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Workbook number: C16W

Companion research report: C16 - Microsoft Content Management Server

INTRODUCTION

This workbook has been developed specifically to evaluate the value of Microsoft Content Management
Server. It is designed to be used with Nucleus Research report number C16 to help support your technology
decision by evaluating the real impact that Microsoft Content Management Server can bring to your
corporation's bottom line. Using the navigation buttons above or tabs at the bottom of the workbook, you'll go to
areas of the workbook where you can enter appropriate cost and benefit information. You may then print a
detailed report showing the financial results.

Calculations such as return on investment (ROI), total cost of ownership (TCO), payback period, and net
present value (NPV) are calculated and may be used to either select the best solution or negotiate better terms
on a solution that may have the wrong cost structure. It is recommended that users first review the tutorial
available on the Nucleus Web site that describes the process of gathering cost and benefit data.

INSTRUCTIONS

1. Navigate the workbook using the numbered buttons above, starting at step 1 to enter the cost and benefit
information.
2. At each step, scroll through the worksheet entering data in white cells (light gray cells are calculated).
3. You may edit cost and benefit line descriptions and delete sample entries to meet your organization's
particular situation.
4. Finally, go to step 3 to view the financial analysis.
5. Step 4 provides a complete report and risk assessment.

ABOUT NUCLEUS RESEARCH

Nucleus is an independent research firm providing advisory services that include in-depth analysis, tools, and
analyst access to help companies make technology investment decisions that deliver the greatest return to the
corporate bottom line.

Copyright Nucleus Research Incorporated, All Rights Reserved


This workbook tool may not be redistributed or modified in any way.
All trademarks are acknowledged

www.NucleusResearch.com
www.microsoft.com/cms
pecifically to evaluate the value of Microsoft Content Management
ucleus Research report number C16 to help support your technology
at Microsoft Content Management Server can bring to your
ation buttons above or tabs at the bottom of the workbook, you'll go to
er appropriate cost and benefit information. You may then print a
lts.

ment (ROI), total cost of ownership (TCO), payback period, and net
may be used to either select the best solution or negotiate better terms
st structure. It is recommended that users first review the tutorial
escribes the process of gathering cost and benefit data.

bered buttons above, starting at step 1 to enter the cost and benefit

heet entering data in white cells (light gray cells are calculated).
criptions and delete sample entries to meet your organization's

al analysis.
d risk assessment.

rm providing advisory services that include in-depth analysis, tools, and


echnology investment decisions that deliver the greatest return to the

Rights Reserved
modified in any way.
Basic Financial Information
In the this section enter the basic information about the project and the assumptions about the tax rate and
discount rate.

Your company name


Project name Microsoft Content Management Server
Date project starts 6/1/2001
Assumptions
Tax rate 45%
Discount rate 15%

Microsoft Content Management Server Cost Information


In the following sections you'll enter the actual and expected costs associated with the purchase and use of
Microsoft Content Management Server. Add additional items by using the blank description areas or inserting
new lines.

Software Expensed

Expensed software costs include Microsoft Content Management Server licenses for companies that do not have an
enterprise license agreement. Companies should include the cost of both production and development licenses if
needed. Most companies incur additional software costs ; those may include Windows 2000, Microsoft IIS 5, SQL Server
7 or 2000, or HTML editor software, if they are not already licensed by the company. If you are outsourcing your
deployment, enter the yearly cost below. Be sure to increase charges as you deploy to additional employees in years 2
and 3 and add additional items if needed.
NOTE: Some costs must be included in the pre-start column or the ROI cannot be calculated.

Description Pre-Start Year 1 Year 2 Year 3 Totals


Purchase: MCMS
Production license charges 0 0
Developer license charges 0 0
or Rent:
MCMS ASP charges per year 0 0 0 0

Database 0 0
Additional operating system software 0 0
Additional network software 0 0
Additional server software 0 0
Additional HTML editor software 0 0
Maintenance Fees 0 0 0 0
Total Software Expensed 0 0 0 0 0

Software Depreciated

Software costs that are depreciated are likely to include Microsoft Content Management Server costs, database costs,
and operating system costs. If you have not already counted them as expensed costs you should include them here.
The Workbook uses a 5-year straight line depreciation schedule. If needed, adjust the formulas in the year columns to
change the calculation. If you are using an ASP service it is likely you will avoid significant software costs that require
depreciation.
Software costs that are depreciated are likely to include Microsoft Content Management Server costs, database costs,
and operating system costs. If you have not already counted them as expensed costs you should include them here.
The Workbook uses a 5-year straight line depreciation schedule. If needed, adjust the formulas in the year columns to
change the calculation. If you are using an ASP service it is likely you will avoid significant software costs that require
depreciation.

Description Total Cost Year 1 Dep Year 2 Dep Year 3 Dep


MCMS costs depreciated 0 0 0 0
Additional operating system software 0 0 0 0
Additional network software 0 0 0 0
Additional server software 0 0 0 0
Additional database software 0 0 0 0
0 0 0 0
Total Software Depreciated 0 0 0 0

Hardware Expensed

Hardware that may be expensed as part of a Microsoft Content Management Server deployment include the servers
required to support MCMS and related databases and potential network upgrades. If these items are depreciated please
enter them in the section below. Desktop upgrades may also be required and expensed; however, Nucleus has found
this is not common.

Description Pre-Start Year 1 Year 2 Year 3 Totals


MCMS servers 0 0
Database servers 0 0
Network upgrades 0 0
Firewall 0 0
0 0
0 0
Maintenance Fees 0 0 0 0
Total Hardware Expensed 0 0 0 0 0

Hardware Depreciated

Hardware costs that are depreciated likely include the cost of servers to support MCMS, to connect to other repositories,
and to support dedicated databases. Additional servers may be purchased to support remote locations. The workbook
uses a 5-year straight line depreciation schedule. If needed, adjust the formulas in the year columns to change the
depreciation calculations.

Description Total Cost Year 1 Dep Year 2 Dep Year 3 Dep


Servers 0 0 0 0
Desktops 0 0 0 0
Network upgrades 0 0 0 0
Mainframe 0 0 0 0
0 0 0 0
Total Hardware Depreciated 0 0 0 0

Consulting

Nucleus Research has found some investment in consulting in the initial phase of a Microsoft Content Management
Server project is likely to accelerate deployment and thus return on investment. If MCMS is part of a larger Web site
redesign initiative, companies should enter expected cost of Web site design consulting as well as any consulting fees
associated with template development or MCMS deployment.
Description Pre-Start Year 1 Year 2 Year 3 Totals
Initial deployment consulting 0 0 0
Web site design 0 0 0
Future project-based consulting 0 0 0 0
Ongoing consulting 0 0 0 0
0 0
0 0
Total Consulting 0 0 0 0 0

Personnel
Organizations should consider the cost of IT personnel both in the initial phase of the project and for ongoing support of
the Microsoft Content Management Server deployment, and the cost of business personnel responsible for authoring and
managing content in the system.

To calculate the cost to the company of an employee use the number of hours worked on the project times the fully
loaded cost per hour.

Description Pre-Start Year 1 Year 2 Year 3 Totals


Initial 0
Management 0 0
IS 0 0
Employee staff 0 0
Deployment 0 0
Ongoing 0
Administrators 0 0 0 0
IT 0 0 0 0
Management 0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
Total Personnel 0 0 0 0 0

Training
Microsoft Content Management Server, like most Microsoft applications, benefits from a common and intuitive human
interface. It is integrated with the Office environment and initial user training will be minimal for business users;
companies should expect some training to be required for technical users. As users gain more experience additional
training may be beneficial. Be sure to use the fully loaded cost of an employee times the number of hours in training as
the cost estimate.

Description Pre-Start Year 1 Year 2 Year 3 Totals


Outside training location 0 0 0 0 0
Trainer cost 0 0 0 0 0
Employee time 0 0 0 0 0
0
0
Total Training 0 0 0 0 0

Other

Enter any other costs associated with a deployment of Microsoft Content Management Server. These costs might
include manuals, user conferences, visits to reference sites, brochures, or giveaways for users announcing the new
application.
Enter any other costs associated with a deployment of Microsoft Content Management Server. These costs might
include manuals, user conferences, visits to reference sites, brochures, or giveaways for users announcing the new
application.

Description Pre-Start Year 1 Year 2 Year 3 Totals


Additional manuals 0 0
Telephone costs 0 0
Airfare 0 0
0
0
Total Other 0 0 0 0 0
t Management Server Cost Information

oft Content Management Server licenses for companies that do not have an
es should include the cost of both production and development licenses if
al software costs ; those may include Windows 2000, Microsoft IIS 5, SQL Server
ey are not already licensed by the company. If you are outsourcing your
Be sure to increase charges as you deploy to additional employees in years 2
.
he pre-start column or the ROI cannot be calculated.

kely to include Microsoft Content Management Server costs, database costs,


not already counted them as expensed costs you should include them here.
e depreciation schedule. If needed, adjust the formulas in the year columns to
n ASP service it is likely you will avoid significant software costs that require
kely to include Microsoft Content Management Server costs, database costs,
not already counted them as expensed costs you should include them here.
e depreciation schedule. If needed, adjust the formulas in the year columns to
n ASP service it is likely you will avoid significant software costs that require

of a Microsoft Content Management Server deployment include the servers


atabases and potential network upgrades. If these items are depreciated please
upgrades may also be required and expensed; however, Nucleus has found

y include the cost of servers to support MCMS, to connect to other repositories,


ditional servers may be purchased to support remote locations. The workbook
chedule. If needed, adjust the formulas in the year columns to change the

tment in consulting in the initial phase of a Microsoft Content Management


oyment and thus return on investment. If MCMS is part of a larger Web site
er expected cost of Web site design consulting as well as any consulting fees
MCMS deployment.
IT personnel both in the initial phase of the project and for ongoing support of
er deployment, and the cost of business personnel responsible for authoring and

n employee use the number of hours worked on the project times the fully

ke most Microsoft applications, benefits from a common and intuitive human


environment and initial user training will be minimal for business users;
o be required for technical users. As users gain more experience additional
e the fully loaded cost of an employee times the number of hours in training as

deployment of Microsoft Content Management Server. These costs might


s to reference sites, brochures, or giveaways for users announcing the new
deployment of Microsoft Content Management Server. These costs might
s to reference sites, brochures, or giveaways for users announcing the new
Microsoft Content Management Server Benefit Information
Benefit Summary
Please read report C16 for additional benefit information.

Research by Nucleus analysts determined three key areas where organizations are likely to experience benefits from a
deployment of Microsoft Content Management Server:

Information organization and access. A standard format and templates for publishing information to the Web and
dynamic Web page delivery enable authors to rapidly update and edit content to ensure users can rapidly access
accurate and timely information.

Publishing process management. Customizable workflows and role-based user management support efficient
management of the approval process for document publishing while providing all users with rapid access to process
status information.

Technology management. Development and deployment tools, ease of use, and a template-based approach
enable IT staff to eliminate time needed to publish Web content and rapidly develop, deploy, and evolve Web sites as
needed.

These broad areas can be decomposed into specific returns that provide a direct benefit to the organization deploying
Microsoft Content Management Server. These include:

- Increased productivity
- Reduced administrative overhead
- Reduced marketing and brand management costs
- Reduced printing and communication costs
- Increased content quality
- Reduced employee training costs
- Increased customer satisfaction
- Reduced Web site development and launch time
- Reduced content conversion time
- Reduced site maintenance
- Reduced help desk costs
- Improved Web site design

In the following sections, enter the expected direct and indirect benefits you believe will be associated with the use of
Microsoft Content Management Server. Add additional items by using the blank description areas or inserting new lines.

Direct Benefits

Reduced staff associated with Web publishing ─ be they business staff, outsourced consultants, or IT staff ─ is the most
common area where organizations experience direct savings. Providing standard templates and design elements to
business users can also reduce brand management and marketing and communication costs. For example, making the
latest marketing material available via the Web will reduce the requests to the marketing department for this type of
material while maintaining consistency in the marketing message. This should have a direct impact on the number of
marketing employees needed either through a reduction in marketing staff or an increase in the company size while the
marketing staff remains constant.

A number of examples are included below. Keep in mind that cost reductions such as reduced paper and postage or
reduced staff salary are recurring in nature and should be included as savings for each year.
Reduced staff associated with Web publishing ─ be they business staff, outsourced consultants, or IT staff ─ is the most
common area where organizations experience direct savings. Providing standard templates and design elements to
business users can also reduce brand management and marketing and communication costs. For example, making the
latest marketing material available via the Web will reduce the requests to the marketing department for this type of
material while maintaining consistency in the marketing message. This should have a direct impact on the number of
marketing employees needed either through a reduction in marketing staff or an increase in the company size while the
marketing staff remains constant.

A number of examples are included below. Keep in mind that cost reductions such as reduced paper and postage or
reduced staff salary are recurring in nature and should be included as savings for each year.

Description Pre-Start Year 1 Year 2 Year 3 Totals


Business employees reassigned 0 0 0 0
Reduction in printing and communication costs 0 0 0 0
Elimination of overnight mail charges 0 0 0 0
Reduced brand management costs 0 0 0 0
Reduced employee training costs 0 0 0 0
Reduced content conversion costs 0 0 0 0
Reduction in outside consulting costs 0 0 0 0
IT employees reassigned 0 0 0 0
Reduced site development and launch costs 0 0 0 0
Reduced help desk costs 0 0 0 0
Reduced hardware and software maintenance costs 0 0 0 0
0 0 0 0
0 0 0 0
Total Direct Benefits 0 0 0 0 0

Indirect Benefits

Indirect benefits are the primary area of benefit from content management, and they can be substantial. The following
section outlines specific potential returns to be calculated from using Microsoft Content Management Server to support
improved information organization and access, improved publishing process management, and improved technology
management. If through estimates or direct observation these operational benefits can be quantified, they should used
in the section above. If they cannot be estimated or where greater detail is needed, the three categories of functional
benefits should be explored and estimated. Not all areas will be valid and additional items may be added to the table
where needed.

If you are upgrading to Microsoft Content Management Server from an existing Web publishing or content management
solution be sure to include only the additional benefits received from Microsoft Content Management Server.

Keep in mind that benefits are often recurring and are likely to increase in later years as the product is deployed to
additional users.

Measuring Productivity
When measuring the value of an indirect savings, the measurement of the savings should be corrected for inefficient
transfer of time. Essentially, you assume that an hour saved is not an additional hour worked. Use the following steps
when valuing a change in productivity:

1. Measure or estimate the expected change in time or productivity. For example, 1000 employees saving 10 minutes
per year equals 166.6 hours saved.
2. Correct the savings using a correction factor related to the job category. When a correction factor was not
measurable, 0.5 was used. in the example, 166.6 hours saved becomes 83.3 additional hours worked.
3. Multiply the gain by the fully loaded cost of an employee to calculate the value of the benefit.
2. Correct the savings using a correction factor related to the job category. When a correction factor was not
measurable, 0.5 was used. in the example, 166.6 hours saved becomes 83.3 additional hours worked.
3. Multiply the gain by the fully loaded cost of an employee to calculate the value of the benefit.

Description Pre-Start Year 1 Year 2 Year 3 Totals

Companies deploying an information portal for the first time


Information organization and access
Additional worker productivity 0 0 0 0
Reduced new hire training 0 0 0 0
Reduced administrative overhead 0 0 0 0
Reduced brand management costs 0 0 0 0
0 0 0 0
0 0 0 0
Publishing process management
Additional worker productivity 0 0 0 0
Reduced administrative overhead 0 0 0 0
Reduction in rework 0 0 0 0
0 0 0 0
0 0 0 0
Technology management
Reduced site development demands 0 0 0 0
Reduced site launch demands 0 0 0 0
Reduced content conversion costs 0 0 0 0
Reduced site and link management costs 0 0 0 0
Additional IT staff productivity 0 0 0 0
Additional worker productivity 0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
Total Indirect Benefits 0 0 0 0 0

Detailed Calculation Area


Make as many copies of this work area as needed. Be sure to transfer the results into the benefit area above

Calculating the value of productivity


Fully loaded cost per year 75,000
Expected increase in productivity per year (in hours) 17.33
Correction factor 60%
Value of increased productivity 375
Management Server Benefit Information

nformation.

ed three key areas where organizations are likely to experience benefits from a
ement Server:

ss. A standard format and templates for publishing information to the Web and
ors to rapidly update and edit content to ensure users can rapidly access

Customizable workflows and role-based user management support efficient


document publishing while providing all users with rapid access to process

ment and deployment tools, ease of use, and a template-based approach


o publish Web content and rapidly develop, deploy, and evolve Web sites as

into specific returns that provide a direct benefit to the organization deploying
These include:

ment costs
osts

unch time

ted direct and indirect benefits you believe will be associated with the use of
Add additional items by using the blank description areas or inserting new lines.

shing ─ be they business staff, outsourced consultants, or IT staff ─ is the most


ience direct savings. Providing standard templates and design elements to
anagement and marketing and communication costs. For example, making the
e Web will reduce the requests to the marketing department for this type of
the marketing message. This should have a direct impact on the number of
ugh a reduction in marketing staff or an increase in the company size while the

w. Keep in mind that cost reductions such as reduced paper and postage or
e and should be included as savings for each year.
shing ─ be they business staff, outsourced consultants, or IT staff ─ is the most
ience direct savings. Providing standard templates and design elements to
anagement and marketing and communication costs. For example, making the
e Web will reduce the requests to the marketing department for this type of
the marketing message. This should have a direct impact on the number of
ugh a reduction in marketing staff or an increase in the company size while the

w. Keep in mind that cost reductions such as reduced paper and postage or
e and should be included as savings for each year.

benefit from content management, and they can be substantial. The following
to be calculated from using Microsoft Content Management Server to support
ccess, improved publishing process management, and improved technology
ect observation these operational benefits can be quantified, they should used
stimated or where greater detail is needed, the three categories of functional
ed. Not all areas will be valid and additional items may be added to the table

t Management Server from an existing Web publishing or content management


onal benefits received from Microsoft Content Management Server.

rring and are likely to increase in later years as the product is deployed to

savings, the measurement of the savings should be corrected for inefficient


that an hour saved is not an additional hour worked. Use the following steps

ange in time or productivity. For example, 1000 employees saving 10 minutes

factor related to the job category. When a correction factor was not
le, 166.6 hours saved becomes 83.3 additional hours worked.
st of an employee to calculate the value of the benefit.
factor related to the job category. When a correction factor was not
le, 166.6 hours saved becomes 83.3 additional hours worked.
st of an employee to calculate the value of the benefit.
Consolidated Financial Results
ERROR - Costs must be included in the pre-start column to calculate ROI!
Summary Results
Project: Microsoft Content Management Server
Annual Return On Investment (ROI) #DIV/0!
Payback Period (Years) Err:502
Net Present Value (NPV) 0
Total Three Year Cost of Ownership (TCO) 0
Total Three Year Benefits 0

Annual Benefits Pre-Start Year 1 Year 2


Direct 0 0 0
Indirect 0 0 0
Total 0 0 0

Depreciation Schedule Total Cost Year 1 Year 2


Software 0 0 0
Hardware 0 0 0
Total 0 0 0

Expensed Costs Pre-Start Year 1 Year 2


Software 0 0 0
Hardware 0 0 0
Consulting 0 0 0
Personnel 0 0 0
Training 0 0 0
Other 0 0 0
Total 0 0 0

Financial Analysis Results Year 1 Year 2


Net cash flow before taxes 0 0 0
Net cash flow after taxes 0 0 0
Annual ROI - direct and indirect benefits #DIV/0! #DIV/0!
Annual ROI - direct benefits only #DIV/0! #DIV/0!
Net Present Value (NPV) 0 0 0
Payback (Years) Err:502
Total Cost of Ownership (TCO) 0 0 0
Average Cost of Ownership (TCO/Y) 0 0 0
3-Year Cumulative ROI (cROI) #DIV/0!
3-Year IRR Err:523

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com


Basic Financial Assumptions
All Government Taxes 45%
Discount Rate 15%

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com


nsolidated Financial Results
be included in the pre-start column to calculate ROI!

Microsoft Content Management Server

Year 3
0
0
0

Year 3
0
0
0

Year 3
0
0
0
0
0
0
0

Year 3
0
0
#DIV/0!
#DIV/0!
0

0
0

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com


Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com
Financial Analysis Report
Microsoft Content Management Server

Executive Summary

The following report has been created to detail the financial results expected from the project
listed above. The results in this report are based on the projected costs associated with the
project and the reasonably expected benefits derived over a three-year period. Table 1 shows a
summary of the financial results of using Microsoft Content Management Server.

Table 1
Summary Results
Annual Return On Investment (ROI) #DIV/0!
Payback Period (Years) Err:502
Net Present Value (NPV) 0
Total Three Year Cost of Ownership (TCO) 0
Total Three Year Benefits 0

The detailed financial calculations and assumptions may be found in the Appendix.

Risk Assessment

The financial results outlined in Table 1 provide measurements to quantify the expected results
from using Microsoft Content Management Server and its potential impact on the corporate
bottom line. These results are also useful in assessing the level of risk associated with the
project. Table 2 shows the evaluation of three types of risk on a scale of low, medium, and high.
These risks are:

Investment Rate - Investing in anything involves using capital in the hopes of gaining a return
greater than the cost of the capital employed. However, ensuring that the return exceeds the
cost of capital is only half the picture: the return must exceed the cost of capital by an amount
that adequately compensated the company for the risk of undertaking the project. For example,
a company with a 15% cost of capital would be ill advised to undertake a very risky project that
returns only 16% to the company. The net 1% gain is unlikely to compensate for undertaking
even the most risk-free project.

The investment score measures the ratio of ROI to cost of capital. The report generates a high
risk score when the ratio is less than 2 and a low risk when it is above 4.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 21


that adequately compensated the company for the risk of undertaking the project. For example,
a company with a 15% cost of capital would be ill advised to undertake a very risky project that
returns only 16% to the company. The net 1% gain is unlikely to compensate for undertaking
even the most risk-free project.

The investment score measures the ratio of ROI to cost of capital. The report generates a high
risk score when the ratio is less than 2 and a low risk when it is above 4.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 22


Capital Recovery - Making a decision to deploy a new technology at any point in time implies
making an estimate about the pace of technology change. Market events, new technologies, and
new products can quickly render even the most effective solution -- at any one point in time --
obsolete. However, obsolescence is not the only risk. New technology can create areas of
competition along with new areas of opportunity. Having the flexibility to discard a solution for a
new one that may offer even greater returns is an important competitive weapon. Projects that
provide enough benefits in early years to cover costs allow for this flexibility.

The capital recovery score is a measurement of the payback period -- the amount of time
needed for benefits from a project to outweigh the costs. A project with payback period of less
than 1 year provides a low risk while more than 2 years indicates a high risk.

Variance Potential - The financial results listed in this report are based on estimates of future
costs and benefits. However, it is unlikely that these estimates will exactly match actual costs
and benefits. Indirect benefits tend to be the most susceptible to small errors in estimates that
can result in large changes in the actual return. The variance potential score evaluates the
amount of indirect benefits as a percentage of the total benefits listed. Indirect benefits
amounting to more than 70% of the total generates a high score while less than 40% generates
a low risk score.

Table 2
Risk Assessment
Investment Rate #DIV/0!
Capital Recovery Err:502
Variance Potential #DIV/0!

Costs

Table 3 shows the expensed costs associated with the Microsoft Content Management Server.
Costs include both one-time and ongoing or recurring costs. When appropriate, costs have been
increased to account for additional users or extended deployment. When required, maintenance
costs have been included as a recurring cost under either software or hardware.

Costs were gathered using the following methodology:

- Everything that is directly associated with the project was included at 100%.
- General infrastructure items not associated with the project were not included.
- Infrastructure items that were driven by the project were included at the percentage the
project drove the expenditure.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 23


Table 3
Expensed Costs Pre-Start Year 1 Year 2
Software 0 0 0
Hardware 0 0 0
Consulting 0 0 0
Personnel 0 0 0
Training 0 0 0
Other 0 0 0
Total 0 0 0

Table 4 lists project costs that will be capitalized and the depreciation amount in each year.
Where no decision on capitalization had been made a threshold of 100,000 has been used. In
these cases, items above 100,000 have been capitalized.

Table 4
Depreciation Schedule Total Cost Year 1 Year 2
Software 0 0 0
Hardware 0 0 0
Total 0 0 0

Figure 1 shows the total three-year costs by category. Average and total cost of ownership per
year may be found in Figure 2. These costs have not been balanced against benefits and are
appropriate for use in long-term budgeting and planning.

Figure 1
Total Three Year Costs
Software 0
Hardware 0
Consulting 0
Personnel 0
Training 0
Other 0

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 24


Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 25
Figure 2
Total Cost of Ownership
Average Total
Initial cost 0 0
Year 1 0 0
Year 2 0 0
Year 3 0 0

1 1
1 1
1 1
1 1
1 1
0 0 Average
0 0 Total

0 0
0 0
0 0
0 0
Initial cost Year 1 Year 2 Year 3

Benefits

Benefits are shown in Table 5. There are two types of benefits indicated: direct and indirect. The
significant direct benefits of deploying Microsoft Content Management Server are in improved
information organization and access, improved publishing process management, and improved
technology management. For example, Nucleus found that by deploying Microsoft Content
Management Server organizations can reduce the staff time needed to keep Web site content
current while ensuring up-to-date and accurate information.

The benefit derived from the increased productivity of these workers have been included below
under indirect benefits. Additional direct benefits include items such as savings in paper costs,
reduction in accounts receivable, limiting express mail, reducing staff, selling old hardware, etc.
Direct benefits can be thought of as the savings you can "touch".

Examples of indirect savings include "reducing the time needed to test new software by 25%" or
"the ISO9000 audit takes 1 week rather than 3 weeks." These are benefits that involve a change
in a non-tangible item such as productivity or efficiency. The expectation is that this change will
manifest itself as an increase in work, and thus eventually and increase in revenue for the
company.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 26


Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 27
One important point of caution is not to double count the value of productivity. A change in
productivity and an increase in revenue can reasonably be assumed as cause and effect. If an
revenue enhancement is expected, and measurable, it should be included as a direct benefit.

When measuring the value of an indirect savings, the measurement of the savings was corrected
for inefficient transfer of time. It is assumed that an hour saved is not an additional hour
worked.

Table 5
Annual Benefits Pre-Start Year 1 Year 2
Direct 0 0 0
Indirect 0 0 0
Total 0 0 0

The total three year benefits by category are indicated in figure 3. As noted under the section on
risk, the ratio of direct to indirect benefits is an indicator of the potential variability of the
expected results. Extreme caution is urged when direct benefits make up fewer than 10% of the
total benefits.

Figure 3
Total Three Year Benefits
Direct 0
Indirect 0

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 28


Appendix

Table 6 shows the detailed financial calculations while Table 7 indicates the basic financial
assumptions used. The effect of various discount rates on the NPV can be found in figure 4.

Table 6
Financial Analysis Results Year 1 Year 2
Net cash flow before taxes 0 0 0
Net cash flow after taxes 0 0 0
Annual ROI - direct and indirect benefits #DIV/0! #DIV/0!
Annual ROI - direct benefits only #DIV/0! #DIV/0!
Net Present Value (NPV) 0 0 0
Payback (Years) Err:502
Total Cost of Ownership (TCO) 0 0 0
Average Cost of Ownership (TCO/Y) 0 0 0
3-Year Cumulative ROI (cROI) #DIV/0!
3-Year IRR Err:523

Table 7
Basic Financial Assumptions
All Government Taxes 45%
Discount Rate 15%

There are two calculations that should be noted. Internal Rate of Return (IRR) and Cumulative
ROI (cROI). Nucleus recommends that neither calculation be used when evaluating a technology
investment.

IRR
IRR is still used by many large corporations. In some cases it can be very misleading and MIRR
(see the Excel help file) is more accurate if your company really requires it. When using IRR
keep in mind these two points:
- IRR assumes a re-investment rate at the same rate as the IRR. This is fine when the IRR is
within range of the cost of capital but outside that range the formula assumes you can re-invest
at the higher rate. This rarely possible and can lead to results that misleadingly high. The NPV
calculation may provide an indicator of a problem with IRR. (MIRR compensates for this by
including both a discount and re-investment rate)
- Any change in sign of the cash flows creates another valid solution to IRR calculation, meaning
more than one right answer is possible. This is rare in a three-year time horizon, but be careful.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 29


cROI
Some companies publish a three-year ROI number that can be a bit misleading if you aren't
aware of the calculation. The cROI calculation adds the benefits from year 1, 2, and 3,
discounting these amounts back and then dividing by the initial cost. The formula is:

cROI = ((Year1, + NPV(Year2) + NPV (Year3)) / initial cost) x 100

cROI is an artificial metric that may exaggerate the benefits from an investment. This number
should not be compared to traditional ROI calculations or the cost of capital (it's approximately
3 times higher). For instance, a cROI of 35% is actually less attractive than a project offering a
15% annual return.

Figure 4
Net Present Value
Discount Rate NPV
5% 0
10% 0
15% 0
20% 0
25% 0
1 1
1
1 0.8
1
1 0.6
0
Column A
0 0.4
0
0 0.2
0
0 0
5%Row 1 10% 15% 20% 25%

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 30


nancial Analysis Report
t Content Management Server

ated to detail the financial results expected from the project


port are based on the projected costs associated with the
ed benefits derived over a three-year period. Table 1 shows a
f using Microsoft Content Management Server.

and assumptions may be found in the Appendix.

ble 1 provide measurements to quantify the expected results


agement Server and its potential impact on the corporate
useful in assessing the level of risk associated with the
on of three types of risk on a scale of low, medium, and high.

nything involves using capital in the hopes of gaining a return


l employed. However, ensuring that the return exceeds the
ure: the return must exceed the cost of capital by an amount
company for the risk of undertaking the project. For example,
ital would be ill advised to undertake a very risky project that
The net 1% gain is unlikely to compensate for undertaking

e ratio of ROI to cost of capital. The report generates a high


an 2 and a low risk when it is above 4.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 31


company for the risk of undertaking the project. For example,
ital would be ill advised to undertake a very risky project that
The net 1% gain is unlikely to compensate for undertaking

e ratio of ROI to cost of capital. The report generates a high


an 2 and a low risk when it is above 4.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 32


ision to deploy a new technology at any point in time implies
e of technology change. Market events, new technologies, and
ven the most effective solution -- at any one point in time --
s not the only risk. New technology can create areas of
of opportunity. Having the flexibility to discard a solution for a
ter returns is an important competitive weapon. Projects that
ears to cover costs allow for this flexibility.

asurement of the payback period -- the amount of time


to outweigh the costs. A project with payback period of less
ile more than 2 years indicates a high risk.

al results listed in this report are based on estimates of future


unlikely that these estimates will exactly match actual costs
d to be the most susceptible to small errors in estimates that
actual return. The variance potential score evaluates the
ercentage of the total benefits listed. Indirect benefits
he total generates a high score while less than 40% generates

associated with the Microsoft Content Management Server.


ngoing or recurring costs. When appropriate, costs have been
users or extended deployment. When required, maintenance
urring cost under either software or hardware.

owing methodology:

ated with the project was included at 100%.


associated with the project were not included.
iven by the project were included at the percentage the

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 33


Year 3
0
0
0
0
0
0
0

be capitalized and the depreciation amount in each year.


n had been made a threshold of 100,000 has been used. In
have been capitalized.

Year 3
0
0
0

r costs by category. Average and total cost of ownership per


ese costs have not been balanced against benefits and are
udgeting and planning.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 34


Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 35
1
1
1
1
1
0 Average
0 Total

0
0
0
0
r1 Year 2 Year 3

ere are two types of benefits indicated: direct and indirect. The
ing Microsoft Content Management Server are in improved
ss, improved publishing process management, and improved
mple, Nucleus found that by deploying Microsoft Content
can reduce the staff time needed to keep Web site content
and accurate information.

ased productivity of these workers have been included below


direct benefits include items such as savings in paper costs,
miting express mail, reducing staff, selling old hardware, etc.
s the savings you can "touch".

e "reducing the time needed to test new software by 25%" or


ather than 3 weeks." These are benefits that involve a change
ductivity or efficiency. The expectation is that this change will
ork, and thus eventually and increase in revenue for the

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 36


Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 37
ot to double count the value of productivity. A change in
enue can reasonably be assumed as cause and effect. If an
and measurable, it should be included as a direct benefit.

ndirect savings, the measurement of the savings was corrected


assumed that an hour saved is not an additional hour

Year 3
0
0
0

tegory are indicated in figure 3. As noted under the section on


benefits is an indicator of the potential variability of the
n is urged when direct benefits make up fewer than 10% of the

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 38


al calculations while Table 7 indicates the basic financial
arious discount rates on the NPV can be found in figure 4.

Year 3
0
0
#DIV/0!
#DIV/0!
0

0
0

ould be noted. Internal Rate of Return (IRR) and Cumulative


that neither calculation be used when evaluating a technology

porations. In some cases it can be very misleading and MIRR


curate if your company really requires it. When using IRR

e at the same rate as the IRR. This is fine when the IRR is
but outside that range the formula assumes you can re-invest
sible and can lead to results that misleadingly high. The NPV
or of a problem with IRR. (MIRR compensates for this by
nvestment rate)
ows creates another valid solution to IRR calculation, meaning
sible. This is rare in a three-year time horizon, but be careful.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 39


ear ROI number that can be a bit misleading if you aren't
calculation adds the benefits from year 1, 2, and 3,
nd then dividing by the initial cost. The formula is:

+ NPV (Year3)) / initial cost) x 100

y exaggerate the benefits from an investment. This number


nal ROI calculations or the cost of capital (it's approximately
OI of 35% is actually less attractive than a project offering a

Column A

15% 20% 25%

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com Page 40


Financial Impact Analysis
Microsoft Content Management Server

Net Value Derived Total as of end of year 1 Total as of end of year 2


Total Benefits $0 $0
Total Costs $0 $0
Net Value Derived $0 $0

Net Value Derived


$1

$1

$1
Initial Cost $0 $1

$1

(000)
$0

Payback Period in Months Err:502 $0

$0

$0
$0

$0
Year 1 Year 2 Year 3

Average Monthly Benefit Total as of end of year 1 Total as of end of year 2


Net Average Benefit $0 $0

Accounting Rate of Return Total as of end of year 1 Total as of end of year 2


Net Value / Initial Cost #DIV/0! #DIV/0!

Impact on Earnings Per Share


Number of shares outstanding: Enter # Shares Here ###
Enter # Shares Here

Impact in year 1 Impact in year 2


Benefits $0 $0
Costs $0 $0
Net Yearly Value Derived $0 $0

Impact on Earnings Per Share #DIV/0! #DIV/0!

Note:
The Financial Impact Analysis is a form of analysis designed for initial review of a project by senior-level management. This
analysis treats all costs as expenses in the year incurred and ignores the impact of depreciation and the effects of taxation. The
detailed analysis including a treatment of taxes and depreciation can be found in the Financial Results tab.
Note:
The Financial Impact Analysis is a form of analysis designed for initial review of a project by senior-level management. This
analysis treats all costs as expenses in the year incurred and ignores the impact of depreciation and the effects of taxation. The
detailed analysis including a treatment of taxes and depreciation can be found in the Financial Results tab.
mpact Analysis
Management Server

Total as of end of year 3 Used for chart at left!


$0 Year 1 Year 2 Year 3
$0 $0 $0 $0
$0

Net Value Derived


$1

$1

$1
$1

$1
(000)

$0
$0

$0

$0
$0

$0
Year 1 Year 2 Year 3

Total as of end of year 3


$0

Total as of end of year 3


#DIV/0!

Enter # Shares Here

Impact in year 3
$0
$0
$0

#DIV/0!

r initial review of a project by senior-level management. This


nores the impact of depreciation and the effects of taxation. The
n can be found in the Financial Results tab.
r initial review of a project by senior-level management. This
nores the impact of depreciation and the effects of taxation. The
n can be found in the Financial Results tab.
Quick Financial Impact Analysis
Microsoft Content Management Server

Basic Assumptions
Number of users in year 1
Average growth per year in the total number of users
Fully loaded cost of an "average" employee

Cost Information
Purchase Microsoft Content Management Server
Total cost of server software
Total cost of hardware
Maintenance cost per year
Number of IS personnel needed for MCMS
OR - Use ASP hosting services to "rent" Microsoft Content Management Server
ASP charge per user per month

Benefit Information
Information organization and access
Estimate of average % increase in productivity per employee
Reduction in direct costs (consulting, communication charges, etc.)
Publishing process management
Additional increase in productivity
Reduction in number of administrative/IT staff needed to support process
Technology management
Reduction in IT/outsourcing costs
Reduction in ongoing software or hardware costs

Financial Calculations
Total savings over three years
Net Present Value (NPV)
Average savings per user per year

Annual Savings

800000
700000
600000
500000
400000
300000
200000
100000
0
-100000
-200000
Initial Year 1
Year 2
Year 3

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com


Note:
The Quick Financial Impact Analysis is designed for the initial review of a project by management. This analysis is an approximation
based on the information provided. A detailed financial analysis can be performed by turning to the main section in this workbook.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com


Impact Analysis
Management Server

Calculation area (DO NOT DELETE)

300 300 303 306


1.0%
100,000

Cost data
Initial Year 1 Year 2 Year 3
60,000 60000
60,000 60000
20,000 20000 20000
2 200000 200000 200000
rosoft Content Management Server
0.00 0 0 0
120000 200000 220000 220000

Benefit Data
3.00% 900000 909000 918090
100,000 100000 100000 100000

0.00% 0 0 0
0 0 0 0

0 0 0 0
0 0 0 0
0 1000000 1009000 1018090
Initial Year 1 Year 2 Year 3
$2,267,090 -120000 800000 789000 798090
$1,475,658
$2,493.97

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com


view of a project by management. This analysis is an approximation
can be performed by turning to the main section in this workbook.

Copyright 2001 Nucleus Research, Inc. www.NucleusResearch.com