TOTAL ECONOMIC IMPACT (TEI)
"It's better to build layers on top of an organisation's existing toolkit than to drop in something brand new."
Nuts and Bolts: Total Economic Impact is a decision-support methodology designed to accommodate risk and something Giga Information Group research fellow Chip Gliedman calls "flexibility" - deferred or potential benefits often left out of straight cost-benefit analyses.
In analysing expenditures, IT managers assess three key areas - cost, benefit and flexibility - and determine risk for each. Cost analysis takes a TCO-like approach in considering ongoing costs in addition to capital expenditures. This tends to be an internal IT measure. Benefit assessments look at the project's business value and strategic contribution outside IT.
TEI calculates flexibility using a futures-options methodology, such as Real Options Valuation or the Black-Scholes model, both of which attempt to value options to be exercised later. For IT investments, risk considerations include the availability and stability of vendors, products, architecture, corporate culture, and size and timing of the project.
It doesn't matter which calculations a company uses, provided it is analysing all three categories and assessing risk for each, says Gliedman. "It's better to build layers on top of an organisation than to drop in something brand new," he says.
Word of Mouth: TEI works best when analysing two distinct scenarios (build versus buy or Oracle versus Sybase), particularly when those two choices involve infrastructure or other enterprisewide projects whose benefits are notoriously hard to pin down. Some measurement experts, including Technology Decision Modeling's Don Hinds, aren't thrilled with the subjective, nonstatistical nature of TEI's risk-assessment component.
Time and Money: Five days to two months; $20,000 to $30,000 on the high end.
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