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The Total Economic Impact To IBM WebSphere Application Server Migrating From An Open Source Environment
Federal Client Analysis
Forrester Consulting
TABLE OF CONTENTS
Executive Summary ................................................................................................................................................................................. 2 WebSphere Application Server Provides Improved Capabilities And Operational Efficiency........................................... 2 Factors Affecting Benefits And Costs ............................................................................................................................................. 3 Disclosures ........................................................................................................................................................................................... 4 TEI Framework And Methodology...................................................................................................................................................... 5 Analysis ...................................................................................................................................................................................................... 7 Interview Highlights .......................................................................................................................................................................... 7 Costs...................................................................................................................................................................................................... 8 Benefits ............................................................................................................................................................................................... 10 Flexibility............................................................................................................................................................................................ 15 Risk...................................................................................................................................................................................................... 15 Financial Summary................................................................................................................................................................................ 18 IBM WebSphere Application Server: Overview .............................................................................................................................. 19 Appendix A: Total Economic Impact Overview ........................................................................................................................... 20 Appendix B: Glossary ............................................................................................................................................................................ 21
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 Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to www.forrester.com.
About Forrester Consulting Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forresters Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit www.forrester.com/consulting.
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Executive Summary
In April, 2012, IBM commissioned Forrester Consulting to examine the total economic impact and potential return on investment (ROI) enterprises may realize by deploying WebSphere Application Server. The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of the WebSphere Application Server on their organization within a production environment. Readers may use this analysis as a basis to calculate their own impact of investment in WebSphere Application Server across a variety of client industries.
44%
Within 24 months
Benefits. The representative analysis illustrates the following WebSphere benefits that represent those
experienced by the interviewed organization: o o o o Reduction in support costs. IT operational savings from reduced support incidents. End user operational savings due to higher application availability. Cross platform IT development team savings.
o o o o
License and maintenance fees. Training. Implementation labor. Administration and support labor.
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IncrementalCost
IncrementalBenefit
Internalsupport 30%
Licence 32%
Training 4% Implementation 6%
organizations legacy environment and the alternatives compared with investing in WebSphere Application Server. The interviewed organization still used open source in their development, test, and production environments, however was seeing a steady migration across their development, test, and production environments to WebSphere Application Server.
Pace of migration. The ability to recognize benefit from the migration to WebSphere Application Server
depends in large part of the size of the application environment. How quickly the applications are migrated will ultimately determine the speed to realize benefits.
Developer preference with open source. Organizations moving from an embedded open source platform will
need to ensure the developers can embrace the functionality in the WebSphere Application Server platform. Without adequate training and effective change management, organizations can face reduced anticipated benefits from the migration.
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Disclosures
The 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 using the framework provided in the report to determine the appropriateness of an investment in IBM WebSphere Application Server.
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 Forresters findings or obscure the meaning of the study.
The customer name for the interviews was provided by IBM.
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IBM WebSphere Application Server from an open source application server to obtain data on the costs, benefits, and risks of the investment.
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 representative organization.
Forrester employed four fundamental elements of TEI in modeling IBM/WebSphere Application Servers service: 1. 2. 3. 4. Costs. Benefits to the entire organization. Flexibility. Risk.
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Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forresters TEI methodology serves the purpose of providing a complete picture of the total economic impact of purchase and migration decisions. Please see Appendix A for additional information on the TEI methodology.
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Analysis
Interview Highlights
The interviews uncovered a number of characteristics about this public-sector agency and its strategy to improve service and efficiency within a highly secure environment using IBM WebSphere Application Server:
The organization is a US federal agency. The agency employs roughly 200 developers within the IT environment
supporting applications used directly by agency employees as well as indirectly by employees within other federal agencies. Within the agency, 10,000 users and 20,000 users across different agencies leverage agency supported applications.
In addition to WebSphere Application Server, the agency has adopted components from the broader WebSphere
family including WebSphere Application Server Network Deployment, WebSphere MQ, WebSphere Message Broker, and WebSphere eXtreme Scale elastic caching solution.
Prior to 2008, the agency was using primarily open source application servers as a platform to create and support
the applications within their production and test environments. In 2008, the organization saw significant growth of the number of applications within its application environment, prompting the agency to consider a standard development platform for new and existing applications. At the time, the organization noted the difficulty to respond quickly to support incidents on the open source platform, causing unnecessary impact to the IT and end user environment. In addition, the agency found the clustering features of its open source application to be inadequate the clustering features aggravated the impact of support incident across the application landscape. As a result, the agency decided to move to the WebSphere Application Server environment, migrating its existing production applications away from the existing open source environment.
The organization selected WebSphere Application Server for three critical reasons.
First, as the development environment grew from demand both inside and outside the agency, there was need to adopt clustering and high availability across applications, reducing the number and impact of support incidents. IBM provided improved quality of service and faster response times to queries or support requests, which lead to reduced user downtime. Second, the organization was able to move to a common platform across the agency from different open source application servers, which allowed them to improve cost efficiencies to their contract as their support requirements grew. Third, the organization saw the ability to increase automation within their application development and change request process, reducing the overall administration burden to IT.
The agency noted the investment in WebSphere Application Server and associated WebSphere applications was a
significant undertaking for the IT organization. One of the largest implementation risks for the agency was the potential for slow adoption of the new development platform by developers. Even though WebSphere Application Server is a Java application server just like the prior open-source product, the developers had to master WebSphere Application Servers development conventions and features. To mitigate this risk, the organization hired IBM Global Business Services to develop a core implementation road map for the application server platform. In addition, the agency invested significantly in developer training on the new platform.
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Migration to WebSphere Application Server was relatively smooth due in part to the open standards inherent in
the product. The organization migrated applications over time based on core business requirements and IT resources available to support and develop on the new platform.
The agency selected WebSphere Application Server in part for its security capabilities, which were stronger than
those of the prior application server. The organization felt it had very robust security controls and procedures which the WebSphere Application Server platform integrated into their existing capabilities, providing a level of security that met the needs of the organization.
Framework Assumptions
Table 2 provides the model assumptions that Forrester used in this analysis.
The discount rate used in the PV and NPV calculations is 10% and time horizon used for the financial modeling is 3 years. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult with their respective companys finance department to determine the most appropriate discount rate to use within their own organizations.
Costs
Costs around IBM WebSphere Application Server for the interviewed organization include cost of software, hardware, maintenance, implementation, and ongoing platform support. The actual cost of the solution will vary depending on the size of the development staff, the number and size of applications as well as the overall level of support. Based on the discussions with the interviewed customer, the cost of platform hardware is incorporated into the cost of implementation. The organization was able to repurpose existing hardware for the migration to WebSphere Application Server. The cost of repurposing was part of the overall implementation cost. Organizations investing from a greenfield environment may need to incorporate the cost of hardware into their analysis.
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Training Cost
The cost to train the individual developers on the new IBM WebSphere Application Server platform was another cost cited by the interviewed organization. Prior to implementing IBM WebSphere Application Server, the majority of the developers had been trained on the legacy open source development platform, and the organization had made an investment to retrain the developers on the IBM WebSphere Application Server platform. For the purpose of this analysis, we assume that each of the developers will participate in training. The cost per developer includes the formal cost of training, the lost productivity from participating in the training session, as well as the indirect cost of informal training. Table 3 illustrates the total training cost of $150,080.
Implementation Cost
The cost to implement includes the cost of internal resources to plan and deploy as well as an external third party to aid in planning and implementation of the WebSphere Application Server platform. The organization indicated that it invested roughly $198,000 in internal and external efforts for the implementation.
Total Costs
Table 3 illustrates the total incremental costs for the WebSphere Application Server platform.
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$1,040,000
$ 208,000
$ 208,000
$1,456,000
Implementation
$198,000
$198,000
Training
$128,000
$19,200
$2,880
$150,080
Internal support
$393,600
$393,600
$393,600
$1,180,800
$ 1,238,000
$ 521,600
$ 620,800
$ 604,480
$2,984,880
Benefits
The second component of this analysis looks at the potential benefits associated with an organization migrating a portion of their application development, test, and production environment to IBM WebSphere Application Server.
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A1
Number of incidents
30
80
A2
Length of time(hours)
40
20
A3
Resource requirement
20
A4
$60
$60
A5
60%
50%
A6
45%
45%
A7
A1*A2*A3*A4
$1,440,000
$480,000
A8
A6*A7
$864,000
$240,000
A9
A1*(1A5)*A2*A3*A4*A6
$259,200
$108,000
A10
A8+A9
$1,123,200
$348,000
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This allowed the organization to cover all applications under a common IBM support agreement, leveraging cost savings across applications. To calculate the impact of support savings, the model assumes in the open source environment the organization was paying the cost of premium support based on the number of CPUs and the number of development FTEs equating to $14,000 per CPU and $14,000 per average seat. Organizations may have a different pricing model (price by core), depending on the time of purchase. The model assumes at the point of migration, the representative organization had 32 CPUs running the selected mission-critical applications and 100 FTEs supporting the development. For the representative organization, moving to an enterprise license resulted in an estimated 30% cost savings to support the mission-critical applications. In addition, assuming the rate of growth for both staffing and hardware increases yearly by 10%, its possible to calculate the future cost savings within the environment. Table 5 illustrates the calculation used.
B1
10%
10%
B2
B1*B2
32
35
39
B3
Development FTE
B1*B3
100
110
121
B4
$14,000
$14,000
$14,000
B5
10%
10%
10%
B6
((B2*B5)+(B3*B5))* B4
$184,800
$203,280
$223,608
$611,688
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without having to take down the whole application for all users or invest in additional external high availability software. To calculate the impact of performance, the model assumes the average number of users accessing the application at any given time equates to 15,000 users. In the previous open source environment, if the organization needed to take down the application to perform unplanned maintenance related to performance, the average amount of time the application would be down was 120 minutes. Assuming the organization was able to avoid the loss of availability, an end user would regain on average 30% of their time that was lost when the application was unavailable. WebSpheres ability to have cluster deployments allows administrators to go to each individual server reconfiguring changes, which would reduce the time to recover from downtime. In addition, the failover capability found within WebSphere Application Server can allow open transactions to failover instantly, reducing the time to recover the file and avoiding the task within the open source environment of manually moving the file over. Using a fully loaded user blended cost per hour of $120, this would equate to a total savings of $1,080,000 per year. Table 6 illustrates the calculation used.
C1
15,000
C2
$120
C3
2.0
C4
30%
C5
C1*C2*C3*C4
$1,080,000
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To calculate this benefit, the model assumes the organization requires on average 200 hours to test and move applications from a test environment into production across all applications. Assuming 40 new application changes across all 1500 applications over the course of a year, through faster integration, the organization will be able to improve the overall cost by 30%.This is driven by the ability to script different administrative actions and automate the scripts, allowing for administrators to spend less time on manual tasks and reducing potential errors. WebSphere Application Server provides the capability of providing 100% of functionality while in the previous environment the use of scripts was limited. Table 7 illustrates the calculation used.
D1
200
D2
40
D3
Hourly cost
$60
D4
30%
D5
D1*D2*D3*D4
$144,000
Total Benefits
Table 8 illustrates the total three-year benefits as a result of the migration to the IBM WebSphere Application Server platform.
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$184,800
$203,280
$223,608
$611,688
$261,000
$348,000
$348,000
$957,000
$810,000
$1,080,000
$1,080,000
$2,970,000
$108,000
$144,000
$144,000
$396,000
$1,363,800
$1,775,280
$1,795,608
$4,934,688
Flexibility
Flexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned into business benefit for some future additional investment. This provides an organization with the right or the ability to engage in future initiatives, but not the obligation to do so. There are multiple scenarios in which a customer might choose to implement WebSphere Application Server and later realize additional uses and business opportunities. Flexibility would also be quantified when evaluated as part of a specific project (described in more detail in Appendix B). Forrester believes that organizations purchasing IBM WebSphere Application Server can take advantage of these flexibility options; however, quantification (using the financial industry standard Black-Scholes or the binomial option pricing models) of the additional value associated with these options for this customer would require scenario development and forward-looking analysis that is not included at this time. One potential area of flexibility benefit identified by the interviewed organization was around the ability to standardize on a core application server platform. As a result, standardization makes it easier to train and roll out new capabilities across the development environment, reducing the time to deploy future capabilities. As the organization expands and grows, having a standardized WebSphere Application Server lets the organization maintain a highly secure environment while being able to control the use and accessibility of the platform, minimizing potential future security exposure and liability and liability.
Risk
Forrester defines two types of risk associated with this analysis: implementation risk and impact risk. Implementation risk is the risk that a proposed investment in WebSphere Application Server may deviate from the original or expected
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requirements, resulting in higher costs than anticipated. Impact risk refers to the risk that the business or technology needs of the organization may not be met by the investment in WebSphere Application Server, resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefit estimates. Quantitatively capturing investment and impact risk by directly adjusting the financial estimates results in more meaningful and accurate estimates and a more accurate projection of the ROI. In general, risks affect costs by raising the original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should be taken 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:
Installation and testing could demand more time than originally anticipated. Acquisition costs could be higher than originally anticipated for infrastructure and software.
The following impact risks that affect benefits are identified as part of the analysis:
The level of savings might be lower than originally anticipated due to unforeseen changes within the environment
such as a reduction in the growth of users and applications as well as slower adoption to the WebSphere Application Server platform. Table 9 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates. The TEI model uses a triangular distribution method to calculate risk-adjusted values. To construct the distribution, it is necessary to first estimate the low, most likely, and high values that could occur within the current environment. The risk-adjusted value is the mean of the distribution of those points. Readers are urged to apply their own risk ranges based on their own degree of confidence in the cost and benefit estimates.
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Initial $1,040,000
Year 1
$207,900 $153,600 Initial $184,800 $247,950 $769,500 $102,600 Year 1 $203,280 $330,600 $1,026,000 $136,800 $23,040 Year 2 $223,608 $330,600 $1,026,000 $136,800 $3,456 Year 3 $611,688 $909,150 $2,821,500 $376,200
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Financial Summary
The financial results calculated in the Costs and Benefits sections can be used to determine the ROI, NPV, and payback period for the organizations investment in WebSphere Application Server. These are shown in Table 10 below.
Table 11 below shows the risk-adjusted ROI, NPV, and payback period values. These values are determined by applying the risk-adjustment values from Table 9 in the Risk section.
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The latest WebSphere Application Server V8.5 release brings new Intelligent Management capabilities into the mainstream application server runtime and helps drive down total cost of ownership while improving overall qualities of service. These enhanced resiliency capabilities were available separately through WebSphere Virtual Enterprise. They are now included within WebSphere Application Server Network Deployment V8.5. Application Edition Management enables interruption-free application rollout. Applications can be upgraded without incurring outages to your end users. Application Health Management monitors the status of your application servers and is able to sense and respond to problem areas before end users suffer an outage. Health Management proactively deals with application and application infrastructure issues before they become acute problems by monitoring health conditions of your infrastructure and executing associated corrective actions automatically. Intelligent Routing improves business results by ensuring priority is given to business-critical applications. Requests are prioritized and routed based upon administrator-defined rules. This new routing manages in-bound transaction (workload) requests in real time and routes work to the application server that can do it best to streamline processing through the system for higher priority requests. Dynamic Clustering can proactively provision and start or stop new instances of application server Java Virtual Machines (JVMs) based on workload demands. Provides the ability to meet Service Level Agreements when multiple applications compete for resources. Allows workloads to be classified, prioritized and intelligently routed. Resource adjustments are made if needed to consistently achieve predefined SLAs. Enhanced memory leak detection and protection monitors application activity and performs diagnostic actions when an application or an individual module stops. This helps to increase application server availability and reduce potential downtime.
With WebSphere Application Server, IBM also offers a number of other advanced capabilities, including, but not limited to: batch processing (included free), automatic collection of problem data via the IBM Support Assistant Data Collector (free separate download), enhanced administrative audit (included free), a lightweight set of developer tools for Eclipse (free separate download), the Rational Application Developer (RAD) a complete environment for enterprise development which may be purchased separately and a Migration Toolkit (free separate download)
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Benefits
Benefits represent the value delivered to the user organization IT and/or business units by the proposed product or project. Often product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line.
Costs
Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created.
Risk
Risk measures the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections, and 2) the likelihood that 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 underlying range around each cost and benefit.
Flexibility
Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the initial investment already made. For instance, an investment in an enterprisewide upgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reduce licensing 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 TEI captures that value.
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Appendix B: Glossary
Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although the Federal Reserve Bank sets a discount rate, companies often set a discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their respective organization 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 (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have 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 projects expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs.
Forrester risk-adjusts the summary financial metrics to take into account the potential uncertainty of the cost and benefit estimates. For more information on Risk, please see page 16.
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