evaluating the tco and roi of an intranet...

White Paper

Evaluating the TCO and ROI of an

Intranet Portal

July 2010

Bitrix White Paper 2

CONTENTS

Contents ..................................................................................................................................... 2

INTRODUCTION .......................................................................................................................... 3

1. Key Figures .............................................................................................................................. 4

2. Bitrix® Intranet Portal stands up and stands out ...................................................................... 6

3. Total Cost of Ownership (TCO) ................................................................................................ 7

3.1. Implementation Costs ...................................................................................................... 7

3.1.1. System Licenses ......................................................................................................... 8

3.1.2. Hardware .................................................................................................................. 9

3.1.3. System Setup, Configuration and Testing. Content Initialization ................................. 9

3.1.4. Training and Education ............................................................................................ 10

3.2. Maintenance Costs ......................................................................................................... 11

3.2.1. Technical Support .................................................................................................... 11

3.2.2. Hardware Maintenance ........................................................................................... 12

3.2.3. System Administration and Content Management ................................................... 12

3.2.4. Ongoing Education .................................................................................................. 13

3.3. Summary of TCO Estimations for Different Companies ................................................... 14

3.4. Evaluating Risk-adjusted TCO.......................................................................................... 15

3.5. Summary of TCO Risk Adjusted Values ............................................................................ 16

4. Return On Investment (ROI) .................................................................................................. 17

4.1. ROI Case Studies ............................................................................................................. 18

4.1.1. Consolidation of Data and Corporate Services.......................................................... 18

4.1.2. Electronic Workflow as a Red Tape Killer ................................................................. 18

4.1.3. Efficient Communications and Knowledge Management.......................................... 19

4.1.4. Extranet and Quality of Service Issues ...................................................................... 19

4.2. Evaluating Bitrix Intranet Portal’s ROI ............................................................................. 19

4.3. Other Economic Metrics (IRR, NPV) ................................................................................ 21

5. CONCLUSION ........................................................................................................................ 23

ABOUT BITRIX ........................................................................................................................... 24


INTRODUCTION

Many companies involved in development and deployment of information systems, including

intranet portals, are still making the same mistake over and over again. While striving for

innovations and technology, they forget about the customer’s fundamental needs. Most

customers have no particular desire to know about the technology or standards a developer

utilizes in their products. The two questions of the greatest concern for a client are obviously

how much the system will cost and what the return on investment will be.

These two questions have been under discussion for years concerning most types of software

products. The stumbling block is usually the lack of agreement concerning the methodology of

measurement of financial indicators. Indeed, this should be expected, since every single

implementation of an IT system occurs in a unique business and IT environment.

The intranet portal market did not escape this difficulty. In fact, dissent in this sector is possibly

even more discordant than in others, given the multifaceted nature of the product. Just as a

brief example, portal vendors prefer to rely on empirical conclusions, speculating quite

reasonably that efficiency brings financial benefit. This implies an ‘ideal customer’ who will

indeed benefit from all the features included. Customers driven by the urgent need to solve one

or two issues may end up comparing highly disparate products, like a point solution and a full-

featured portal, overlooking quite a lot of real value in the process.

This whitepaper depicts the Bitrix approach to measuring and calculating the two principal

financial indicators of an intranet project: TCO (Total Cost of Ownership) and ROI (Return on

Investment). Other things being equal, we believe that this approach, based upon generalized

constructions that are consistence with the experience of our clients, adheres to common sense

and can be applied to real life. Our approach is especially applicable to small and medium-sized

companies, the segments which comprise the majority of Bitrix’ customers.

The first-tier audiences for this research are people who are in charge of initiating intranet

development projects: CEO’s and financial and IT directors. Furthermore, technicians will find it

useful for better understanding of the economical aspects of system implementation, or proving

financial benefit when presenting Bitrix Intranet Portal to management. We have developed and

implemented a web-based version of a TCO/ROI calculator for the Bitrix Intranet Portal

according to the methodology elaborated in this work. The calculator is available at

www.bitrixsoft.com/tcoroi.

This research includes three main parts:

Sections 1 and 2 give quantitative and qualitative information about the Bitrix Intranet

Portal, its features and advantages.

Section 3 introduces the methodology of evaluating an intranet’s total cost of ownership

and gives an example of calculation of TCO.

Section 4 gives a review of existing approaches to estimation of ROI and shows examples of

calculation of this and other financial indicators (NPV, IRR).

http://www.bitrixsoft.com/tcoroi


1. Key Figures for Bitrix Intranet Portal

Bitrix Intranet Portal’s TCO (total cost of ownership) over a three-year time period

ranges between $22,016 (25 users) to $198,807 (1.000 users)1. The value of TCO per

user decreases dramatically as the scale of implementation grows.

Scale Indicator* Moment of installation

Year 1 Year 2 Year 3 Total

25 users TCO 5,606 6,233 4,964 5,213 22,016

TCO per user 224 249 199 209 881

50 users TCO 8,343 8,828 7,097 7,452 31,720

TCO per user 167 177 142 149 634

100 users TCO 13,371 12,622 10,384 10,903 47,280

TCO per user 134 126 104 109 473

250 users TCO 27,368 20,574 17,846 18,738 84,526

TCO per user 109 82 71 75 338

500 users TCO 49,550 30,214 27,753 29,140 136,657

TCO per user 99 60 56 58 273

1,000 users TCO 72,510 45,074 39,621 41,602 198,807

TCO per user 73 45 40 42 199

* - all values shown in USD

Investment return (economy) after the installation of Bitrix Intranet Portal over a three-

year time period varies from $37,239 (25 users) to $1,489,556 (1,000 users)2. Because

we base this measurement exclusively on time saved, value per user remains constant

regardless of the scale of implementation.

Scale Indicator* Moment of installation


25 users ROI - 11,813 12,403 13,023 37,239

50 users ROI - 23,625 24,806 26,047 74,478

100 users ROI - 47,250 49,613 52,093 148,956

250 users ROI - 118,125 124,031 130,233 372,389

500 users ROI - 236,250 248,063 260,466 744,778

1,000 users ROI - 472,500 496,125 520,931 1,489,556

* - all values shown in USD

Bitrix Intranet Portal is exceptional in the intranet market as an economically sound

solution for organizations of almost any size. The three-year ROI is between 69% and

649%; IRR comes in at 100% to 594%.

1 If a company conforms to reference parameters (Salary, Upkeep etc.). See chapter 4. 2 On the stipulation that portal implementation will save each employee 3 minutes of working time daily.


Scale Investment metrics Moment of installation

Year 1 Year 2 Year 3

25 users

TCO, USD 5,606 11,839 16,803 22,016

ROI, % 0% 44% 69%

IRR, % 0% 75% 100%

NPV, USD -5,606 -292 6,455 13,202

50 users

TCO, USD 8,343 17,171 24,268 31,720

ROI, % 38% 100% 135%

IRR, % 77% 159% 181%

NPV, USD -8,343 5,750 21,812 37,875

100 users

TCO, USD 13,371 25,993 36,377 47,280

ROI, % 82% 166% 215%

IRR, % 159% 244% 263%

NPV, USD -13,371 19,608 55,190 90,771

250 users

TCO, USD 27,368 47,942 65,788 84,526

ROI, % 146% 268% 341%

IRR, % 256% 344% 360%

NPV, USD -27,368 65,538 161,851 258,164

500 users

TCO, USD 49,550 79,764 107,516 136,657

ROI, % 196% 350% 445%

IRR, % 316% 404% 419%

NPV, USD -49,550 146,675 346,503 546,330

1,000 users

TCO, USD 72,510 117,584 157,205 198,807

ROI, % 302% 516% 649%

IRR, % 489% 582% 594%

NPV, USD -72,510 334,562 748,625 1,162,688

For any organization with 50 or more users, Bitrix Intranet Portal will pay for itself as

early as one year after launch.

Even for a 25-user company, Bitrix Intranet Portal will pay for itself within a three-year

period if the users save a very modest 2 minutes of working time per day. Companies

with over 100 users will need to show just one minute of savings per day to pay off the

investment.

Scale

Minimum efficient time saving

Moment of installation


25 users - 3,01 2,08 1,77

50 users - 2,18 1,50 1,28

100 users - 1,65 1,13 0,95

250 users - 1,22 0,82 0,68

500 users - 1,01 0,67 0,55

1.000 users - 0,75 0,49 0,40

2. Bitrix® Intranet Portal stands up and stands out

Properly executed, an intranet is a solution for communication, teamwork and information exchange

within a company that provides each employee with a high-performance workplace to motivate,

increase productivity and concentrate knowledge. The system utilizes common web technologies used

in the Internet today, but adapted for internal business operations. Simply speaking, an intranet portal is

analogous to the company’s website but for internal functions, not external.

In the current business environment, intranet portals have become standard equipment in companies

with a critical mass of network users, meriting implementation. According to an estimate by IDC3, the

worldwide intranet portal market has stepped over the $1 billion mark and is going to reach $1.5 billion

by 2011. Moreover, the market has shown growth even through the global financial crisis: there are new

vendors appearing while the pioneers have been increasing sales.

This trend is clearly brought on by the value created by an intranet. Simply looking at one of the single

most basic functions of an Intranet, file sharing, value is readily apparent for anyone who has looked

through several different shared folders searching for the most recent copy of a document, or had to

make sure that all employees are aware of the most recent policies, current advertising campaigns, or

standard operating procedures. Just this single feature saves a noticeable amount of time, and a high-

end intranet brings much, much more to the table.

Despite this positive trend, there are a number of factors which can delay the implementation of an

intranet portal – a condition which is always true of new technologies, whether they are replacing old

technologies or pushing the frontier. In the case of intranet portals, some of the main factors are initial

cost, maintenance expenses, compatibility with legacy infrastructure and, of course, the question of

what is that critical mass, the cut-off point at which an intranet becomes a worthwhile investment.

Bitrix Intranet Portal stands out in the arena for its approach to these issues. As an out-of-the-box

software product, it allows set-up of a fully functional intranet portal in shortest time possible with as

little assistance from IT specialists as possible. The ease of operation and integration, rich functionality

and low total cost of ownership come together to make Bitrix Intranet Portal the ideal solution for small

businesses, much more advantageous than many cumbersome corporate platforms or expensive ready-

to-go solutions. Nonetheless, Bitrix Intranet Portal supports the full spectrum of business

communication technologies and features toolsets which surpass these competitors in most cases, all

without massive monetary investments.

Bitrix Intranet Portal is based on the peerless Bitrix Platform – a leading content management system

that powers over 30,000 websites worldwide.

3 IDC, Worldwide Enterprise Portal Software 2007-2011 Forecast Update, http://www-03.ibm.com/press/us/en/pressrelease/21900.wss

http://www.marketresearch.com/product/display.asp?productid=1573261&xs=r&g=1&kw=&view=toc&curr=CAD

http://www-03.ibm.com/press/us/en/pressrelease/21900.wss


3. Total Cost of Ownership (TCO)

The first step in estimating the profitability of any project is to evaluate costs required for the system

ownership and use. We shall use a TCO methodology which was first introduced by Gartner back in

19874. The idea behind it is as simple as possible: calculation of all possible costs a company could bear

during the system life cycle.

A carefully-reasoned methodology requires a clear classification of these expenditures. According to the

definition freely available in Wikipedia5, they can be grouped into explicit and implicit expense items.

Both the explicit and implicit expenditures can be one-time (generally at the time of install) or periodic

(occurring afterwards). In analysis of the TCO of Bitrix Intranet Portal herein, the distinction between

occasional and periodic expenses is given priority over explicit and implicit expenses as far as displaying

the data.

Thus, a standard evaluation of an IT system’s TCO includes the following steps.

Assessment of implementation costs paid by the customer before the system is put into

operation. These are one-time expenses which can be regarded as an initial investment.

Assessment of maintenance costs (periodic expenditures). Though these kinds of expenditures

may seem less important, they can exceed implementation costs significantly, especially over

several years. This research considers a three-year horizon for maintenance costs.

Finally, estimations are adjusted for implementation risks. The purpose of the adjustment is to

reduce inaccuracy which arises from possible implementation delays (which are nearly

inevitable as practice shows). It’s worth mentioning that only the implicit expenditures require

adjustment because the explicit costs are predetermined and rarely change.

The analytical method developed below is shown as functions of a set of parameters, thus making the

approach nearly universal and allowing evaluation of TCO for virtually any company regardless of

industry sector or scale. This methodology is available in an online calculator on the Bitrix website which

can be used to calculate key financial indicators by providing the required input parameters.

Sections 3.1 – 3.3 show the estimation of main expenditures for Bitrix Intranet Portal.

3.1. Implementation Costs

In a general case, implementation costs include the following main expenditure items:

Software license(s). This is an explicit expenditure and is defined by the cost of the software

license required for the solution deployment. Additionally, this item may include the cost of

infrastructure software (if using additional commercial products).

Hardware. This is also an explicit expenditure and is defined by the current market price for the

required server hardware. This item might be irrelevant for customers which already have

4 About Gartner TCO: http://amt.gartner.com/TCO/MoreAboutTCO.htm. 5 http://en.wikipedia.org/wiki/Total_cost_of_ownership


adequate hardware to run the intranet portal6. Here we assume that a new server is going to be

purchased for the deployment of Bitrix Intranet Portal.

System setup and configuration. This is an implicit expenditure. The total cost is determined

using the time required by IT specialists to install the system and complete initial configuration.

It is important not to include content creation and system maintenance costs here.

System testing and content population. These are implicit expenditures. The total cost is

determined by the time required to test and initialize the system.

Training and education. This implicit expenditure is determined by the time required for system

users to get acquainted with the system functions and features. Since the user interface is highly

intuitive and the online training courses included inside the software product this eliminates the

need for expensive training with an instructor.

3.1.1. Software Licenses

Table 1 shows the current Bitrix Intranet Portal pricelist. To evaluate TCO, we are using the Office

edition because it includes all the features small and medium companies require in the majority of

cases.

Table 1. The Bitrix Intranet Portal pricelist

Thus, the total amount of this item is (in USD):

(1) License Costs = 1 799 + (Users - 25) × 40,

where Users is the number of system users.

The formula (1) is valid if Users is over 25 and less than 500. If the number of intranet users is below or

above the range specified, the license price is fixed: $1,799 or $20,799, respectively7.

Table 2 shows examples of the Bitrix Intranet Portal price (in USD) for businesses of different sizes.

Table 2. Examples of Bitrix Intranet Portal license prices

Users 25 50 100 250 500 1,000

License price (USD) 1,799 2,799 4,799 10,799 20,799 20,799

6 Bitrix Intranet Portal supports VMware and Parallels virtualization technologies. This allows running the system on a server on which a mail

server and/or website is installed. 7 This calculation presumes that Bitrix Intranet Portal is installed on a free infrastructure software (aka LAMP: Linux, Apache, MySQL, PHP).

When using the Microsoft platform, add the costs for Windows Server, MS SQL and MS IIS. You will get a precise indication for this software

from an authorized Microsoft retailer or distributor.

Bitrix Intranet Portal License Price

25-user base pack $1,799

Additional user $40

Unlimited user license $20,799


3.1.2. Hardware

Bitrix Intranet Portal has modest hardware requirements. The platform performance has been proven

by tens of thousands of heavily trafficked sites, as well as special performance tests. Notably, to serve

small organizations, the system can be installed on an ordinary office computer rather than a pricey

dedicated server.

Generally, the cost of hardware is directly dependent on the scale of implementation. According to an

evaluation done by Bitrix engineers, these expenses can vary from $1,000 to $10,000, depending on the

number of users and the system load. The maximum figure ($10,000) corresponds to relatively large-

scale projects in organizations with 3,000 or more users8. A simple linear model can be used to evaluate

the cost of hardware:

(2) Hardware Costs = 1000 + Users × 3,

where Users is the number of intranet users.

Table 3. Hardware costs for different organizations

Users 25 50 100 250 500 1,000

Hardware costs (USD) 1,075 1,150 1,300 1,750 2,500 4,000

This evaluation is subject to correction according to the customer’s demands or specific IT policy.

3.1.3. System Setup, Configuration and Testing. Content Population

As previously mentioned, the cost of preparatory work is implicit and hence be calculated using time

spent. To calculate this expenditure item, we need to estimate the work time and the unit cost (the cost

of a man-hour).

Determining the unit cost is relatively simple. It is derived from the total cost of an employee. This is a

product of gross salary and maintenance expenditures (rent, office furniture and hardware, stationery,

training, etc.) – the so-called upkeep coefficient. The practical formula is as follows (3):

(3) Employee Cost = Salary × Upkeep,

where Salary is the average wage of the company’s employees9, and Upkeep is a coefficient which

experience shows to be between 1.5 and 3.

Now we need to estimate the time involved. It is obvious that the main factor here is the project

complexity, which is hard to measure for an abstract organization. The only concrete metrics would be

the size of an organization, in this case – the number of intranet users.

As speculated by Bitrix specialists, the best model to derive the time inputs from the number of users is

an exponential function with a factor of ½, that is, the square root. This model surmises that, for

example, increasing the number of users four times will raise the time costs twice. The following

formula represents the formalization of this approach:

8 Larger project implementations would require a special evaluation according to the customer’s IT infrastructure details. 9 Strictly speaking, the salary of IT personnel (namely, the employees to deploy the system) may differ from the average value significantly. This research uses a simplified approach and assumes equal compensation of all the portal users.


(4)

where Users is the number of intranet users; k is a normalizing factor.

Fig. 1 Exponential and linear time cost models

The k factor here is an empirically derived figure which closely approximates cumulative data from

successfully completed projects. According to our research, the system setup and configuration time for

a reference 250-user organization is max. 40 man-hours; the testing and content population time is max.

80 man-hours. In practice, these indicators can be even less: a qualified system administrator can deploy

the system in its entirety within 1 or 2 working days.

The considerations disclosed above are sufficient to produce a true estimation of the costs. Examples of

calculated results for organizations of different scale are summarized in the table 4. The calculations

were made assuming the average Salary is $3,000 per month, and the Upkeep factor is 2.

Table 4. The time and money costs for system setup, configuration, testing, and content population

Users 25 50 100 250 500 1,000

Time (set-up and configuration), man-hours 12,6 17,9 25,3 40,0 56,6 80,0

Monetary costs (setup and configuration), USD 457 647 914 1,446 2,045 2,892

Time costs (testing, content population), man-hours 25,3 35,8 50,6 80,0 113,1 160,0

Money costs (testing, content population), USD 914 1,293 1,829 2,892 4,089 5,783

Since these expenses are implicit, they will be adjusted for possible risks and delays (see chapter 4.3).

3.1.4. Training and Education

The last item among implementation costs is the training of personnel. Similar to the deployment,

training expenses are estimated via the time invested. However, the exponential function is inapplicable

here because training must be delivered to all employees without exception.

Thus, the following formula (5) can be used to measure the training and education costs:

(5) Education costs = Users × Education Hours × Hourly Cost,

where Users is the number of intranet users, Education Hours is the average of training hours, and

Hourly Cost is the average cost of a man-hour.

Users 0

Exponential Model

Linear Model

Time


Bitrix asserts that only one hour is required to get an initial understanding of the system and take the

online training course using the built-in e-Learning module. It is to be emphasized again that Bitrix

Intranet Portal users do not need to take an instructor-lead course.

The examples of calculation results for organizations of different scale are summarized in the table 5.

The calculations were made assuming an average Salary of $3,000, and an Upkeep factor of 2.

Table 5. The education and training costs

3.2. Maintenance Costs

The following main constituents can be distinguished in maintenance costs. Note again that we are using

a three-year horizon for maintenance costs.

Technical support. This is an explicit expenditure whose possible values are specified in the

Bitrix Intranet Portal pricelist. Note that the software licenses (see 4.1.1) already include a one-

year technical support subscription.

Hardware maintenance. This is an explicit expenditure defined by the server maintenance costs,

placement costs, spare parts costs and electricity consumed.

System administration. This implicit expenditure is simply a measure of the time the system

administrator(s) spends for the system management over the period of operation. Note that this

does not include the time required for content management.

Content management. This implicit expenditure is defined by the time required to add, edit or

delete the intranet portal content. This includes updating of content and moderating

(enforcement of content and use policies).

Ongoing education. This implicit expenditure is determined by the time new intranet users (i.e.

the new employees) spend for learning the basics of intranet operation. Note that the initial

education (performed at system start-up) has already been included in the implementation

costs.

The estimation of maintenance costs is in absolute monetary values; all the expenses occurring in

subsequent years will be inflation adjusted (a rate of 5% will be used as an example).

3.2.1. Technical Support

The cost of technical support for Bitrix Intranet Portal for one year is 22%10 of the license price11. So to

get quotes for this expenditure item, we need to get the existing license prices (4.1.1), multiply by the

10 As currently indicated in the pricelist 11 Note that a discount is available when buying a technical support subscription for three years. The present calculation impli es, however, that a company extends the subscription yearly.

Users 25 50 100 250 500 1,000

Education costs, USD 904 1,807 3,614 9,036 18,072 36,145


technical support rate and adjust for inflation. Note that all new licenses include a one-year subscription

to updates and technical support.

Table 6. Cost of technical support

3.2.2. Hardware Maintenance

Generally, the cost of hardware maintenance and allocation is defined by the vendor’s price and the

customer’s data center properties. However, an adequate estimation of this item can be reached by

using the model for technical support. Our experience shows that companies do not spend more than

25% of the server price for maintenance and allocation. This includes the server allocation in a data

center, ventilation, electricity, repairs – anything required for normal server operation.

Thus, to obtain hardware maintenance costs, we will calculate 25% of the existing purchase price quotes

(4.1.2) and adjust for inflation.

Table 6. Cost of hardware maintenance and allocation

3.2.3. System Administration and Content Management

The evaluation of system administration and content management costs is similar to that of system

configuration and testing. The evaluation is based on the following assumptions.

The time expense in the first year is 50% greater than that of the second and third years. This

considers the fact that as administrators and users become acclimated to the system, processes

run more smoothly and that experienced users require less support from administrators.

The man-hour cost is adjusted for inflation.

According to Bitrix’ observations, the time spent for system administration during the first year

for a sample 250-user organization are 80 man-hours; content management costs are 240 man-

hours.

Table 7 shows the results of example calculations made for cases involving different numbers of users.

The calculations were made assuming the average Salary is $3,000, and the Upkeep factor is 2.

Table 7. System administration and content management costs

Users 25 50 100 250 500 1,000

Technical support expenses (years 2 and 3), USD

895 1,392 2,386 5,370 10,342 10,342

Users 25 50 100 250 500 1,000

Maintenance costs (3 years), USD 890 952 1,076 1,448 2,069 3,310

Users 25 50 100 250 500 1,000

Time costs (system administration), man-hours, 3 years

89 125 177 280 396 560

Monetary costs (system administration), USD, 3 years

3,507 4,959 7,014 11,090 15,683 22,179

Time costs (content management), man-hours, 3 years

177 250 354 560 792 1,120

Monetary costs (content management), 7,014 9,919 14,027 22,179 31,366 44,358


3.2.4. Ongoing Education

The evaluation of ongoing education and training costs is similar to the initial training costs. To obtain

the values, we discount the initial training costs for staff turnover, and then adjust for inflation.

Table 8 shows the results of calculations made for different number of users. The calculations were

made assuming the average Salary is $3,000, the Upkeep factor is 2, and the staff turnover factor is 20%

per year.

Table 8. Ongoing education and training costs

USD, 3 years

Users 25 50 100 250 500 1.000

Education and training, USD 598 1,196 2,393 5,982 11,964 23,929


3.3. Summary of TCO Estimation

Table 9 summarizes the results obtained in chapters 3.1 – 3.2.

Table 9. Summary of TCO Estimations

Company Size Expense item Moment of installation


25 users

Software 1,799 0 436 458 2,694

Hardware 1,075 282 296 311 1,965

System administration and maintenance 1,372 4,321 3,024 3,176 11,892

Education and training 904 190 199 209 1,502

TCO 5,149 4,792 3,956 4,154 18,052

TCO per user 206 192 158 166 722

50 users

Software 2,799 0 679 713 4,191

Hardware 1,150 302 317 333 2,102


Education and training 1,807 380 398 418 3,004

TCO 7,696 6,792 5,671 5,955 26,114

TCO per user 154 136 113 119 522

100 users

Software 4,799 0 1,164 1,222 7,185

Hardware 1,300 341 358 376 2,376



TCO 12,457 9,741 8,368 8,786 39,352

TCO per user 125 97 84 88 394

250 users

Software 10,799 0 2,619 2,750 16,169

Hardware 1,750 459 482 506 3,198


Education and training 9,036 1,898 1,992 2,092 15,018

TCO 25,922 16,020 14,658 15,391 71,991

TCO per user 104 64 59 62 288

500 users

Software 20,799 0 5,045 5,297 31,141

Hardware 2,500 656 689 724 4,569



TCO 47,505 23,773 23,244 24,406 118,929

TCO per user 95 48 46 49 238

1,000 users

Software 20,799 0 5,045 5,297 31,141

Hardware 4,000 1,050 1,103 1,158 7,310



TCO 69,618 35,966 33,245 34,907 173,736

TCO per user 70 36 33 35 174


3.4. Evaluating Risk-adjusted TCO

In the closing stage of TCO evaluation, the calculated values need to be adjusted for implementation

risks to account for impediments and difficulties an organization may encounter while developing and

deploying the intranet portal.

The TCO adjustment is conducted according to methodology proposed by Forrester12. This methodology

distinguishes three values for each implicit expenditure13.

Base – unadjusted expenses.

Minimum – these are also unadjusted expenses because such projects, in fact, never finish

ahead of schedule, so it will not happen that money is saved on expenses that are time-based.

Maximum – expenses multiplied by a certain risk factor. According to experience of the Bitrix,

200% is a realistic maximum factor, and this value will be used for final calculations.

Practice indicates that the most probable costs can be estimated by a simple average of the base,

minimum and maximum expenses. Table 10 shows example values for different companies.

Table 10. Implicit expenses: base and risk adjusted values

Users 25 50 100 250 500 1,000

System administration and maintenance costs, 3 years, base value, USD

11,892 16,818 23,784 37,606 53,183 75,212

System administration and maintenance costs, 3 years, risk adjusted value, USD

15,856 22,424 31,712 50,141 70,911 100,283

12 Forrester, The Total Economic Impact , http://www.forrester.com/TEI 13 Excluding education and training costs. Though these are also implicit costs, they are transparent and predictable, hence fixed.

http://www.forrester.com/TEI


3.5. Summary of TCO Risk Adjusted Values

Table 11 summarizes the final, risk-adjusted TCO values for example companies. These results will

hereinafter be used to estimate the project’s investment indicators.

Table 11. Final TCO values, risk adjusted

Company Size Item Moment of installation


25 users

Software 1,799 0 436 458 2,694

Hardware 1,075 282 296 311 1,965


Education and training 904 190 199 209 1,502

TCO 5,606 6,233 4,964 5,213 22,016

TCO per user 224 249 199 209 881

50 users

Software 2,799 0 679 713 4,191

Hardware 1,150 302 317 333 2,102



TCO 8,343 8,828 7,097 7,452 31,720

TCO per user 167 177 142 149 634

100 users

Software 4,799 0 1,164 1,222 7,185

Hardware 1,300 341 358 376 2,376



TCO 13,371 12,622 10,384 10,903 47,280

TCO per user 134 126 104 109 473

250 users

Software 10,799 0 2,619 2,750 16,169

Hardware 1,750 459 482 506 3,198



TCO 27,368 20,574 17,846 18,738 84,526

TCO per user 109 82 71 75 338

500 users

Software 20,799 0 5,045 5,297 31,141

Hardware 2,500 656 689 724 4,569



TCO 49,550 30,214 27,753 29,140 136,657

TCO per user 99 60 56 58 273

1,000 users

Software 20,799 0 5,045 5,297 31,141

Hardware 4,000 1,050 1,103 1,158 7,310



TCO 72,510 45,074 39,621 41,602 198,807

TCO per user 73 45 40 42 199


4. RETURN ON INVESTMENT (ROI)

Return on investment for an intranet portal is an engrossing subject that has attracted many authors

who have written dozens of articles and research papers on it. First of all, it is worth making a minor

remark about this indicator and its history. Back in 2001, analysts used to compare intranets with

telephony14 and described the efficiency of the technology as so obvious that it did not requiring ROI

calculation.

The latter statement has fairly serious logic behind it. On the cost side, intranet portal implementation is

relatively small on a company-wide scale, as shown by the TCO calculation in the previous chapter. On

the return side, an effective intranet portal affects the daily routine of every employee and thus

becomes the platform for nearly all operations. Therefore, even if only a small increase of efficiency is

achieved, the very large amount of business performed using the portal propels the theoretical ROI to a

level beyond question.

But how does an intranet portal pay off in reality? Generally, it does not generate direct income nor

attract customers, nor produce immediate improvement in customer service. The only general-purpose

metric to estimate ROI of any company is the saving of time achieved by using the portal. Chapter 4.2

will show the calculation of time-savings that a portal should achieve in order to justify itself financially.

Chapter 4.1 contains case studies illustrating the profitability of intranet portal projects. The last chapter

(4.3) discusses other investment metrics (IRR, NPV).

14 Toby Ward, Measuring the Dollar Value of Intranets, Intranet Journal, 2001, http://www.intranetjournal.com/articles/200104/ii_04_25_01a.html

http://www.intranetjournal.com/articles/200104/ii_04_25_01a.html


4.1. ROI Case Studies

This chapter contains a selection of case studies to demonstrate possible methods of measuring

investment return from the implementation of an intranet portal. These examples are indeed specific

and should not be considered a recipe; however, the case studies will help in obtaining a proper

understanding of intranet portal economics and formalize the principles of ROI.

4.1.1. Consolidation of Data and Corporate Services

The major and the most obvious advantage of an intranet portal is the concentration of data and

services. Ideally, a portal becomes a single point of access for all company employees, enabling them

with access any information they need and thereby increasing the availability of information and

decreasing time and monetary expenses spent on corporate service and management.

Unilever Corporation, a giant in world-wide food, personal care and household goods manufacturing,

crossed this bridge back in the late 1990s15 when the corporation introduced an intranet solution

throughout its entire infrastructure of 300 branches in 88 countries. As the corporation’s management

highlighted, ROI was not of particular interest to anyone because the intranet applications obviously

boosted information flows and brought efficiency of business processes to a new level.

However, for one division of Unilever, a substantiating ROI appeared in the modification of a single

business activity. Having concentrated business information in the portal, Unilever’s Global Buying

Service learned that the corporation’s various business units purchased the same goods from the same

suppliers independently. The consolidation of such purchases resulted in significant volume discounts.

Sometimes, better transparency of data can reduce expenses seemingly unrelated to the use of an

intranet portal. A curious example of this kind took place at one of the European medical center16. The

organization kept a medical recommendation database spread over many folders. After implementing a

contextual search engine, the medical center started saving $1,000,000 annually on insurance because

doctors were able to find the relevant recommendations and implement them effectively.

4.1.2. Electronic Workflow as a Red Tape Killer

The implementation of an intranet portal is one of the major milestones in the transition to fully-

electronic workflow. Digital documentation not only saves time but also eliminates printing and mailing

expenses.

Bill Diekmann, the IT Director of Cupertino Electric, asserts that investment in the intranet portal was

recouped entirely from savings on snail mail17. “We have over 1,000 employees but only 300 of them are

in the headquarters. We used to file paper forms manually and dispatch them to other offices by mail.

Any change to the forms required that we send them again. The portal has eliminated these expenses

because all the documentation is now updated automatically”, Diekmann said.

15 Information Week, Intranet ROI, Leap of Faith, 1999, http://www.informationweek.com/735/intranet2.htm 16 Martin White, Intranet Focus, 2009, http://www.prescientdigital.com/articles/Finding%20ROI%20Whitepaper 17 Intranet Blog Connections, Your Intranet as a Cost Savings Tool, 2009, http://blogs.intranetconnections.com/intranet_roi/intranet-cost-savings-tool

http://www.informationweek.com/735/intranet2.htm

http://www.prescientdigital.com/articles/Finding%20ROI%20Whitepaper

http://blogs.intranetconnections.com/intranet_roi/intranet-cost-savings-tool

http://blogs.intranetconnections.com/intranet_roi/intranet-cost-savings-tool


4.1.3. Efficient Communications and Knowledge Management

Efficient communications are indeed one of the basic purposes of the introduction of an intranet portal,

the latter being the means of communication to help the employees increase efficiency of their work.

A brilliant example to demonstrate efficient communications is the Eureka portal introduced by Xerox18.

Eureka’s purpose is to form a uniform interface for sharing Xerox’ engineers’ knowledge worldwide.

Before its introduction, Xerox utilized a one-way technical information database without interactive

data exchange capabilities that didn’t allow adding of new technical details or comment ‘threads’.

According to Xerox, the result of Eureka’s introduction has surpassed all expectations. For example, the

system helped to process over 350,000 technical support requests and save over $15,000,000 simply

through proper and timely decision-making in 2001.

4.1.4. Extranet and Quality of Service Issues

In a number of cases, an intranet portal can be equipped with an interface to interact with third parties

– a so-called “extranet”19. When used properly, the extranet can increase the level of satisfaction of

clients and contractors, accelerate interaction and make the external request response quicker.

A good example of an economically sound extranet is a client portal developed by Ketchum20. According

to an independent estimation provided by META Group, the innovative client-oriented environment

increases the Ketchum’s turnover by 0.5% to 5% annually. An average of those numbers produces an

absolute increase of several million dollars annually directly attributable to the extranet solution.

4.2. Evaluating Bitrix Intranet Portal’s ROI

All the previously portrayed case studies have one trait in common: virtually any efficiency factor can be

interpreted as saving of time. The consolidation of information means that all documentation is

contained in a centralized storage which facilitates access and search. The introduction of electronic

workflow eliminates the need for snail mail. Electronic communication saves working time, while the

extranet reduces time required to process external requests.

In other words, the saving of time is a general-purpose metric serving as the indication of the intranet

portal cost efficiency and, more importantly, it allows a means for making a numerical evaluation of ROI.

Although we shall move forward using time savings as the single metric, it is to be remembered that a

portal brings about a vast array of additional advantages which are hard to evaluate in a numeric form.

The portal’s ROI can be easily calculated given the number of users, maintenance costs and the average

saving obtained from the introduction of the portal. ROI is commonly defined using the following

formula:

(6) TCO

TCO - Revenue (ROI) Investment On Return ,

18 The Eureka! Moment at Xerox. http://www.pcmag.com/article2/0,2817,28792,00.asp 19 Extranet is essentially an extension of an intranet portal for the external environment. This module is available in Bitrix Intranet Portal: Extranet Edition and higher editions. 20 Plumtree, META Publish ROI Study of Ketchum myKGN Portal, http://www.thefreelibrary.com/Plumtree,+META+Publish+ROI+Study+of+Ketchum+myKGN+Portal.-a075636293

http://www.pcmag.com/article2/0,2817,28792,00.asp

http://www.thefreelibrary.com/Plumtree,+META+Publish+ROI+Study+of+Ketchum+myKGN+Portal.-a075636293


where Revenue is the projected income or saving, and TCO is the total cost of ownership of the

system.

For an abstract business unit, the time saved by the intranet portal is unknown and may vary

significantly. The present research has the calculations for the three scenarios: one-minute and three-

minute savings in daily work time savings, and a break-even point which shows how much time

employees should save for the project to show an ROI of zero. Each indication is calculated for each of

the three first years of intranet operation.

Table 12. Bitrix Intranet Portal’s ROI21 adjusted for implementation risks

Scale Investment metric Moment of installation

Year 1 22 Year 2 Year 3

25 users

TCO, USD 5,606 11,839 16,803 22,016

Economy, 1 minute, USD - 3,938 4,134 4,341

Economy, 3 minutes, USD - 11,813 12,403 13,023

ROI, 1 minute, % - -67% -52% -44%

ROI, 3 minutes, % - 0% 44% 69%

Break-even point, minutes - 3,01 2,08 1,77

50 users

TCO, USD 8,343 17,171 24,268 31,720



ROI, 1 minute, % - -54% -33% -22%

ROI, 3 minutes, % - 38% 100% 135%


100 users

TCO, USD 13,371 25,993 36,377 47,280



ROI, 1 minute, % - -39% -11% 5%

ROI, 3 minutes, % - 82% 166% 215%


250 users

TCO, USD 27,368 47,942 65,788 84,526



ROI, 1 minute, % - -18% 23% 47%

ROI, 3 minutes, % - 146% 268% 341%


500 users

TCO, USD 49,550 79,764 107,516 136,657



ROI, 1 minute, % - -1% 50% 82%

ROI, 3 minutes, % - 196% 350% 445%


1,000 users

TCO, USD 72,510 117,584 157,205 198,807



ROI, 1 minute, % - 34% 105% 150%

ROI, 3 minutes, % - 302% 516% 649%

21 Assuming the salary and upkeep rates as specified in 3.4 - 3.5. 22 Cumulative.



This data clearly indicates that an implementation for 100 or more users requires saving of only one (!)

minute of working time per day for the project to break even over a three-year period. In practice, time

actual savings can be much greater, thus sending ROI percentages into the thousands.

The reason for such enormous figures is simple. As has been mentioned previously, the portal’s TCO is

negligible on a company scale, and even a slight increase of efficiency covers all the expenses. The

indicators summarized in Table 12 are just a mathematical proof of that fact.

4.3. Other Economic Metrics (IRR, NPV)

There are other metrics used to evaluate business project profitability aside from ROI. In this section, we

are going to investigate two commonly used indicators:

NPV (Net Present Value) is the sum of the present values (PV’s) of individual cash flows. The

formula also requires a discount rate (such that could be earned on an investment in the

financial markets with similar risk). A rate of 10 percent is used for calculation here. Positive

NPV values indicate that the project investment is more profitable than a banking deposit at the

specified discount rate.

IRR (Internal Rate of Return) is the interest rate at which the costs of the project investment

lead to the benefits of the investment. The term internal refers to the fact that its calculation

does not incorporate environmental factors such as inflation. Mathematically, IRR is the

discount rate at which NPV is null. Practically, IRR is the banking deposit interest rate at which a

bank deposit would show the same income as the project’s created value.

NPV is defined as:

(7)

n

iiii

d

CRNPV

0 1,

here Ri is the projected income at year i of the project life cycle; Ci is the projected expenses; n is the

investment horizon in years (n=3 in this case).

IRR can be defined by the following equation in which NPV is a function of the discount rate:

(8) 0: dNPVdIRR

Table 13 shows the values of TCO, ROI, NPV and IRR for companies of different scale assuming the

average time saving for a user is 3 minutes per day.


Table 13. Economic metrics of the Bitrix Intranet Portal

Scale Investment metric Moment of installation


25 users

TCO, USD 5,606 11,839 16,803 22,016

ROI, 3 minutes - 0% 44% 69%

IRR - 0% 75% 100%

NPV, USD -5,606 -292 6,455 13,202


50 users

TCO, USD 8,343 17,171 24,268 31,720

ROI, 3 minutes - 38% 100% 135%

IRR - 77% 159% 181%

NPV, USD -8,343 5,750 21,812 37,875


100 users

TCO, USD 13,371 25,993 36,377 47,280

ROI, 3 minutes - 82% 166% 215%

IRR - 159% 244% 263%

NPV, USD -13,371 19,608 55,190 90,771


250 users

TCO, USD 27,368 47,942 65,788 84,526

ROI, 3 minutes - 146% 268% 341%

IRR - 256% 344% 360%

NPV, USD -27,368 65,538 161,851 258,164


500 users

TCO, USD 49,550 79,764 107,516 136,657

ROI, 3 minutes - 196% 350% 445%

IRR - 316% 404% 419%

NPV, USD -49,550 146,675 346,503 546,330


1000 users

TCO, USD 72,510 117,584 157,205 198,807

ROI, 3 minutes - 302% 516% 649%

IRR - 489% 582% 594%

NPV, USD -72,510 334,562 748,625 1,162,688



5. CONCLUSION

Despite skepticism some analysts may express, calculating economic metrics for an intranet portal is not

unfeasible. Such evaluations do not indeed account for the whole range of advancements the

introduction of the portal may bring. However, even the tip of the iceberg provides conclusive evidence

in this case.

The present analysis clearly shows that intranets are not just experiencing their 15 minutes of allotted

fame. The modern business environment demands this instrument to be an organic part of an effective

enterprise just like a corporate website or e-mail server. An intranet is the means to create effective

workplaces and improve employee motivation; it helps to close or at least greatly narrow the

communication gap between the management and the employees and offers sophisticated business

monitoring tools. As an investment, an intranet portal is a rare opportunity that not only is

demonstrably profitable based on its effect on basic operations, but also provides massive upside

potential through the real, but less measurable, dimensions of transparency and collaboration.

This evaluation of the cost efficiency of Bitrix Intranet Portal gives abundant evidence of the product’s

economic benefits. Naturally, economic metrics (ROI, IRR, NPV) are stronger for companies with larger

employee networks for intranet portals, and the Bitrix product is not an exception. However, the range

of companies which can benefit from Bitrix Intranet Portal is noteworthy, empirically showing the

effectiveness of the features of Bitrix Intranet Portal which were specifically created with SMBs in mind.

We candidly hope to find this research to be unnecessary in a very short time, after the profitability of

Bitrix Intranet Portal has become apparent. Indeed, is it worth to going to such great lengths to prove

the obvious?


ABOUT BITRIX

Bitrix is a privately-owned company developing an advanced business communications platform to bridge SMBs with their customers (Internet), partners (Extranet) and employees (Intranet). Founded in 1998 and headquartered in Alexandria, VA, Bitrix now incorporates 70+ staff, 30,000+ customers and 4,000+ partners worldwide. The customer list includes Hyundai, Volkswagen, Panasonic, Gazprom, Xerox, PricewaterhouseCoopers, DPD, VTB, Samsung and Cosmopolitan. Localized into 13 languages, the company’s products are distinguished for their pioneering technology, unique security features, extreme performance capacity and unmatched ease-of-use.

CONTACTS

US HEADQUARTERS 901 N. Pitt str Suite 325 Alexandria VA 22314 USA Tel./Fax: +1 (703) 740-8301

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SKYPE: consult.bitrixsoft TWITTER: http://twitter.com/bitrixsoft E-mail: [email protected] www.bitrixsoft.com

© 2010 Bitrix, Inc. All rights reserved.

Bitrix is a registered trademark of Bitrix, Inc. in the United States and other countries.

The names of actual companies and products mentioned herein may be the trademarks of their respective owners.

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