A Forrester Total Economic

Project Director:

Impact™ Study

Jonathan Lipsitz

Commissioned By VCE
Project Contributor:
Jon Erickson
March 2014

The Total Economic
Impact™ Of Converging
SAP Landscapes On
Vblock™ Systems

Table Of Contents
Executive Summary ............................................................................. 1
Disclosures .......................................................................................... 2
TEI Framework And Methodology........................................................ 4
Analysis ................................................................................................ 5
Financial Summary............................................................................. 16
VCE VblockTM Systems For SAP: Overview ....................................... 17
Appendix A: Composite Organization Description ............................ 18
Appendix B: Total Economic Impact™ Overview .............................. 18
Appendix C: Glossary ........................................................................ 19
Appendix D: Supplemental Material ................................................... 20
Appendix E: Endnotes ....................................................................... 20

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1

Executive Summary
In July 2013, VCE commissioned Forrester Consulting to
conduct a Total Economic Impact™ (TEI) study and examine the
potential return on investment (ROI) enterprises may realize by

replatforming SAP on VCE through factory-integrated systems
TM
called Vblock Systems. The purpose of this study is to provide
readers with a framework to evaluate the potential financial
impact on their organization of implementing a VCE converged
infrastructure solution for SAP.

FIGURE 1
Financial Summary Showing Three-Year Results

To better understand the benefits, costs, and risks associated
with a Vblock Systems implementation, Forrester interviewed a
number of customers and VCE affiliated SAP Certified
Professional Architects with multiple years of experience
converging operations of SAP landscapes. As an SAP global
technology partner and certified SAP HANA® appliance vendor,
Source: Forrester Research, Inc.
VCE and Vblock Systems represented to the interviewed
customers a very efficient means to enabling required landscape services while gaining the most from infrastructure
investments.
Prior to replatforming on Vblock Systems, customers were typically running SAP landscapes in a RISC instruction set
architecture. This lead to multiple problems, including high technology costs, excessive effort to maintain and improve SAP,
and system performance problems. With VCE, customers were able to reduce the total cost of ownership (TCO), improve
system performance, and make business users more productive. Said one interviewee, “Running virtualized SAP
landscapes on Vblock Systems has really helped us improve our operations and reduce costs. Previously, we were
spending twice as much compared to the companies we benchmark ourselves against.”
RUNNING SAP ON AN INTEGRATED PLATFORM LOWERS TCO AND IMPROVES BUSINESS OPERATIONS
Our interviews and subsequent financial analysis found that a composite organization (energy exploration and production
[E&P] organization with 15,000 employees and 5,000 SAP users) experienced the risk-adjusted ROI, IRR, benefits, and
costs shown in Figure 2. See Appendix A for a description of the composite organization.1
The composite organization analysis points to risk-adjusted benefits of $14.4 million over three years versus costs of $6.9
million, resulting in a net present value (NPV) of $5.7 million.
This translates to benefits of $2,489 per user, costs of $1,353 per user, and an NPV of $1,135 per user. By moving SAP to
Vblock Systems, the IT operations team achieved a 40% productivity improvement, and SAP developers saw a 20%
improvement in their output.
FIGURE 2
Financial Summary Showing Three-Year Risk-Adjusted Results

ROI / IRR:

Benefits:

NPV:

Payback:

84% / 122%

$14.4 Million

$5.7 Million

11 Months

2

Source: Forrester Research, Inc.

Benefits. The composite organization experienced the following riskadjusted benefits that represent those experienced by the
interviewed companies:
• Internal implementation costs were $780,000 less than if
SAP was replatformed onto a Linux x86 infrastructure.
The implementation of the infrastructure, new SAP
environment, and SAP applications would have taken twice as
long (eight months instead of four) and required 50% more
internal resources (10 full-time equivalent employees instead
of five).
• $3.8 million would have been spent on the alternative
infrastructure. This includes eliminated networking, storage,
and server hardware as well as annual maintenance and
incremental data center costs.

The case for insourcing
One of the interviewed companies, a railroad
operator, previously outsourced IT operations
and infrastructure. IT costs were significantly
higher than industry averages. The decision
was made to bring everything back in house
to reduce costs. Included in this was moving
major systems onto Vblock Systems.
SAP was the first application to be
replatformed. Overall, the total IT headcount
has been reduced by about 40%, and more
than $20 million per year in outsourcing
contracts have been eliminated. Additionally,
the IT organization can now “more quickly
respond to business needs. This has
eliminated shadow IT organizations and other
costs.”

• Redeployed IT operations team resources resulted in $4.5
million savings over three years. The pre-existing
operations team consisted of 35 FTEs. In Year 1, 30% of the
team was able to be reassigned to other, value add, IT activities which meant fewer new hires were needed. This
benefit increased to 40% beginning in Year 2.

• SAP application developer productivity increases totaled $468,000 over three years. Application developers
became up to 20% more productive because of more responsive systems, faster provisioning times, better access
to updates, etc.
• The composite organization (see Appendix A) was able to complete all necessary work even with a 5%
reduction in overall headcount, saving more than $4.8 million over three years. The composite organization
had a hiring freeze in place which resulted in 250 positions being eliminated by Year 3 of the study. The remaining
employees were able to pick up the slack because improved SAP system performance enabled greater worker
productivity.

Costs. The composite organization experienced the following risk-adjusted costs:
• Implementation internal labor costs were $476,000. The project to install the two Vblock Systems (one at the
primary data center and one at the DR facility), set up the systems and SAP, and SAP applications lasted four
months. Ten internal FTEs from the operations, database, and SAP teams worked on this.
• Implementation professional services totaled $1.2 million. VCE™ Professional Services were used for the
installation and setup of the Vblock Systems. SAP consultants were used to help plan and oversee the OS/DB
migration.
• Two Vblock System 720s, three years of maintenance, and data center housing costs totaled $5.3 million.
The initial cost for a Vblock System 720 at the primary and disaster recovery site was $3.7 million. A five-year
maintenance and support contract was paid upfront and amortized over five years, resulting in an annual cost of
$327,000.

Disclosures
The reader should be aware of the following:

3




The study is commissioned by VCE and delivered by Forrester Consulting. It is not meant to be used as a competitive
analysis.
Forrester makes no assumptions as to the potential return on investment that other organizations will receive. Forrester
strongly advises that readers use their own estimates within the framework provided in the report to determine the
appropriateness of an investment in Vblock Systems for SAP.
VCE 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 customer names for the interviews were provided by VCE. VCE did not participate in customer interviews.

4

TEI Framework And Methodology
INTRODUCTION
From the information provided in the interviews, Forrester has constructed a TEI framework for those organizations
considering implementing core SAP deployments on Vblock Systems. The objective of the framework is to identify the cost,
benefit, flexibility, and risk factors that affect the investment decision.
APPROACH AND METHODOLOGY
Forrester took a multistep approach to evaluate the impact that physical-to-virtual (P2V) migrations of SAP on to Vblock
Systems can have on an organization (see Figure 3). Specifically, we:





Interviewed VCE marketing personnel, along with Forrester analysts, to gather data relative to Vblock Systems and the
marketplace for converged infrastructure solutions.
Interviewed large SAP footprint organizations currently using Vblock Systems to obtain data with respect to costs, benefits,
and risks.
Designed a composite organization based on characteristics of the interviewed 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.
Risk adjustment is a key part of the TEI methodology. While interviewed organizations provided cost and benefit estimates,
some categories included a broad range of responses or had a number of outside forces that might have impacted it
higher or lower. For that reason, some cost and benefit totals have been risk-adjusted, and is detailed in each relevant
section.

Forrester employed four fundamental elements of TEI in modeling converging SAP landscapes on Vblock Systems:
Benefits, Costs, Flexibility, and Risks.
Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester’s TEI
methodology serves to provide a complete picture of the total economic impact of purchase decisions. Please see Appendix
B for additional information on the TEI methodology.

FIGURE 3
TEI Approach

Perform due
diligence
Source: Forrester Research, Inc.

Conduct
customer
interviews

Design
composite
organization

Construct
financial
model using
TEI framework

Write case
study

5

Analysis
INTERVIEWED ORGANIZATION
Forrester interviewed a number of organizations that migrated SAP landscapes to Vblock Systems. Those who were willing
to speak on record for this study included the following:

Railroad operator. A North America-based railroad operator
with approximately 15,000 employees. The company
replatformed SAP onto Vblock Systems as part of a broader
effort to bring all IT operations and systems back in house.
Previously, the outsourcing partner was running SAP in a
traditional x86 environment. All major applications now run on
Vblock Systems.
Government agency. This US federal government agency
migrated SAP from an x86 environment to Vblock Systems. This
was done as part of an initiative to strengthen shared IT services
and to significantly improve disaster recovery times. All major
applications have been migrated to Vblock Systems. There are
approximately 4,200 users.

“We have a long-term strategy
to do as much as possible on
converged infrastructure
solutions. Vblock Systems has
delivered better performance
and cost savings.”
~IT manager

IT services company. This international IT services company has moved its SAP instances to Vblock Systems for internal
usage as well as to create SAP hosting offerings for customers, including SAP HANA. The company has more than
70,000 employees around the world. More than 30 customers use the SAP hosted offering.

Based on the interviews, Forrester constructed a TEI framework, a composite company, and an associated ROI analysis that
illustrates the areas financially affected. The composite organization that Forrester synthesized from these results represents
an organization with the following characteristics:




Energy exploration and production (E&P) organization with 15,000 employees, 5,000 of which use SAP.
Offices as well as rigs and well delivery activities in 25 locations around the United Sates.
Replatformed onto Vblock Systems as part of an SAP upgrade and
to prepare for future use of the SAP HANA platform.
Moved from a physical Unix server-based environment to virtual
x86 based environment via Vblock Systems.

INTERVIEW HIGHLIGHTS
The composite organization faced challenges and had results similar
to the interviewed companies.

“We looked at building a
traditional Linux-based
solution. The cost of something
that performed as well as
Vblock would have been much
higher.”
~IT infrastructure manager

Situation
The energy exploration and production (E&P) organization was planning an SAP upgrade. Since the underlying storage in
support of the production instance of the core Enterprise Central Component (ECC) was ready for a standard life-cycle
replacement, it was decided to expand the scope and look at various infrastructure solutions to address current shortfall,
including:

SAP system performance was often an issue.

6




Potential capex and opex savings from consolidating risk instruction set architecture server silos and virtual supporting
landscapes on x86 based infrastructure.
Disaster recovery objectives need to be improved. The goal was to reduce the return to service time from 72 hours to 10
hours and data loss from 24 hours to 5 hours.
The organization was facing a reduction in force which meant that employee productivity would need to be increased.
There was a desire to look at using the SAP HANA platform to improve estimating the value of sought reserves and the
costs to access reserves.

Solution
The IT organization investigated implementing a converged infrastructure solution or deploying a Linux x86 server solution,
both of which would cost less than the existing Unix-based solution. The decision was made to go with a converged
infrastructure solution because it provided much better performance at a lower total cost of ownership than designing and
building out a Linux server solution. The IT organization chose VCE, among other reasons, because of the very quick
deployment time. “The Vblock Systems were delivered to the customer site within 45 days of order and migration to
virtualized landscapes was in production within 5 days of delivery.”
The Vblock System deployment consisted of one Vblock System 720 for the primary data center and another for the disaster
recovery location. In addition to the base configuration, the following EMC data protection elements were integrated into the
Vblock System to safeguard the new virtualized landscapes:


EMC RecoverPoint to address continuous remote replication (CRR) between data centers.
EMC Avamar plus Data Domain to provide client-side and target-based deduplication backup and recovery.

Results
The interviews revealed that:


The implementation effort was cut by two-thirds. The effort to set up the hardware and migrate SAP to the new
environment took half the time and two-thirds of employees compared to deploying SAP in a traditional x86 server
environment.
The IT organization is much more responsive to business users’
needs. IT projects can now be completed more quickly when
requested by business users. In the past, business users would
go outside of the IT organization if new virtual servers could not
be spun up fast enough or systems made available. A new,
virtual server “can be provisioned in four hours instead of two
days.” Additionally, the IT team “spends much less time working
nights and weekends standing up environments.”

“SAP performs much better on
Vblock. Online response times
have improved by as much as
30%.”
~IT infrastructure manager

The company is well positioned to take advantage of the SAP
HANA platform. The organization is very interested in running SAP HANA in its virtualized production environment. Up to
this point, VMware’s limitation on support of virtualized SAP HANA deployments to development and test environments
combined with the time and cost associated with leveraging SAP’s Tailored Data Center Integration (TDI) option has been
a deterrent. “Imagine if VMware were to announce production support for virtualized SAP HANA. Vblock Systems would
represent a packaged system that contains everything a customer needs to get started with an SAP project, including the
right number of virtual machines for core modules and an SAP HANA platform within the same virtualized frame.” This kind
of configuration does not exist in the SAP Product Availability Matrix (PAM) today and benefits would include reduced time
getting data into reports, improved business user productivity, and reduced infrastructure costs.

7

BENEFITS
The composite organization experienced a number of quantified benefits in this case study:

Reduced implementation cost of $780,000.

Alternate infrastructure cost avoidance of $3,774,645 over 3 years.

Redeployed IT operations team resources savings of $4,504,500 over 3 years.

Application developer productivity gain of $468,000 over 3 years.

Increased user productivity of $4,840,000 over 3 years.
Reduced Implementation Costs: $780,000

Installation and setup of the Vblock Systems took half the time compared to deploying a traditional x86 server environment,
networking equipment, and storage to meet the SAP Application Performance Standard (SAPS). Additionally, the time to
migrate SAP applications was much faster due to the unique architecture of the Vblock System. Vblock Systems are
designed with no single point of failure and leverage Cisco Unified Computing System’s service profiles to define a single
server and its storage and networking characteristics. The composite organization’s IT team that supports SAP services
simply extended the set of “SAP blueprints” delivered on a Vblock System directly from the VCE factory to enable a phased
migration with no impact to the business.
The result was much quicker time to realizing business value as well as the associated internal labor cost savings. The total
savings during the initial period was $866,667.
This savings can vary depending on the size of the deployment and the knowledge/skills of the internal IT organization. To
compensate, this benefit was risk-adjusted and reduced by 10%. The risk-adjusted total benefit resulting from reduced
implementation effort was $780, 000. See the section on Risks for more detail.

TABLE 1
Reduced Implementation Cost
Ref.

Metric

A1

Number of months (x86 solution)

A2

Number of internal FTEs (x86 solution)

A3

Average monthly fully burdened IT FTE cost

A4

Total (x86 solution) implementation costs

A5

Vblock System internal implementation costs

Ato

Reduced implementation costs
Risk adjustment

Atr

Total (risk-adjusted)

Source: Forrester Research, Inc.

Calculation

Initial
8
15

$130,000/12 months
A1*A2*A3

$10,833
$1,300,000

G1

$433,333

A4-A5

$866,667
 10%
$780,000

8

Alternate infrastructure cost avoidance: $3,774,645
The composite organization also evaluated moving SAP to a SUSE Linux Enterprise Server (SLES) solution. The existing
infrastructure was near end of life, so all new servers, storage, and networking equipment would have been required. It was
determined that the upfront purchase costs and ongoing maintenance would have been about 20% less than the VCE
solution. However, the TCO was viewed to be much higher because of ongoing operating costs. Additionally, data center
costs to house, cool, and power the Linux server infrastructure would have cost 50% more than what was required for the
Vblock Systems.
A 10% risk adjustment was used because of the wide range of possible specifications and costs of the alternative
infrastructure solution.

TABLE 2
Alternate Infrastructure Cost Avoidance
Ref.
B1

Metric
Cost of alternative Linux x86-based
infrastructure

B2

Annual maintenance costs

B3

Reduced data center housing costs (space,
cooling, and power)

Bto

Alternate infrastructure cost avoidance

Calculation

Year 1

Year 2

Year 3

$241,340

$241,340

$15,000

$15,000

$15,000

$15,000

$256,340

$256,340

$13,500

$230,706

$230,706

$3,425,032
$241,340

B1+B2+B3

Risk adjustment
Btr

Initial

Total (risk-adjusted)

$3,666,372
 10%
$3,299,734

Source: Forrester Research, Inc.

Redeployed IT Operations Team Resources: $4,504,500
All of the interviewed companies experienced a substantial reduction in the ongoing maintenance and upgrade effort for their
infrastructure as well as the SAP systems. The time to complete ongoing activities such as provisioning new virtual servers
for SAP were greatly reduced. One organization was able to reduce its IT operations team by 24 FTEs out of an original
team of 80. These resources were reassigned to other teams where they could work on projects that were more valuable to
the company. It was also able to eliminate upward of 200 shadow IT resources who were maintaining their own IT
infrastructure outside of formal channels. A smaller IT organization was able to double the productivity of its system
administration team, eliminating the need for half of the positions.
The composite organization began with an IT operations team of 35 FTEs working on SAP-related activities. This was
reduced by 30% in Year 1 of the study for the reasons mentioned above. Most of these resources were redeployed to other
IT teams, avoiding the need to hire new employees for those teams. By Year 2, this increased to 40%. The savings was
realized through a combination of reassigning employees to other teams, not hiring future positions that would otherwise
have been required and some attrition.
A 10% risk adjustment has been applied since some organizations may not achieve this level of productivity gains or have a
harder time eliminating positions.

9

TABLE 3
IT Operations Team Savings
Ref.

Metric

C1

Original size of IT operations team

C2

Percentage savings

C3

Number of FTE positions eliminated/not hired

C4

Annual fully burdened IT cost

Cto

IT operations team savings

Calculation

C1*C2

C3*C4

Year 2

Year 3

35

35

35

30%

40%

40%

10.5

14

14

$130,000

$130,000

$130,000

$1,365,000

$1,820,000

$1,820,000

$1,638,000

$1,638,000

 10%

Risk adjustment
Ctr

Year 1

Total (risk-adjusted)

$1,228,500

Source: Forrester Research, Inc.

Application Developer Productivity Gain: $468,000
Improved system performance and reduced provisioning time has made the application development team that works on
SAP-related systems more productive. This allowed them to create solutions and customizations that deliver additional
business benefit to the organization without the need to add additional programing resources. The productivity gain was 10%
in Year 1 as the changes were rolled out, and increased to 20% beginning in Year 2.
Not all productivity gains necessarily translate into additional productive work. For example, some workers may use their
newly found time to surf the Internet or discuss what they did over the weekend. To compensate for this, Forrester only
recognized 80% of the total potential benefit.
This benefit was risk-adjusted down by 10%. Some organizations may be operating so efficiently or understaffed that the
productivity gain can be smaller.

TABLE 4
Application Developer Productivity Gain
Ref.

Metric

D1

Number of SAP developer FTEs

D2

Productivity gain

D3

Annual fully burdened IT cost

D4

Percent of benefit realized

Dto

Application developer productivity gain
Risk adjustment

Dtr

Total (risk-adjusted)

Source: Forrester Research, Inc.

Calculation

D1*D2*D3*D4

Year 1

Year 2

Year 3

10

10

10

10%

20%

20%

$130,000

$130,000

$130,000

80%

80%

80%

$104,000

$208,000

$208,000

$187,200

$187,200

 10%
$93,600

10

Increased User Productivity: $4,840,000
SAP users are now more productive throughout the year. This is accomplished by making data more accessible and
delivered faster along with better IT support of business initiatives to improve processes. For the composite organization,
these efficiency gains were very important because there was a reduction in force of 5%.
This reduction was achieved through early retirement, not filling open positions, and curtailing hiring plans. Meanwhile, there
was no reduction in the total amount of work that needed to be completed by the remaining employees. There were many
factors that contributed to increased worker productivity, e.g., process re-engineering. Better SAP support of streamlined
business processes was one of them; it accounted for approximately 10% of the 250 headcount savings achieved by Year 3.
This is just one example of how improved IT performance and support of the business can result in the realization of
business value. It could be achieved through faster time-to-market, support of growth initiatives, etc. Readers are
encouraged to consider how system and process improvements will likely impact their organization.
Because of the highly variable nature of this benefit, it was risk-adjusted by 20%.

TABLE 5
Increased User Productivity
Ref.

Metric

F1

Number of positions eliminated (of existing users)

F2

Average annual users fully burdened cost

F3

Percent of benefit attributable to VCE

Fto

Increased user productivity
Risk adjustment

Ftr

Total (risk-adjusted)

Calculation
E3*5%

F1*F2*F3

Year 1

Year 2

Year 3

100

200

250

$110,000

$110,000

$110,000

10%

10%

10%

$1,100,000

$2,200,000

$2,750,000

$1,760,000

$2,200,000

 20%
$880,000

Source: Forrester Research, Inc.

Total Benefits
Table 6 shows the total of all benefits across the five areas listed above as well as present values (PVs) discounted at 10%.
Over three years, the composite organization expects risk-adjusted total benefits to be a PV of more than $12.4 million, or
$2,489 per user.

11

TABLE 6
Total Benefits (Risk-Adjusted)
Benefit
Reduced implementation
cost
Alternate infrastructure cost
avoidance
Redeployed IT operations
team resources
Application developer
productivity gain

Initial

Source: Forrester Research, Inc.

Year 2

Year 3

$780,000
$3,299,734

Increased user productivity
Total benefits (riskadjusted)

Year 1

$4,079,734

Total

Present value

$780,000

$780,000

$13,500

$230,706

$230,706

$3,774,645

$3,676,005

$1,228,500

$1,638,000

$1,638,000

$4,504,500

$3,701,191

$93,600

$187,200

$187,200

$468,000

$380,448

$880,000

$1,760,000

$2,200,000

$4,840,000

$3,907,438

$2,215,600

$3,815,906

$4,255,906

$14,367,145

$12,445,082

12

COSTS
The composite organization experienced a number of costs associated with the VblockTM Solution for SAP:

Implementation internal labor of $476,667.

Professional services of $1,153,653

Vblock Systems hardware of $5,304,961.

These represent the mix of internal and external costs experienced by the composite organization for initial planning,
implementation, and ongoing maintenance associated with the solution. There is no line item cost for the IT operations
team’s ongoing support since this is smaller than would be required for the Linux server solution and is accounted for as a
net benefit in the Benefits section of this study.
Cost No. 1. Initial Implementation Labor: $476,667
The installation of the Vblock System hardware, OS/DB migration of SAP, and testing to put landscape services fully into
production lasted four months from the time of hardware delivery. Ten FTEs worked on the project. They were a mix of the
operations team, database team, and SAP application team.
The time to fully deploy the SAP on the new Vblock Systems can vary depending on the total size of deployment, e.g., more
SAP users, and the number of IT resources available. In nearly every case, this effort will still be less than required to design
and install a server solution. A 10% risk adjustment was applied to this cost.

TABLE 7
Initial Implementation Labor
Ref.

Metric

F1

Number of months

F2

Number of FTEs

F3

Average monthly fully burdened IT FTE cost

Fto

Implementation internal labor
Risk adjustment

Ftr

Total (risk-adjusted)

Calculation

Initial
4
10

A3

$10,833

F1*F2*F3

$433,333
 10%
($476,667)

Source: Forrester Research, Inc.

Cost No. 2. Professional Services: $1,153,653
In addition to internal labor, professional services were used for the installation and setup of the Vblock Systems as well as
all activities required to migrate and update SAP. Hardware installation and configuration costs were $443,033 and were
included in the VCE proposal. An additional $605,743 was spent on assistance to upgrade the SAP instance onto Vblock
Systems and re-optimize SAP for the composite organization’s business processes. This money was spent with the
composite organization’s SAP consultant organization. There may be additional costs associated with major changes to
SAP, but these would be the same regardless of the hardware platform and are not included in the study.
The amount of professional services required can be higher if an organization does not have sufficient internal resources or if
the deployment is larger. A risk adjustment of 10% was applied to this cost.

13

TABLE 8
Professional Services
Ref.

Metric

Calculation

Initial

G1

Installation

$443,033

G2

Application configuration and migration

$605,743

Gto

Professional services

G1+G2

$1,048,776
 10%

Risk adjustment
Gtr

Total (risk-adjusted)

($1,153,653)

Source: Forrester Research, Inc.

Cost No. 3. Vblock System Hardware: $5,304,961
The composite organization deployed two Vblock System 720s, one in the primary data center and one in disaster recovery
location. The price for the primary and DR Vblock System differed based on the hardware specifications as described earlier
in the study. Standard discounting was applied to the list price. Annual maintenance and support was due at the time of
signing and amortized over five years, resulting in an annual cost of $327,358.
Data center housing costs, including space, cooling, and power, are estimated to be $30,000 per year.
A 10% risk adjustment was included in the study to account for a similar deployment requiring a higher specification solution.
If a larger organization requires a significantly larger solution, these additional costs would be offset by higher benefits. The
net result would be a similar payback period and with a higher NPV. Conversely, a smaller organization would experience a
smaller total NPV.

TABLE 9
Vblock Systems Hardware
Ref.

Metric

Calculation

Initial

H1

Primary Vblock System

$2,153,978

H2

DR Vblock System

$1,596,639

H3

Total purchase price

H4

Annual maintenance and support

H5

Data center housing costs (space, cooling
and power)

Hto

Hardware costs
Risk adjustment

Htr

Total (risk-adjusted)

Source: Forrester Research, Inc.

H1+H2

Year 1

Year 2

Year 3

$327,358

$327,358

$30,000

$30,000

$30,000

$30,000

$357,358

$357,358

($33,000)

($393,094)

($393,094)

$3,750,617
$327,358

H3+H4+H5

$4,077,975
 10%
($4,485,773)

14

Total Costs
Table 10 shows the total of all costs as well as associated present values, discounted at 10%. Over three years, the
composite organization expects total risk-adjusted costs to total $6.9 million, or $1,353 per user.

TABLE 10
Total Costs (Risk-Adjusted)
Benefit

Total

Present value

($476,667)

($476,667)

($476,667)

Professional services

($1,153,653)

($1,153,653)

($1,153,653)

Hardware costs

($4,485,773)

($33,000)

($393,094)

($393,094)

($5,304,961)

($5,135,981)

Total costs

($6,116,093)

($33,000)

($393,094)

($393,094)

($6,935,281)

($6,766,301)

Implementation internal labor

Initial

Year 1

Year 2

Year 3

Source: Forrester Research, Inc.

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
Vblock Systems for SAP 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).
Using Vblock Systems for SAP landscapes makes an organization inherently more flexible by decreasing the time to make
system changes and to provide data to business users. Additionally, the companies interviewed are all interested in
deploying SAP HANA on the Vblock System once virtualization is available. This will deliver a wide range of additional
benefits with a small incremental cost.
The Vblock System is also being used for other applications other than SAP, eliminating additional infrastructure costs.
Collectively, these flexibility benefits can be very large. They were not included in the ROI analysis because of a high degree
of uncertainty as to when and how they will be realized.
RISKS
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 Vblock Systems for SAP may deviate from the original or expected 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 Vblock Systems of SAP, resulting in lower overall total benefits. The
greater the uncertainty, the wider the potential range of outcomes for cost and benefit estimates.

15

TABLE 11
Benefit And Cost Risk Adjustments
Benefits

Adjustment

Reduced implementation cost

 10%

Alternate infrastructure cost avoidance

 10%

IT operations team savings

 10%

Application developer productivity gain

 10%

Increased user productivity

 20%

Costs

Adjustment

Implementation internal labor

 10%

Professional services

 10%

Vblock System hardware costs

 10%

Source: Forrester Research, Inc.

Quantitatively capturing investment risk and impact risk by directly adjusting the financial estimates results provides 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.
Table 11 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates. Readers are urged to
apply their own risk ranges based on their own degree of confidence in the cost and benefit estimates.

16

Financial Summary
The financial results calculated in the Benefits and Costs sections can be used to determine the ROI, IRR, NPV, and
payback period for the organization’s investment in Vblock Systems for SAP.
Table 12 below shows the risk-adjusted ROI, NPV, and payback period values. These values are determined by applying the
risk-adjustment values from Table 11 in the Risks section to the unadjusted results in each relevant cost and benefit section.

TABLE 12
Cash Flow: Risk-Adjusted

Costs
Benefits
Net benefits

Initial

Year 1

Year 2

Year 3

Total

Present value

($6,116,093)

($33,000)

($393,094)

($393,094)

($6,935,281)

($6,766,301)

$4,079,734

$2,215,600

$3,815,906

$4,255,906

$14,367,145

$12,445,082

($2,036,359)

$2,182,600

$3,422,812

$3,862,812

$7,431,866

$5,678,781

ROI

84%

IRR

122%

Payback period

11 months

Source: Forrester Research, Inc.

FIGURE 4
Cash Flow Chart (Risk-Adjusted)

Source: Forrester Research, Inc.

17

VCE VblockTM Systems For SAP: Overview
The following information is provided by VCE. Forrester has not validated any claims and does not endorse VCE or its
offerings.
VCE, formed by Cisco and EMC with investments from VMware and Intel, accelerates the adoption of converged
infrastructure and cloud-based computing models that dramatically reduce the cost of IT while improving time-to-market for
our customers.
VCE, through the Vblock System, delivers the industry’s only fully integrated and fully virtualized cloud infrastructure system.
VCE solutions are available through an extensive partner network, and cover horizontal applications, vertical industry
offerings, and application development environments, allowing customers to focus on business innovation instead of
integrating, validating, and managing IT infrastructure.
For more information, go to www.vce.com.

18

Appendix A: Composite Organization Description
For this TEI study, Forrester has created a composite organization to illustrate the quantifiable benefits and costs of
implementing Vblock Systems for SAP. The composite company is intended to represent an energy exploration and
production (E&P) organization with 15,000 employees, of which 5,000 use SAP, and is based on characteristics of the
interviewed customers.
The composite organization has 25 office, rigs, and well delivery operations locations around the United Sates. It previously
had SAP deployed on a RISC instruction set architecture. As part of an SAP upgrade, the existing infrastructure was near
end of life so the decision was made to replatform SAP. It evaluated moving SAP on SUSE Linux Enterprise Server
infrastructure or a converged infrastructure solution.
In purchasing Vblock Systems for SAP, the composite company has the following objectives:

Reduce TCO for operating SAP.

Improve SAP system performance and related business productivity.

Prepare for future use of SAP HANA.

Appendix B: Total Economic Impact™ Overview
Total Economic Impact is a methodology developed by Forrester Research that enhances a company’s technology decisionmaking processes and assists vendors in communicating the value proposition of their products and services to clients. The
TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior
management and other key business stakeholders.
The TEI methodology consists of four components to evaluate investment value: benefits, costs, flexibility, and risks.
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.

19

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. However, having the ability to capture that benefit has a PV that can be
estimated. The flexibility component of TEI captures that value.
RISKS
Risks measure 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 a minimum, three values are calculated to estimate the underlying range around each cost and
benefit.

Appendix C: Glossary
Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Companies set
their own 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 organizations to determine the most appropriate discount rate to use in their
own environment.
Internal rate of return (IRR): The interest rate that will bring a series of cash flows (positive and negative) to a NPV of zero.
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 NPV of cash flows.
Payback period: The breakeven point for an investment. This is 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 by dividing
net benefits (benefits minus costs) by costs.
A NOTE ON CASH FLOW TABLES
The following is a note on the cash flow tables used in this study (see the example table below). The initial investment
column contains costs incurred at “time 0” or at the beginning of Year 1. Those costs are not discounted. All other cash flows
in Years 1 through 3 are discounted using the discount rate at the end of the year. PV calculations are calculated for each
total cost and benefit estimate. NPV calculations are not calculated until the summary tables are the sum of the initial
investment and the discounted cash flows in each year.

20

TABLE [EXAMPLE]
Example Table
Ref.

Metric

Calculation

Year 1

Year 2

Year 3

Source: Forrester Research, Inc.

Appendix D: Supplemental Material
Related Forrester Research
“SAP Modernization,” Forrester Research, Inc., May 29, 2013
“Market Overview: Converged Infrastructure Solutions In 2013, Part 1 Of 2” Forrester Research, Inc., September 6, 2013.
“Market Overview: Converged Infrastructure Solutions In 2013, Part 2 Of 2” Forrester Research, Inc., September 11, 2013.

Appendix E: Endnotes
1

Forrester risk-adjusts the summary financial metrics to take into account the potential uncertainty of the cost and benefit
estimates. For more information see the section on Risks.