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What Drives End-to-End IT Services ROI?

Posted on  3 August 12  by 

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Calculate the ROI of end-to-end services

End-to-end IT services offer the promise of significant returns, both within and outside the IT organization. When planned well, organizations can see up to a 17% reduction to annual IT budgets by the end of a four-year transition period. Aside from cost savings, early adopters report a range of benefits including faster innovation, better investment decisions, and an outcomes- and service-focused mindset. However, for many IT organizations and business stakeholders end-to-end IT services is a new concept, so creating a strong business case demands the right estimation of the costs and benefits upfront.

To quantify the costs and expected benefits of transitioning to end-to-end IT services, and to help IT leaders build the business case, we created a detailed economic model. According to our analysis, a company with a $300 million annual IT budget can expect roughly $50 million a year in savings to the IT budget and another $30 million in savings beyond IT. Analysis of the net benefits across four years suggests that costs outweigh benefits in the first year, and payback begins in the second year.

Most of the expected savings come from categories such as portfolio simplification (36% of benefits), faster time to market (26% of benefits), time saved on IT planning and administration (19% of benefits), and better designed services (11% of benefits). Increased costs are driven by new IT headcount (25% of costs), IT staff attrition (56% of costs), disruption to business operations (15% of costs), and consulting and training costs (2% of costs).

In addition, our analysis found that:

  1. Staff and organizational changes drive over 80% of the transition costs: Developing the necessary skills is a critical component of a successful move to an end-to-end IT services operating model and will require up-front investments from IT.
  2. Service governance changes drive over 60% of net benefits: Portfolio simplification, faster time to market, and better designed services yield recurring returns of several million dollars within and beyond IT.
  3. IT budget and staff size have little impact on savings: The benefits and costs can be scaled up and down. Moderate-and large-sized IT organizations can expect very similar rates of return on the transition to end-to-end IT services.

To help IT leaders develop their own business cases for a transition to end-to-end IT services, we have produced an Excel-based ROI calculator. It provides a methodology for estimating the ROI of a four year transition period, while allowing for customizations to the model to fit your organization’s size, budget, and adoption profile.

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