When creating a cost management analysis, Windows IT managers should pay close attention to the tools and technologies they use now and plan to use, like Windows Server 2008. In this section of our cost management analysis guide, Windows expert Gary Olsen explains how calculating the financial gains and losses of a migration strategy can help IT managers create a more cost-effective plan of action.
Building a business case for a migration may actually support a decision not to migrate – at least for the time being.
If you are running your computing environment on Windows, you are essentially forced to upgrade or be cut off from Microsoft support unless you choose to pay an exorbitant fee to keep the lifeline open. So it really isn't a question of if you will migrate to a newer version of Windows Server, but when.
In building a business case for migration, you'll want to know the return on investment, so you can include it in your cost management analysis. A calculation can be used to show what the financial gain might be from an investment of resource. The calculation can be defined as the following:
Simple ROI – (Gains – Investment Costs) / Investment Costs
In a project I managed, we needed an upgrade to some machines in our manufacturing facility. We had a particular contract that called for several casting dies to be built. Programming the machines to build these dies with our existing technology would have not only taken months to do but would also have prevented us from taking on other work.
I proposed an upgrade that would cost about $27,000, and it was approved. We were able to cut the dies in 10 days that previously would have taken about two months for two employees to do. That means we saved 620 hours of labor at an estimated $55 per hour. We also met the contract deadline and we got other work through the shop. Just using labor costs, our "gain" for the ROI calculation was:
ROI = $34,100 - $27,000 / $27,000 = 26%
On the surface that seems modest, but notice that we realized the return on our money in only 10 days. The 10-day payback period for a 26% return is impressive. In my case, it was not easy convincing the company president that this was necessary. But when he saw the first die cut in five days, he was thrilled. As I recall, he said, "That was a very smart decision I made." It also made it easier to get money for my next project.
In order to calculate ROI for a Windows migration, you need some "hard savings numbers." In other words, you need to find areas where you can cut existing costs in your cost management analysis.
It's difficult to prove that a computer upgrade makes users more productive and perform X% more work. However, things like server consolidation and reduction in support costs can be readily proven and have a direct bearing on your return on investment. You have to make claims that can be validated in your analysis.
One example is a company I worked with a number of years ago that had a remote sales force scattered all over the United States. They rarely -- if ever -- returned to the home office, but they needed access to the corporate network. The company implemented a terminal services solution, justifying the purchase and installation of new hardware and software with the reduction of remote offices and servers used to support the remote staff. Consolidating staff positions in remote sites provided even more savings. A single project like this could provide financial justification for the entire migration.
So, how do you do an ROI calculation, and where do you start? I recommend a website called Solution Matrix Ltd. It offers an impressive set of products and seminars to help you build the business case -- including calculating ROI and other metrics. The website has a free spreadsheet that is quite usable. Just go to the Download Center and look for the "Free ROI Calculator." It provides a nice explanation of terms and information on how to calculate ROI.
Another source is Microsoft. It has its own version of an ROI calculator and offers several tools, including tools specifically geared toward mobile devices: Office Live Meeting, Content Management Server and others.
Just remember that there are some excellent free tools and information to help you with your cost management analysis, so there's no need to hire a consultant. But it's critical that you provide realistic and defensible data to the ROI calculation and include this information in your cost management analysis.
And don't forget: Besides cost-cutting, it is possible the migration itself will provide sources for additional income. Perhaps the new Terminal Services Gateway, which allows remote users to connect to company resources from a client's network without going through a VPN, will allow employees to spend more time at the site instead of shuttling back to the hotel to get to important data, resulting in more billable hours and income.
Be realistic about your cost management analysis. If you have a negative ROI, then you have an opportunity to determine what failed and plan a course of action to make it a positive return or find other ways to fund it. Realize that you may, in fact, fail the ROI test, and that's fine too.
Cost Management Analysis Guide
- Part 1: Reducing Windows desktop total cost of ownership
- Part 2: Using a cost management analysis to manage change
- Part 3:Cost management analysis may affect Windows Server 2008 plans
- Part 4: Calculating gains in your cost management analysis
Gary Olsen is a systems software engineer for Hewlett-Packard in Global Solutions Engineering. He wrote Windows 2000: Active Directory Design and Deployment and co-authored Windows Server 2003 on HP ProLiant Servers. Olsen is a Microsoft MVP for Windows Server-File Systems.