For Business Process & Applications Professionals (Length: 12 pages)

February 2, 2009

Valuing And Communicating IT Flexibility

A Component Of The Forrester Total Economic Impact™ Methodology

by Chip Gliedman

with Jon Erickson, Sharyn Leaver, Andrew Magarie, Varun Sedov


Executive Summary (This is a document excerpt)

Rapid business changes and future business uncertainties create the need for flexibility, scalability, and adaptability within the IT infrastructure. However, as such investments rarely produce direct business benefits, the business case for their adoption is often short on tangible financial numbers, placing IT at a disadvantage when funding decisions are made. While there are no universally accepted methods to specifically value the flexibility of an IT system, there are a number of tools and techniques that can be adapted from other fields to help quantify the value of flexibility inherent in a system. These tools — which are incorporated as part of Forrester's Total Economic Impact™ (TEI) methodology — will help IT make better investment decisions upfront and help to justify the value created by existing infrastructure or architectural investments down the road.

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TABLE OF CONTENTS

NOTES & RESOURCES

itemStrategic IT Investments Offer Flexibility — But At What Cost?

itemFlexibility Can Be Expensive And Elusive

itemIT Flexibility Mirrors Financial Options

itemUse A Simplified Black-Scholes Equation To Calculate The Value Of IT Flexibility

itemAn Example: Valuing A CRM Suite Flexibility Option

recommendations

itemActively Manage Flexibility Options

itemSupplemental Material

We first applied real options theory and options pricing models to communicate the value of flexibility in IT investments in 1997. Since then, we have used this methodology in hundreds of situations with overwhelmingly positive acceptance.

Related Research Documents

itemThe Total Economic Impact™ Methodology: A Foundation For Sound Technology Investments

August 4, 2008

itemUse The European Versus American Call Options Model For IT Flexibility

June 24, 2004

itemManaging The Options Portfolio

June 24, 2004

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Analyst: Chip Gliedman
Technology: IT Management, IT Spending & Budgeting, Serving the Business, Total Economic Impact™
Geography: Asia Pacific, Europe, North America

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