 7452 31720

TCO per user 167 177 142 149 634

100 users

Software 4799 0 1164 1222 7185

Hardware 1300 341 358 376 2376

System administration and maintenance

3658 11521 8065 8468 31712

Education and training 3614 759 797 837 6007

TCO 13371 12622 10384 10903 47280

TCO per user 134 126 104 109 473

250 users

Software 10799 0 2619 2750 16169

Hardware 1750 459 482 506 3198

System administration and maintenance

5783 18217 12752 13389 50141

Education and training 9036 1898 1992 2092 15018

TCO 27368 20574 17846 18738 84526

TCO per user 109 82 71 75 338

500 users

Software 20799 0 5045 5297 31141

Hardware 2500 656 689 724 4569

System administration and maintenance

8179 25763 18034 18935 70910

Education and training 18072 3795 3985 4184 30037

TCO 49550 30214 27753 29140 136657

TCO per user 99 60 56 58 273

1000 users

Software 20799 0 5045 5297 31141

Hardware 4000 1050 1103 1158 7310

System administration and maintenance

11566 36434 25504 26779 100282

Education and training 36145 7590 7970 8368 60073

TCO 72510 45074 39621 41602 198807

TCO per user 73 45 40 42 199TABLE 11 Final TCO values risk adjusted

Evaluating the TCO and ROI of an Intranet Portal16

RETURN ON INVESTMENT (ROI)4

First of all it is worth making a minor remark about this indicator and its his-tory Back in 2001 analysts used to compare intranets with telephony14 and described the efficiency of the technology as so obvious that it did not requir-ing ROI calculation

The latter statement has fairly serious logic behind it On the cost side intranet portal implementation is relatively small on a company-wide scale as shown by the TCO calculation in the previous chapter On the return side an effective intranet portal affects the daily routine of every employee and thus becomes the platform for nearly all operations Therefore even if only a small increase of efficiency is achieved the very large amount of business performed using the portal propels the theoretical ROI to a level beyond question

But how does an intranet portal pay off in reality Generally it does not gener-ate direct income nor attract customers nor produce immediate improvement in customer service The only general-purpose metric to estimate ROI of any company is the saving of time achieved by using the portal Chapter 42 will show the calculation of time-savings that a portal should achieve in order to justify itself financially

Chapter 41 contains case studies illustrating the profitability of intranet portal projects The last chapter (43) discusses other investment metrics (IRR NPV)

41 ROI Case Studies

This chapter contains a selection of case studies to demonstrate possible methods of measuring investment return from the implementation of an intranet portal These examples are indeed specific and should not be consid-ered a recipe however the case studies will help in obtaining a proper under-standing of intranet portal economics and formalize the principles of ROI

411 Consolidation of Data and Corporate Services

The major and the most obvious advantage of an intranet portal is the concen-tration of data and services Ideally a portal becomes a single point of access for all company employees enabling them with access any information they need and thereby increasing the availability of information and decreasing time and monetary expenses spent on corporate service and management

Return on investment for an intranet portal is an en-grossing subject that has attracted many authors who have written dozens of articles and research papers on it

instanttweet

14 Toby Ward Measuring the Dollar Value of Intranets Intranet Journal 2001 Read more

15 Information Week Intranet ROI Leap of Faith 1999 Read more

Return on investment (ROI) is the ratio of money gained or lost (whether realized or unrealized) on an investment rela-tive to the amount of money invested

Evaluating the TCO and ROI of an Intranet Portal17

Unilever Corporation a giant in world-wide food personal care and house-hold goods manufacturing crossed this bridge back in the late 1990s15 when the corporation introduced an intranet solution throughout its entire infra-structure of 300 branches in 88 countries As the corporationrsquos management highlighted ROI was not of particular interest to anyone because the intranet applications obviously boosted information flows and brought efficiency of business processes to a new level

However for one division of Unilever a substantiating ROI appeared in the modification of a single business activity Having concentrated business information in the portal Unileverrsquos Global Buying Service learned that the corporationrsquos various business units purchased the same goods from the same suppliers independently The consolidation of such purchases resulted in significant volume discounts

Sometimes better transparency of data can reduce expenses seemingly unrelated to the use of an intranet portal A curious example of this kind took place at one of the European medical center16 The organization kept a medi-cal recommendation database spread over many folders After implementing a contextual search engine the medical center started saving $1000000 annually on insurance because doctors were able to find the relevant recom-mendations and implement them effectively

412 Electronic Workflow as a Red Tape Killer

The implementation of an intranet portal is one of the major milestones in the transition to fully-electronic workflow Digital documentation not only saves time but also eliminates printing and mailing expenses

Bill Diekmann the IT Director of Cupertino Electric asserts that investment in the intranet portal was recouped entirely from savings on snail mail17 laquoWe have over 1000 employees but only 300 of them are in the headquarters We used to file paper forms manually and dispatch them to other offices by mail Any change to the forms required that we send them again The portal has eliminated these expenses because all the documentation is now updated automaticallyraquo Diekmann said

16 Martin White Intranet Focus 2009 Read more

17 Intranet Blog Connections Your Intranet as a Cost Savings Tool 2009 Read more

We have over 1000 employees but only 300 of them are in the headquarters We used to file paper forms manually and dispatch them to other offices by mail Any change to the forms required that we send them again The portal has eliminated these expenses because all the documentation is now updated automatically

Bill Diekmann the IT Director of Cupertino Electric

Evaluating the TCO and ROI of an Intranet Portal18

413 Efficient Communications and Knowledge Management

Efficient communications are indeed one of the basic purposes of the intro-duction of an intranet portal the latter being the means of communication to help the employees increase efficiency of their work

A brilliant example to demonstrate efficient communications is the Eureka portal introduced by Xerox18 Eurekarsquos purpose is to form a uniform interface for sharing Xeroxrsquo engineersrsquo knowledge worldwide Before its introduction Xerox utilized a one-way technical information database without interactive data exchange capabilities that didnrsquot allow adding of new technical details or comment lsquothreadsrsquo

According to Xerox the result of Eurekarsquos introduction has surpassed all ex-pectations For example the system helped to process over 350000 techni-cal support requests and save over $15000000 simply through proper and timely decision-making in 2001

414 Extranet and Quality of Service Issues

In a number of cases an intranet portal can be equipped with an interface to interact with third parties ndash a so-called laquoextranetraquo19 When used properly the extranet can increase the level of satisfaction of clients and contractors ac-celerate interaction and make the external request response quicker

A good example of an economically sound extranet is a client portal de-veloped by Ketchum20 According to an independent estimation provided by META Group the innovative client-oriented environment increases the Ketchumrsquos turnover by 05 to 5 annually An average of those numbers produces an absolute increase of several million dollars annually directly at-tributable to the extranet solution

42 Evaluating Bitrix Intranetrsquos ROI

All the previously portrayed case studies have one trait in common virtually any efficiency factor can be interpreted as saving of time The consolidation of information means that all documentation is contained in a centralized storage which facilitates access and search The introduction of electronic workflow eliminates the need for snail mail Electronic communication saves working time while the extranet reduces time required to process external requests

18 The Eureka Moment at Xerox Read more

19 Extranet is essentially an extension of an intranet portal for the external environment This module is available in Bitrix Intranet Extranet Edition and higher editions

20 Plumtree META Publish ROI Study of Ketchum myKGN Portal Read more

Evaluating the TCO and ROI of an Intranet Portal19

In other words the saving of time is a general-purpose metric serving as the indication of the intranet portal cost efficiency and more importantly it al-lows a means for making a numerical evaluation of ROI Although we shall move forward using time savings as the single metric it is to be remembered that a portal brings about a vast array of additional advantages which are hard to evaluate in a numeric form

The portalrsquos ROI can be easily calculated given the number of users main-tenance costs and the average saving obtained from the introduction of the portal ROI is commonly defined using the following formula

(6) Return on Investment= Revenue ndash TCO TCO

where Revenue is the projected income or saving and TCO is the total cost of ownership of the system

For an abstract business unit the time saved by the intranet portal is un-known and may vary significantly The present research has the calculations for the three scenarios one-minute and three-minute savings in daily work time savings and a break-even point which shows how much time employees should save for the project to show an ROI of zero Each indication is calcu-lated for each of the three first years of intranet operation

Company Size

Expense itemMoment of installation

Year 122 Year 2 Year 3

25 users

TCO USD 5606 11839 16803 22016

Economy 1 minute USD - 3938 4134 4341

Economy 3 minutes USD - 11813 12403 13023

ROI 1 minute - -67 -52 -44

ROI 3 minutes - 0 44 69

Break-even point minutes - 301 208 177

50 users

TCO USD 8343 17171 24268 31720

Economy 1 minute USD - 7875 8269 8682

Economy 3 minutes USD - 23625 24806 26047

ROI 1 minute - -54 -33 -22

ROI 3 minutes - 38 100 135

Break-even point minutes - 218 150 128

100 users

TCO USD 13371 25993 36377 47280

Economy 1 minute USD - 15750 16538 17364

Economy 3 minutes USD - 47250 49613 52093

ROI 1 minute - -39 -11 5

ROI 3 minutes - 82 166 215

Break-even point minutes - 165 113 095

TABLE 12 Bitrix Intranetrsquos ROI21 adjusted for implementation risks

21 Assuming the salary and upkeep rates as specified in 34ndash35

22 Cumulative

Evaluating the TCO and ROI of an Intranet Portal20

Company Size

Expense itemMoment of installation

Year 122 Year 2 Year 3

250 users

TCO USD 27368 47942 65788 84526

Economy 1 minute USD - 39375 41344 43411

Economy 3 minutes USD - 118125 124031 130233

ROI 1 minute - -18 23 47

ROI 3 minutes - 146 268 341

Break-even point minutes - 122 082 068

500 users

TCO USD 49550 79764 107516 136657

Economy 1 minute USD - 78750 82688 86822

Economy 3 minutes USD - 236250 248063 260466

ROI 1 minute - -1 50 82

ROI 3 minutes - 196 350 445

Break-even point minutes - 101 067 055

1000 users

TCO USD 72510 117584 157205 198807

Economy 1 minute USD - 157500 165375 173644

Economy 3 minutes USD - 472500 496125 520931

ROI 1 minute - 34 105 150

ROI 3 minutes - 302 516 649

Break-even point minutes - 075 049 040

This data clearly indicates that an implementation for 100 or more users requires saving of only one () minute of working time per day for the project to break even over a three-year period In practice time actual savings can be much greater thus sending ROI percentages into the thousands

The reason for such enormous figures is simple As has been mentioned pre-viously the portalrsquos TCO is negligible on a company scale and even a slight increase of efficiency covers all the expenses The indicators summarized in Table 12 are just a mathematical proof of that fact

43 Other Economic Metrics (IRR NPV)

There are other metrics used to evaluate business project profitability aside from ROI In this section we are going to investigate two commonly used indicators

bull NPV (Net Present Value) is the sum of the present values (PVrsquos) of individual cash flows The formula also requires a discount rate (such that could be earned on an investment in the finan-cial markets with similar risk) A rate of 10 percent is used for calculation here Positive NPV values indicate that the project investment is more profitable than a banking deposit at the specified discount rate

TABLE 12 Bitrix Intranetrsquos ROI21 adjusted for implementation risks

Evaluating the TCO and ROI of an Intranet Portal21

bull IRR (Internal Rate of Return) is the interest rate at which the costs of the project investment lead to the benefits of the investment The term internal refers to the fact that its calculation does not incorporate environmental factors such as inflation Mathemati-cally IRR is the discount rate at which NPV is null Practically IRR is the banking deposit interest rate at which a bank deposit would show the same income as the projectrsquos created value

NPV is defined as

(7) NPV= Ri ndash Ci

(1+d)i

here Ri is the projected income at year i of the project life cycle C

i is the pro-

jected expenses n is the investment horizon in years (n=3 in this case)

IRR can be defined by the following equation in which NPV is a function of the discount rate

(8) IRR=d NPV(d)=0

Table 13 shows the values of TCO ROI NPV and IRR for companies of different scale assuming the average time saving for a user is 3 minutes per day

Company Size

Expense itemMoment of

installa-tion

Year 122 Year 2 Year 3

25 users

TCO USD 5606 11839 16803 22016

ROI 3 minutes - 0 44 69

IRR - 0 75 100

NPV USD -5606 -292 6455 13202

Break-even point minutes - 301 208 177

50 users

TCO USD 8343 17171 24268 31720

ROI 3 minutes - 38 100 135

IRR - 77 159 181

NPV USD -8343 5750 21812 37875

Break-even point minutes - 218 150 128

100 users

TCO USD 13371 25993 36377 47280

ROI 3 minutes - 82 166 215

IRR - 159 244 263

NPV USD -13371 19608 55190 90771

Break-even point minutes - 165 113 095

250 users

TCO USD 27368 47942 65788 84526

ROI 3 minutes - 146 268 341

IRR - 256 344 360

NPV USD -27368 65538 161851 258164

Break-even point minutes - 122 082 068TABLE 13 Economic metrics of the Bitrix Intranet

Evaluating the TCO and ROI of an Intranet Portal22

Company Size

Expense itemMoment of

installa-tion

Year 122 Year 2 Year 3

500 users

TCO USD 49550 79764 107516 136657

ROI 3 minutes - 196 350 445

IRR - 316 404 419

NPV USD -49550 146675 346503 546330

Break-even point minutes - 101 067 055

1000 users

TCO USD 72510 117584 157205 198807

ROI 3 minutes - 302 516 649

IRR - 489 582 594

NPV USD -72510 334562 748625 1162688

Break-even point minutes - 075 049 040TABLE 13 Economic metrics of the Bitrix Intranet

Evaluating the TCO and ROI of an Intranet Portal23

CONCLUSION

Such evaluations do not indeed account for the whole range of advancements the introduction of the portal may bring However even the tip of the iceberg provides conclusive evidence in this case

The present analysis clearly shows that intranets are not just experiencing their 15 minutes of allotted fame The modern business environment de-mands this instrument to be an organic part of an effective enterprise just like a corporate website or e-mail server An intranet is the means to create effec-tive workplaces and improve employee motivation it helps to close or at least greatly narrow the communication gap between the management and the employees and offers sophisticated business monitoring tools As an invest-ment an intranet portal is a rare opportunity that not only is demonstrably profitable based on its effect on basic operations but also provides massive upside potential through the real but less measurable dimensions of trans-parency and collaboration

This evaluation of the cost efficiency of Bitrix Intranet gives abundant evi-dence of the productrsquos economic benefits Naturally economic metrics (ROI IRR NPV) are stronger for companies with larger employee networks for in-tranet portals and the Bitrix product is not an exception However the range of companies which can benefit from Bitrix Intranet is noteworthy empirically showing the effectiveness of the features of Bitrix Intranet which were specifi-cally created with SMBs in mind

We candidly hope to find this research to be unnecessary in a very short time after the profitability of Bitrix Intranet has become apparent Indeed is it worth to going to such great lengths to prove the obvious

Despite skepticism some analysts may express cal-culating economic metrics for an intranet portal is not unfeasible

instanttweet

Evaluating the TCO and ROI of an Intranet Portal24

Bitrix is a privately-owned company developing an advanced business com-munications platform to bridge SMBs with their customers (Internet) partners (Extranet) and employees (Intranet)

Bitrix is a registered trademark of Bitrix Inc in the United States and other countries

The names of actual companies and products mentioned herein may be the trademarks of their respective owners

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TelFax +1 (703) 740-8301

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wwwbitrixsoftcom

about intranet collaboration best practices at

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TelFax +7 4012 51 05 64

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Founded in 1998 and located in Alexandria VA Bitrix now incorporates 90+ staff 40000+ customers and 4000+ partners worldwide The customer list includes Hyundai Volkswagen Panasonic Gazprom Xerox Pricewater-houseCoopers DPD VTB Samsung and Cosmopolitan Localized into 13 languages the companyrsquos products are distinguished for their pioneering technology unique security features extreme performance capacity and unmatched ease-of-use

ABOUT BITRIX

2011 Bitrix Inc All rights reserved

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