Cisco Cisco 2125 Wireless LAN Controller White Paper

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Total Economic Impact is a methodology developed by Forrester Research that enhances a 
company’s technology decision-making processes and assists vendors in communicating the value 
proposition of their products and services to clients. The TEI methodology helps companies 
demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and 
other key business stakeholders. 

The TEI methodology consists of four components to evaluate investment value: benefits, costs, 
risks, and flexibility. For the purpose of this analysis, the impact of flexibility was not quantified.  

Benefits represent the value delivered to the user organization — IT and/or business units — by the 
proposed product or project. Often product or project justification exercises focus just on IT cost and 
cost reduction, leaving little room to analyze the effect of the technology on the entire organization. 
The TEI methodology and the resulting financial model place equal weight on the measure of 
benefits and the measure of costs, allowing for a full examination of the effect of the technology on 
the entire organization. Calculation of benefit estimates involves a clear dialogue with the user 
organization to understand the specific value that is created. In addition, Forrester also requires that 
there be a clear line of accountability established between the measurement and justification of 
benefit estimates after the project has been completed. This ensures that benefit estimates tie back 
directly to the bottom line.  

Costs represent the investment necessary to capture the value, or benefits, of the proposed project. 
IT or the business units may incur costs in the forms of fully burdened labor, subcontractors, or 
materials. Costs consider all the investments and expenses necessary to deliver the proposed 
value. In addition, the cost category within TEI captures any incremental costs over the existing 
environment for ongoing costs associated with the solution. All costs must be tied to the benefits 
that are created. 

Risk measures the uncertainty of benefit and cost estimates contained within the investment. 
Uncertainty is measured in two ways: the likelihood that the cost and benefit estimates will meet the 
original projections and the likelihood that the estimates will be measured and tracked over time. 
TEI applies a probability density function known as “triangular distribution” to the values entered. At 
a minimum, three values are calculated to estimate the underlying range around each cost and 
benefit. 

Within the TEI methodology, direct benefits represent one part of the investment value. While direct 
benefits can typically be the primary way to justify a project, Forrester believes that organizations 
should be able to measure the strategic value of an investment. Flexibility represents the value that 
can be obtained for some future additional investment building on top of the initial investment 
already made. For instance, an investment in an enterprisewide upgrade of an office productivity 
suite can potentially increase standardization (to increase efficiency) and reduce licensing costs. 
However, an embedded collaboration feature may translate to greater worker productivity if 
activated. The collaboration can only be used with additional investment in training at some future 
point in time. However, having the ability to capture that benefit has a present value that can be 
estimated. The flexibility component of TEI captures that value.