telework return on investment study

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TELEWORK RETURN ON INVESTMENT

STUDY

May 8, 2009

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Table Of Contents

IntroductionMethodologyValue CalculationsCost CalculationsRisk CalculationsFindings and Conclusions

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OBJECTIVES

This study has two primary objectives:

To provide a strategic framework and methodology for identifying the value of telework investments, cost justifications, and risk analyses in order to calculate the return on investment

To assist HAF/IM develop business case analyses that consider the multiple benefits of telework when making investment decisions

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BUSINESS CASE ANALYSIS

For this report, a sample business case analysis was developed with detailed costs, benefits, and risks. It includes a return on investment (ROI) analysis

The Capital Planning and Investment Control (CPIC) process and Value Measuring Methodology (VMM) value factors were used to outline and develop the BCA

Additionally, this report provides resources that project managers can use to develop their own telework-related business cases

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•Collected information about costs, benefits and risks associated with telework investments.

•Used frameworks of the Capital Planning and Investment Control process and Value Measuring Methodology value factors to organize and develop sample business cases analysis.

•Estimated costs and benefits associated in a sample telework scheme involving an organization of 200 people, with 20 teleworkers, 15 working one day per week, and 5 working five days per week.

•Developed business case that incorporates cost estimates, return on investment, and risk analysis.

DATA SYNTHESIS

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The CPIC process is the primary process for making investment decisions, assessing investment process effectiveness, and refining investment related policies and procedures. CPIC is mandated by the Clinger-Cohen Act which requires agencies to use a disciplined process to acquire, use, maintain and dispose of information technology (IT). CPIC accomplishes these requirements through three phases: Select Phase, Control Phase, and Evaluate Phase.

CAPITAL PLANNING AND INVESTMENT CONTROL (CPIC)

SELECT the best

investment

CONTROL the benefits

that are delivered

EVALUATE the

delivered benefits

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This section provides an overview of the four steps that form the value measuring methodology framework. The terminology used to describe the steps are common to developing, selecting, justifying, and managing IT investments

VALUE

COST RISK

RESULTS

Value Measuring Methodology

Step 1. Develop a Decision-Framework– Identify & Define Value Structure– Identify & Define Risk Structure– Identify & Define Cost Structure

Step 2. Perform Analysis (estimate value, cost, & risk)– Estimate Value and Cost– Conduct a Risk Analysis

Step 3: Pull Together the Information– Aggregate the Cost Estimate– Calculate Value Score– Calculate Cost Score– Calculate Risk Score– Compare Value, Risk and Cost– Calculate Return-on-Investment

Step 4: Communicate and Document

Value Measuring Methodology

Step 1. Develop a Decision-Framework– Identify & Define Value Structure– Identify & Define Risk Structure– Identify & Define Cost Structure

Step 2. Perform Analysis (estimate value, cost, & risk)– Estimate Value and Cost– Conduct a Risk Analysis

Step 3: Pull Together the Information– Aggregate the Cost Estimate– Calculate Value Score– Calculate Cost Score– Calculate Risk Score– Compare Value, Risk and Cost– Calculate Return-on-Investment

Step 4: Communicate and Document

VALUE MEASURING METHODOLOGY

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VALUE FACTORS

Value Factor Benefit To Benefit By

Productivity Organization Increased productivity of workers Reduced employee absence

Retention Organization Retention of skilled workersReal Estate Organization Reduction in office spaceTravel and TDY Organization Reduction in travel and TDY budgetsResilience and Flexibility

Organization Reduced effects of disruptions in service or productivity

Vehicle Miles Savings Organization, Society Reduced road use costs and pollution clean-up costs

Employee Personal Savings

Employee Reduced costs for auto, personal care items, insurance, etc

Transit Subsidy Reductions

Organization, Society Reduced commuter transit subsidy expenditures

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COST FACTORS

Cost Factor Description

Equipment • Laptop with software • Printer• Copier• Fax • Broadband Router

Collaboration Technology

• VPN/Firewall• Instant messaging• Document sharing technology• Virtual meeting applications • PDA

Services • Broadband service • Training• Tele-center fees

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RISK FACTORS

Risk Factors Causes

Financial Cost creep Poor resource estimates

Technical Connectivity, applications, training Vulnerabilities (intrusion, misuse)

Operational Loss of information

Organizational Cultural resistance Inadequate performance measures

Potential Mitigation StrategiesPotential Mitigation Strategies

Senior management leadership and support for telework programComprehensive security planning

Telework-specific trainingAssignment of a telework advisory group or program management office

Comprehensive telework agreementsRegularly re-evaluating and modifying the program to meet changing circumstances

Designating a competent telework coordinator

Senior management leadership and support for telework programComprehensive security planning

Telework-specific trainingAssignment of a telework advisory group or program management office

Comprehensive telework agreementsRegularly re-evaluating and modifying the program to meet changing circumstances

Designating a competent telework coordinator

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TELEWORKER PRODUCTIVITY CALCULATION

Teleworkers work one additional productive hour in each workday spent at home (about a 12.5% increase). Source: Lessons Learned From The Network-Centric Organization: 2004 AT&T Employee Telework Results. This calculation assumes that 15 teleworkers who work one day per week annually, and 5 teleworkers who work 238 days per year (one day a month in the office).

Teleworkers average 3 fewer sick days / snow days annually per teleworker. Source: International Telework Association and Council (ITAC),1999.

1 Number additional hours worked on telework days

Employee Additional Hours Value Added

100 Average number of telework days per person per year$51.73 Composite teleworker hourly rate or actual weighted average

$5,173.00 Average annual value added per teleworker 20 Number of teleworkers

$103,460.00 Total annual value for additional hours worked

3 Number of sick days / snow days saved (national average = 3) Reduced

Employee Absence Value Added

24 Number of hours saved per full time teleworker$51.73 Composite teleworker hourly rate or actual weighted average

$1,241.52 Per person annual savings per full time worker5 Number of full time teleworkers

$6,207.60 Total annual value for sick / snow days$109,667.60 Annual telework-specific productivity value added

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EMPLOYEE RETENTION CALCULATION

The total cost of recruiting one employee for a typical government agency is $7000. Source: OIG-01-13-AMR Assessment of Reducing Infrastructure Costs Through Increased Use of Telework, Equal Employment Opportunity Commission (EEOC), 2003.

The Federal Government turnover rate is 1.1% as of February 2009. Source: Department of Labor, Bureau of Labor Statistics JOLTS report, http://www.bis.gov/.

Typical reductions in turnover rates for organizations offering telework averages 54% of the government workforce per year. Source: Santa Barbara County Association of Governments (http://www.flexworksb.com) and The Teleworker, Jan 2009 edition, “Virginia, Leading by Example” (http://www.teleworkexchange.com).

$7,000 Cost to recruit one employee

200 Number of employees in the workforce

1.1% Rate of turn-over per year2 Expected number of people leaving the organization

54% % drop in annual turn-over due to telework1.08 Number of employees retained due to telework

$7,560.00 Annual telework-specific savings

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REAL ESTATE CALCULATION

Office of Property Management (OPM), Performance Accountability Report, FY 2008 shows that leased spaces in the Washington DC area average 250 square feet per employee at a cost of $34.91 per square foot. Total per employee per year: $8727.50. Owned spaces in the Washington DC area average $10.67 per square foot. Total per employee per year: $2667.50. If using office hoteling where only one space is needed for each ten teleworkers, the average cost per employee drops by a factor of 10. GSA Office of Government-wide Policy: "Office Space Use“ recommends 230 square feet of space per person.

When hoteling space is used, one space for every ten teleworkers, then rentable square feet per person is reduced by 10 percent.

$10.67 Cost per square foot230 GSA suggested square feet per person5:1 Ratio of teleworkers per hotel space5 Number of full time teleworkers4 Number of full time teleworkers less total number of hotel spaces

920Reduction in space required in square feet (# teleworkers - # hotel spaces)

x GSA sq ft per person$9816.40 Annual telework-specific savings

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EMPLOYEE TRAVEL AND TDY CALCULATION

The average cost of domestic business trips in 2008 = $1,110.00; the average cost of international travel in 2008 = $3171.00. Source: American Express Global Business Travel (USA Today, Dan Reed, 4 Dec 2007).

Median US trips taken by Government employees is broken down as follows (Source: PayScale, Inc; The PayScale Report, 23 April 2009): – 2-5 trips per week, average salary of $58,000, 8% of workforce– 1 trip per week, average salary of $95,000, 6% of workforce– 1-3 trips per month, average salary of $75,000, 19% of workforce– 1 trip per quarter, average salary of $60,000, 16% of workforce– No trips or rarely, average salary of $44,000, .51% of workforce

Number of trips reduced by the use of telework collaborative processes – 50% (constructive).

$11,100.00 Average cost of domestic travel per year before telework$31,710.00 Average cost of international travel per year before telework$5,500.00 Average cost of domestic travel per year after telework

$15,855.00 Average cost of international travel per year after telework$5,500.00 Difference between before and after (domestic)

$15,855.00 Difference between before and after (international)$21,455.00 Total annual telework-specific savings

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RESILIENCY AND FLEXIBILITY CALCULATION

Real estate annual telework savings already calculated in this section is used to assign cost savings in re-acquiring office real estate. Composite General Schedule profile from this Appendix is used to calculate value of uninterrupted work for the month following the disaster. 25% of real estate savings is used as the saved cost of relocation.

Probability of a disaster (flood, fire, tornado, severe storm) = .04 (Source: US Geological Survey, Dr. Christopher Barton and Dr. Stuart Nishenko, “Natural Disaster Forcasting.”

30 Annual real estate savings due to teleworkers

$2,454.10 Saved relocation costs (25% of real estate savings)

$51.73 Composite General Schedule profile

2 Number of days of interrupted work due to disaster (all on full time)

320 Number of teleworker hours worked during disaster

$16,553.60 Uninterrupted work value per teleworker

$2,454.00 Saved relocation costs (25% of real estate savings)

$19,007.70 Subtotal

4% Probability of a man-made or natural disaster striking

$ 760.31 Annual telework-specific savings

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VEHICLE MILES SAVINGS CALCULATION

Roadway service costs, law enforcement, safety and administration costs = .012 per mile (California Energy Comission); maintenance, gas, and oil = .48 per mile (American Automobile Association)

Non Green House Gas Air Pollution Cost (average car, urban peak travel) = $.062 per mile. Source: Transportation Cost and Benefit Analysis II – Air Pollution Costs; Victoria Transport Policy Institute (www.vtpi.org) and U.S. Environmental Protection Agency, National Vehicle and Fuel Emissions Laboratory, Nov. 29, 2007

30 Average round trip miles per person (GSA)

20 Number of teleworkers

100 Average number of teleworking days and round trips per teleworker2,000 Total number of trips avoided

60,000 Total number of miles avoided each year

$720.00 Annual benefit from reduced road, law enforcement, safety, and admin costs

$3,720.00 Annual benefit in air pollution costs avoided

$4,400.00 Annual telework-specific benefit

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EMPLOYEE VALUE CALCULATION

Bureau of Labor Statistics – Average Consumer Expenditures Per Year (2007)– Personal care products and services = $364 per person– Apparel, services, and footwear - Men = $452 and Women = $685 per person– Medical services, supplies, and medicines = $797– .5% chance of occupational illness or injury with 9 days of missed work

Fairfax County Statistics – Auto Accidents with Injuries– 1.03% chance of being involved in an accident at an average cost of $8200

Journal of American Psychiatry– Depression sufferers average 27.2 lost workdays annually, medical costs = $4,426

Vehicle maintenance, gas, and oil = .48 per mile (American Automobile Association) Consumer Federation of America: save 5-18% on auto insurance by not commuting

$103.60 Value of hours of commuting time now available for personal affairs and family

$84.46 Value of reduced exposure to commuting vehicle accidents

$317.00 Value of reduced exposure to workplace illnesses$49.86 Annual benefit from reduced grooming purchases (hair, nails, makeup)

$90.40 Annual benefit from reduced clothing purchases and cleaning services

$109.14 Annual benefit from reduced vehicle insurance costs due to less commuting

$720.00 Annual benefit in maintenance, gas, and oil costs avoided

$1,474.46 Annual telework-specific benefits accrued to employee

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TRANSIT SUBSIDY REDUCTION CALCULATION

The Washington area Transit Subsidy pays a maximum of $230.00 a month, or $2,346.00 a year to supplement federal worker commuting costs. Teleworking one day a week reduces the need for 20% of the maximum benefit. Teleworking five days a week eliminates the transit benefit altogether.

9 Number of teleworkers previously receiving transit benefits

$16,008.00 Total amount of transit benefits previously collected per year

1450 Total number of telework days

161.1 Average number of telework days per teleworker

64.4% Percentage reduction in regular workdays

$1778.67 Average amount of benefit reduction

$16,008.00 Annual telework-specific savings

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COMPOSITE GENERAL SCHEDULE PROFILE

Step 5 is assumed for all GS levels The % breakouts are based in part on the real GS distribution across government

and in part on the survey data collected in the course of this study which indicates that very senior and junior employees are less likely to telework.

Level%

WeightDC Hourly

RatePlus

FringePlus

OverheadLoaded Hourly

RateComposite

RateGS-7 5.00% $22.38 $7.35 $3.57 $33.30 $1.66GS-9 20.00% $27.37 $8.99 $4.36 $40.72 $8.14GS-11 30.00% $33.12 $10.87 $5.28 $49.27 $14.78GS-12 40.00% $39.70 $13.04 $6.33 $59.07 $23.63GS-13 5.00% $47.21 $15.48 $7.52 $70.21 $3.51Total 100.00% N/A N/A N/A N/A $51.73

Fringe Benefits 32.85% OMB Circular A-76 Attch C (B.f.1.)Overhead 12.00% OMB Circular A-76

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VALUE ANALYSIS – ORGANIZATION BENEFITS

Benefit Value

Productivity Gains $109,667.60

Employee Retention Savings $7,560.00

Real Estate Footprint Savings $9,816.40

Travel Savings $21,455.00

Resilience and Flexibility Savings $760.31

Employee Savings $6,543.86

Vehicle Miles Savings $4,440.00

Transit Benefit Savings $16,008.00

Total $176,251.17

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EQUIPMENT COSTS

Components Description Cost

PC

Laptop PC & Docking Station - Provides basic computer capabilities, including mobility and access to enterprise software; Assumes use of same PC for office and home

$2,115.00

PC Software - Applications and security software (e.g., Windows XP, MS Office Suite, Anti-virus, Spyware, etc.); Assumes new user license and 3 year refresh cycle

$628.00

PeripheralsPrinter / Copier / Fax - Provides common office functionality away from office (assumes “All-in-One” device)

$252.00

Network Interface

Broadband Router - Provides connectivity interface for broadband Internet access

$68.00

TOTAL per teleworker $2,811.00

TOTAL $56,220.00

The acquisition cost of a laptop can be offset by the current cost of acquiring a desktop. The approximate annualized cost of a desktop, including maintenance, is $327.00 The laptop and printer / copier / fax unit costs are annualized and include refresh and annual maintenance expense. Recurring (i.e., maintenance) annual costs are assumed to total 15% of the acquisition cost of hardware and 20% of the acquisition cost of software. Refresh costs are calculated by dividing the acquisition cost of each element by its respective product lifecycle. On-line printer and fax service, plus electronic copying, could reduce this cost to zero.

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COLLABORATION TECHNOLOGY COSTS

Components Description Cost

Secure Network Access

VPN / Firewall Solution – Infrastructure (hardware / software) provides secure remote access for teleworker connectivity to enterprise network (includes enterprise network interface and software for teleworker clients)

$416.67

Collaboration Resources

Instant Messaging, Document Sharing, And Virtual Meeting Tools - Centrally managed and secured resources.

$79.83

Voice Communications

PDA Devices - Messaging devices (e.g., Blackberry, Treo) allowing mobile voice and data communication with co-workers and customers (optional)

$288.00

TOTAL per teleworker $784.50

TOTAL $15,689.90

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COST OF VPN

Standard VPN Solution: Total Cost of $25,000– 3 yr Lifecycle– Annualized Cost of $8300 ($25,000 / 3)– Includes licenses– Supports 1500 concurrent teleworkers, which is scaleable to 37,500 teleworkers– Per teleworker: ($8,300.00 total 20 teleworkers) = $415.00

Clientless SSL VPN Solution: Total Cost of $350,000 – 3 yr Lifecycle– Annualized Cost of $117,000 ($350,000 / 3)– includes hardware and software and maintenance) – supports 5000 concurrent teleworkers, which is scaleable to a teleworker base of

125,000 teleworkers– Per teleworker: ($117,000.00 20 teleworkers) = $17,500.00

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COST OF COLLABORATION RESOURCES

This includes centrally managed and secured resources such as instant managing, document sharing, and virtual meeting tools

Microsoft Live Communication Server (LCS) 2005: Cost of $251,000– This sample solution assumes a teleworker base of 20– 3.5 yr lifecycle– Annualized cost of ($251,000 / 3.5) $72,000– 2 load balancers (for redundancy) at $25,000 $50,000 subtotal– Array of 4 servers at $30,000 each $120,000 subtotal– $3150 LCS licensing cost per server $12,600 – Annual 15% hardware maintenance $28,000; Annual 20% software maintenance

$37,000– Supports 4000 concurrent workers, which is scaleable to 20,000 workers– Total cost = $319,600.00– Per worker cost of $79.83

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COST OF SERVICES

Components Description Costs

Technical Training

Technical Training - Information such as telework technology policies, IT troubleshooting techniques, and technical capabilities of home office provided to teleworkers and managers of teleworkers

$100.00

Broadband Service

Broadband Service – Commercial provider such as a DSL line from Verizon $384.00

Tele-Center Services

DC Area Tele-Centers – There are fourteen Government Tele-Centers available in Maryland, Northern Virginia, and West Virginia, at an average cost of $46.57 per day. Cost is based on a one time a week use of a tele-center in order to access the SIPRNet.

$2,325.50

TOTAL per teleworker $2,809.50

TOTAL $56,190.00

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COST ANALYSIS

Description Cost

Equipment Costs $56,220.00

Collaboration Technology Costs $15,689.90

Service Costs $56,190.00

Total $128,099.90

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RISK ANALYSIS

Risk Factor Probability Impact on Cost Impact on Value

Financial Low $650.50 ($881.26)

Technical Low $650.50 ($881.26)

Operational Medium $960.75 ($1,321.88)

Organizational High $1,281.00 ($1,762.51)Totals $3,522.75 ($4,846.91)

The probability and impact of each risk factor is examined for both cost and value. This provides information on the interaction between impact and probability, and allows predictions about how that interaction will change the value and cost of the investment.

The impact of risk on cost and value is assumed at the following rates:– Low Probability = .5% increase in cost and 5.%decrease in value– Medium Probability = .75% increase in cost and .75% decrease in value– High Probability = 1% increase in cost and 1% decrease in value

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ANALYSIS SUMMARY

VA

LU

E

Productivity Gains

$176,251.17

Employee Retention Savings

Real Estate Savings

Travel and TDY Savings

Resilience and Flexibility Savings

CO

ST

Equipment

$128,099.00Collaboration Technology

Services

RIS

K

Financial

$4,846.91 value decrease

$3,522.75 cost increase

Technical

Operational

Organizational

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RETURN ON INVESTMENT SUMMARY

Total Investment

Total BenefitsReturn onInvestment

Payback Period

$128,099.90 $176,251.17 138% < 1 year

Telework benefits:– Improved contingency support– Increased organizational flexibility and ability to adapt– Improved communication between staff and other organizations– Ease of using applications with a common interface– Automation of administrative processes

Other non-financial benefits– Compliance with federal mandates (COOP, Pandemic)– Increased job opportunities for those with disabilities– Reduced traffic and pollution costs

telework return on investment study

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