Value Assessment

There is so much more to consider than just the cost of an IT system as presented in the last section.  The total cost of ownership includes such things as the ‘customer experience’, which is a combination of customer support, service, and satisfaction.  This is not necessarily quantifiable in tangible dollar and cents.  Adam Richardson (2010) in an HBR article states:  “To be really successful on a long-term basis, customer experience needs to be seen as all these things, and more. It is the sum-totality of how customers engage with your company and brand, not just in a snapshot in time, but throughout the entire arc of being a customer (2010, HBR).”  The system under analysis, IBM Watson, shows potential quantitative and qualitative value that is highly competitive to alternative systems; SAP HANA, HADOOP, AND GOOGLE ANALYTICS.  (Please see the Competitive Analysis section of our website for more information.) As in all business tools, there are tangible and intangible benefits that are worth considering prior to investing in IT for your company. First, we must relay our assumptions and cost statements (which include the NPV of the return on investment) to optimize and quantify the value and benefits we subscribe to IBM Watson for the stated purpose. Second, we will discuss tangible and then intangible benefits and finally, we will consider the value of these benefits in relation to the estimated costs.

We chose the professional subscription over the open source software (free) version because UPMC is a large company in relation to the amount of data to be handled and the subscription prince includes license, security, basic storage, configuration, training, and maintenance ($80/per month x 25(users)= $2,000) for a five-year period.  The Initial outlay is $2,000 (not including the $450 estimated miscellaneous per month).  Therefore, the Net Present Value of $2,000 (cost/year) can be invested earning interest of 7% over the next 5 years.  See the following link for details not included below: https://www.ibm.com/marketplace/cloud/watson-analytics/purchase/us/en-us#product-header-top

Figure 4.1 IBM Subscription On-Premise vs. Cloud	Software TCO
Costs to Consider	On-Premise	Cloud
License & Subscription	✓	✓
Installation & Set-up	✓	▪
Customization & Integration	✓	▪
Data migration	✓	✓
Training	✓	▪
Maintenance & Support	✓	▪
Hardware	✓
Other (Consulting, business process engineering, connectivity, storage, backup, network infrastructure)	✓	✓

Source: maximizer.com

Year	Figure 4.2 IBM Watson Professional Subscription
0	$2,000
1	2,000
2	2,000
3	2,000
4	2,000
5	2,000
NPV	$6,200
PI	1.32
IRR	97%

The tangible benefits of subscribing to Watson Analytics can be quantified in cost savings from using cloud based operation; platform, infrastructure and software as a service based on needs and leasing all the inclusive analytics package… all of which decrease costs and subsequently increase revenue based on internal cost assignments per question and answer analytics.  In our case, IBM Watson Analytics is offered as a (SaaS). Gallaugher (2015) mentions that "[F]irms using SaaS can lower several costs associated with the care and feeding of their information systems, including software licenses, server hardware, system maintenance, and IT staff.”. This truth of Gallaugher’s observation can be seen in our breakdown of professional subscription identified in Table 4.1.  Our project can claim a minimum savings of 25% with the costs of inclusive items as mentioned below in Figure 4.3. These costs and savings are factored in based on Forrester Research in accordance with “Information Systems: A Manager’s Guide to Harnessing technology v4.0”.  This piece of research estimates that SaaS can bring cost savings of 25 to 60 percent if all these costs are factored in (2016). Another cost savings is the minimal training and implementation costs based on the analysis of a similar system SAP HANA; their cost analysis report finds a 35% savings in training and implementation.  The increased revenue, which could also be considered a costs savings, is based on the efficacy and efficiency of a Q&A cognitive computing system that can refine data and answer the questions needed.  In the business of Pensiamo optimizing its supply chain to improve management of drug inventory, IBM analytics actually establish the causal link between supply and demand of over the counter drugs at all locations.  This leads to just-in-time availability of the right medications, in the right place at the right time. The savings can be seen in the reduced percentage of expired or unused medications.  Finally, from McKinsey Quarterly and authors Mayew, Saleh, and Williams (2016), we learn that companies can fail to get value from analytics when they fail to ask the right questions, test options, properly hire/train staff and design an elegant, interactive visual model. Therefore, asking the right questions drives the value of this system. We find that Watson analytics has designed an intuitive model so that the staff does not need expensive training, nor do they need to be research, design, or code experts as in larger legacy systems.

Figure 4.3 - Table of Tangible Benefits

Cost Savings and Increased Revenue	Percentage
Cloud based Operations and SaaS	25%
Minimum Training and Implementation Costs	35%
Value and efficacy of cognitive computing	5%
Total Cost Savings	65%

Intangible benefits have the potential to add significant value based on what capabilities are realized. For example, the value and efficacy of cognitive computing cannot be quantified down to a specific dollar amount but it can be described it terms of its’ benefits. In a report from Accenture, Harris and Bataller (2015) say that “…decision makers should recognize that cognitive computing isn’t a matter of any single technology or application but is a field where the greater value will come from understanding the multitude of related technologies and then integrating those technologies into full solutions….” At Pensiamo, there will be additional benefits in the value chain; improved customer service, optimized management of over the counter (OTC) medications, more efficient labor, increased rate and flexibility of decision-making. Levinson (2005) states that retailers can improve their earnings per share up to 5 percent by reducing the number of out-of-stocks and improve customer experience by inventory availability.

The advantages of using machine learning and predictive analysis capabilities in the supply chain management optimizes the entire supply chain, rather than point-by-point; augments management by providing the causes of inventory and cost fluctuations; calculates the ideal stocking location and size of inventory buffers; incorporates uncertainty and volatility into strategic inventory plans and policies by using proven data-driven optimization algorithms; and finally, performs “what-if” analysis to predict cost and service of alternative scenarios. All of these advantages add value ultimately in the area of ‘the customer experience”.  The real value is when the patient can receive the right medication at the right time at minimal cost to UPMC.

The value of subscribing to IBM Watson analytics exceeds the total cost of ownership and will pay dividends in future investments.  At approximately $2000/year, there is a very small capital investment of time and switching costs and no upfront or initial costs.  The subscription fee and periodic maintenance or miscellaneous costs will be minimal.  Therefore, the partnership of UPMC and Pensiamo will begin to see a return on investment in the near future as the combination of the cognitive computing of IBM Watson and supply chain management expertise begins to refine, streamline and optimize their systems, methods, and procedures.

References

Gallaugher, J. (2015). Information systems: A manager’s guide to harnessing technology. Washington, DC: Flat World Knowledge, Inc.

Harris, J. & Bataller, C. (2015). Turning Cognative Computing into Business Value Today, Accenture. Retrieved from https://www.accenture.com/us-en/insight-cognitive-computing-systems

Levinson, M. (2005, Dec 1). The Link Between Inventory and Customer Satisfaction.  Retrieved from http://www.cio.com/article/2448021/supply-chain-management/the-link-between-inventory-and-customer-satisfaction.html

McKinsey Global Institute (2013, May). Disruptive technologies: Advances that will transform life, business, and the global economy. Retrieved from file:///C:/Users/martapelusi/Downloads/MGI_Disruptive_technologies_Executive_summary_May2013.pdf

Richardson, A. (2010, Oct 28). Understanding Customer Experience. Retrieved from https://hbr.org/2010/10/understanding-customer-experience