Total Economic Impact (TEI) is a methodology developed by Forrester Consulting that enhances a company’s technology decision-making processes and assists vendors in communicating the value proposition of their products and services to clients. TEI provides a rigorous cost and benefit analysis framework that explicitly incorporates an evaluation of future technology and business flexibility and associated risk.

The four core components of Total Economic Impact

TEI is composed of four main elements: 

1) Impact on IT or project cost

2) Impact on the business or business benefits

3) Future options created for future flexibility

4) Risk or uncertainty.

Benefits: Benefits represent the value delivered to the business by the product. The TEI methodology places 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 organisation.

Costs: Costs consider all expenses necessary to deliver the proposed value, or benefits, of the product. The cost category within TEI captures incremental costs over the existing environment for ongoing costs associated with the solution.

Flexibility: Flexibility takes into account the value of future options that investing in a specific technology can provide to an organisation.

Risk: Risk accounts for and quantifies the likelihood that costs may be higher than original estimates and benefits may not reach targeted levels.

How TEI studies work

The TEI methodology follows a structured approach:

1. Research Phase: Forrester interviews stakeholders and analysts to gather data, interviews IT leaders at organisations using the technology, and surveys professionals to obtain data about costs, benefits, and risks.
2. Composite Organisation: Forrester designs a composite organisation based on characteristics of the interviewees’ and survey respondents’ organisations.
3. Financial Modelling: Forrester constructs a financial model representative of the interviews using the TEI methodology and risk-adjusts the financial model based on issues and concerns of the interviewees and survey respondents.

TEI timeline and scope

In TEI studies, Forrester estimates the financial return of a three-year investment in a solution; this timeline caps the period of time for value that retained customers generate. This prevents potentially outsized estimates while providing a reasonable timeframe for measuring impact.

Real-world applications of TEI

TEI studies are widely used across various technology solutions. Examples include Microsoft’s extensive use of TEI studies for security solutions, compliance tools, endpoint management, and cloud services, demonstrating how organisations leverage TEI to justify major technology investments and communicate value to stakeholders.

TEI independence and credibility

Forrester maintains editorial control over any content created, and positive results are not guaranteed. Forrester only states what the data shows. All TEIs are clearly marked as “commissioned”, ensuring objective analysis while acknowledging the commissioned nature of the studies.

TEI has become the industry standard for technology investment analysis because it goes beyond simple ROI calculations to provide a holistic view that includes strategic flexibility and risk considerations.