CoPilot Series 2: Microsoft 365 CoPilot's Direct, Indirect Costs & ROI Calculator for Employers
CoPilot Series 2: Microsoft 365 CoPilot's Direct, Indirect Costs & ROI Calculator for Employers
Microsoft
Who have we engaged in discussions on this subject?
Please note: The insights presented in this article are derived from confidential consultations our team has conducted with clients across private equity, hedge funds, startups, and a leading investment bank, facilitated through specialized expert networks. Due to our agreements with these networks, we cannot reveal specific names or delve into detailed topics from these discussions. Therefore, we offer a summarized version of these insights, ensuring valuable content while upholding our confidentiality commitments.
I always find myself brimming with excitement whenever I engage in solving puzzles for our clients. In our ongoing dialogue with key players from private equity, hedge funds, startups, and a prominent investment bank, the central theme has consistently been the current position of CoPilot technology in its adoption journey, the significant hurdles it faces, Calculating ROI and the potential victors if this tech triumphs. Which are the best CoPilots to invest in? How does one measure the ROI, especially when jumping on the bandwagon as an early adopter? And perhaps, most intriguingly, how are companies adjusting their budgets to accommodate these new technological marvels? Are they reallocating funds, or does this mean a reduction in other resources
For many, the primary concern is the ROI. Being an early adopter of any technology comes with its risks and rewards. While you get a competitive edge, there's also the challenge of navigating uncharted waters. Calculating ROI in such scenarios requires a blend of traditional financial metrics and forward-thinking strategies. It's not just about the immediate cost savings or efficiency gains but the long-term value addition in terms of innovation, market positioning, and brand perception.
In Part 1 of this CoPilot series, we saw the basics of Microsoft 365 CoPilot, Cost, Risk & Benefits and which Back Office Roles will see highest impact. In this piece, we'll take a closer look at the ROI calculator (from the lense of employers) we've crafted specifically for Microsoft 365 CoPilot.
Decoding the Budget Puzzle: Financing AI CoPilots
Several members of our team boast a background in Private Equity. In my career specifically, I had the privilege of collaborating closely with Private Equity clients. During due diligences (A process in which PEs evaluate a target company and decides to invest in), we would dive deep into the technological backbone of an organization, scrutinizing everything from software licenses, data management protocols, cybersecurity measures, to the scalability of target’s IT architecture. Over time, I realized that our efforts to streamline IT processes and align organizational capabilities revolved around these key areas and today’s focus of this article on IT Spending and ROI.
IT Strategy, Organization and Spending (Labor vs. Non-labor Costs)
IT Applications
IT Projects
IT Infrastructure
In the rapidly evolving realm of technology, CIOs are finding themselves at a crossroads, especially when it comes to integrating AI-driven CoPilots into their systems. The financial implications are vast, and the budgetary considerations are intricate. The challenge lay not just in securing funds but in ensuring that every dollar spent was a strategic investment. A barrage of questions often dominate our budgetary discussions:
Does our proposed budget for AI CoPilots align with the broader organizational vision and goals?
How does our projected spending on CoPilots compare to industry benchmarks?
Are there hidden costs associated with AI CoPilots that we haven't accounted for?
Is our budgetary allocation for CoPilots consistent with our past and future tech investments?
Are we prepared for any unforeseen expenses that might arise during the CoPilot integration phase?
Unpacking the Potential of Microsoft 365 CoPilot
In Part 1, We've previously discussed the myriad of ways Microsoft has illustrated the transformative potential of CoPilot in modern workplaces. They've painted a vivid picture of its capabilities and the efficiencies it can introduce. Some use cases are:
Email Composition: For instance, Octopus Energy in the UK leveraged AI for email composition, witnessing a surge in customer satisfaction rates from 65% to 80%.
Excel Data Analysis: Forget the complex formulas; with CoPilot, you can use plain language to analyze data in Excel.
Document and Presentation Creation: Need a proposal in Word or a presentation in PowerPoint? CoPilot's got your back.
However, Microsoft has not released a concrete ROI calculator. Such a tool would provide businesses with a clearer understanding of the financial implications and benefits of integrating CoPilot into their operations. We have taken first pass at building this ROI calculator.
Let’s revise some basic information on Microsoft 365 CoPilot
Eligibility Criteria for Microsoft 365 CoPilot Licensing
Microsoft 365 CoPilot isn't a one-size-fits-all solution. It's designed as an add-on license, complementing specific Microsoft packages:
Microsoft 365 E5
Microsoft 365 E3
Microsoft 365 Business Premium
Microsoft 365 Business Standard
The inclusion of the last two packages, as confirmed at Microsoft Inspire, ensures that small businesses can also leverage CoPilot without the need to transition to pricier enterprise plans.
The Additional Price Tag of CoPilot
No matter your existing Microsoft 365 package, CoPilot comes with its own price. It's not bundled into any M365 package, meaning it's an added expense for all users.
According to company announcement, Microsoft 365 Copilot will be available for commercial customers for $30 per user per month for Microsoft 365 E3, E5, Business Standard and Business Premium customers when broadly available.
TCO - Total Cost of Ownership for Microsoft 365 CoPilots for Employers
Investing in new technological infrastructure, like Microsoft 365 CoPilots, promises to revolutionize business outcomes for employers. But, the age-old adage rings true: to make money, you often have to spend money. The challenge? Truly grasping the full spectrum of costs associated with such an investment.
Enter the concept of Total Cost of Ownership (TCO). It's not just about the initial price tag but understanding the long-term financial commitment. For decision-makers, TCO offers a comprehensive lens to evaluate every potential cost, ensuring that every penny invested today yields dividends tomorrow.
Let's break down the some factors of Total Cost of Ownership (TCO) for Microsoft 365 CoPilot:
Initial Costs:
Integration: Expenses related to integrating CoPilot with existing systems, databases, and other software tools.
Deployment: Costs associated with the rollout of CoPilot across the organization, including potential hardware or infrastructure upgrades.
Ongoing Costs:
Licensing: The upfront $30 per user per month cost for acquiring the Microsoft 365 CoPilot licenses suitable for the organization's size and needs.
Maintenance: Regular costs to ensure the software runs smoothly, including patches, updates, and potential bug fixes.
Training: Expenses related to training staff to use CoPilot effectively, which might include formal training sessions, workshops, or online courses.
Updates/Upgrades: Costs for acquiring and implementing new versions or additional features of CoPilot as they are released.
Indirect Costs: Program / Account management costs or other
Potential Hidden Costs:
Support: Costs associated with seeking external support or hiring in-house experts to address any challenges or issues with CoPilot.
Customization: If the organization requires specific features or custom integrations, there might be additional costs for development.
Transitioning: Costs related to migrating data or transitioning from previous systems to CoPilot.
Long-Term Considerations:
Scalability: As the organization grows, there might be additional costs to scale up the CoPilot deployment.
Retraining: As new features are added or as the organization's needs change, there might be costs associated with retraining staff.
Exit Strategy: If the organization ever decides to switch from CoPilot to another solution, there will be costs associated with that transition.
By considering each of these bullet points, organizations can gain a comprehensive understanding of the TCO for Microsoft 365 CoPilot and make informed investment decisions.
Let’s look at initial assumption for direct and indirect costs.
First and foremost, the model outlined below is premised on the understanding that it represents an additional cost for those who are already subscribed to Microsoft 365 E5, Microsoft 365 E3, Microsoft 365 Business Premium, and Microsoft 365 Business Standard packages. As such, hardware costs have not been factored into this model. If you do not have Microsoft licenses, then a revised model will be required.
Secondly, indirect costs are not clear and it can depend on other licensing agreement a company has. Also, TCO life cycle can be 3 or 5 years long. Some product roll-out can have long pilot phase so there are many factors that can vary.
Also, keep in mind that these assumptions would need to be further refined based on specific details or requirements as and when we learn from company as well as sources.
Here's a set of assumptions that can be used in an Excel model based on the provided categories:
Assumptions for Excel Model
Hardware Assumptions:
Server: Assumes a standard enterprise-grade server with a 5-year depreciation cycle.
Peripherals: Includes items like monitors, keyboards, mice, and other related accessories. Assumes a 3-year depreciation cycle.
Network components: Includes routers, switches, and other networking equipment. Assumes a 5-year depreciation cycle.
Total Hardware Cost: Here is assumed to be none for now and assumed that the cloud hosting costs will be included in subscription costs.
Software Assumptions:
License: Annual licensing costs for all necessary software. $30 per user per month. Here, in first year, the number of users are assumed to be 50. Cost comes from 30*12*50= 18K
SW Maintenance: Annual maintenance costs, typically a percentage of the licensing cost. Here its assumed 25% of licensing costs.
SW Development: There is no custom software development or modifications assumed. Given more information, we will need to revise.
SW Management: Costs related to software updates, patches, and general management. Here, additional 10% time from IT Architect personnel is assumed. This is additional cost on top of other MSFT products.
Total Software Cost: Sum of all software-related costs.
Management Assumptions:
Architect/Admin: Salaries and benefits for IT architects and administrators. Here 25% of time of a FTE Architect role is assumed to be devoted to admin the CoPilot product.
Systems Hosting: Costs associated with hosting systems, either on-premises or in the cloud. None assumed.
Reporting: Costs related to generating and managing IT reports. None assumed.
Total Management Cost: Sum of all management-related costs.
Support Assumptions:
Support Staff: Salaries and benefits for IT support staff. Here 25% of time of a FTE IT Engineer role is assumed to be devoted to support the CoPilot product.
Total Support Cost: Total costs related to IT support.
Implementation Assumptions:
Development/Customization/Integration - One time: Folks we do not have insight here. Once source had noted that Microsoft Academy was charging 50k for one-time setup but this will be more comprehensive than Academy. One-time costs of 100k is assumed related to setting up, customizing, or integrating systems.
Total Implementation Cost: Sum of all implementation-related costs.
Indirect Costs Assumptions:
We do not have much visibility and therefore, it is challenging to assume this at this point.
Identify Key Roles
Now that we looked at costs, let’s look at potential roles that can benefit. In Part 1 of this series, we talked about Back Office roles in detail.
To truly harness the power of CoPilot and ensure a maximum return on investment, it's crucial to adopt a well-thought-out deployment strategy. Begin by pinpointing the teams or individuals within your organization who stand to gain the most from what CoPilot has to offer.
Imagine the transformative impact on roles that are heavily reliant on data and analytics. Financial Data Analyst, for instance, could leverage CoPilot to streamline their number crunching, making them more efficient in closing books.
But don't stop there. Think bigger. Consider the ripple effect of integrating AI capabilities across the entire organization. By doing so, not only do you enhance individual productivity, but you also position your company at the forefront of technological innovation. This strategic move could significantly amplify your company's value in the market, setting you apart from competitors and showcasing your commitment to leveraging cutting-edge technology for growth.
Don’t buy for all: You Choose Who Benefits
CoPilot isn't a mandatory addition for every member of Corporate team. This flexibility allows employer to strategize its deployment. Whether it's C-suite executives, sales mavens, data enthusiasts, or those who seem to have a deeper relationship with spreadsheets than with their colleagues, the choice is yours.
However, a pertinent question arises: Is a blanket deployment of CoPilot across all departments justified, especially if some employees might never utilize it? Some of the enterprises we've collaborated with are contemplating a full-scale rollout. But without hands-on experience with the final product, gauging the ROI of such a move is challenging. If you're leaning towards this, factor in the costs of training and adoption.
Interestingly, some publicly traded firms might leverage the AI buzz around CoPilot for a strategic boost in their market valuation. A cleverly marketed investment in CoPilot could potentially elevate a company's market value exponentially.
Cost Avoidance and ROI: Illustrated
Let's visualize illustrated rough sketch ROI with CoPilot. Picture a Financial Data Analyst with an annual salary of $60,000. This translates to roughly $29 per hour. Now, imagine that out of their entire workload, 60% is dedicated to handling basic data crunching requests, while the remaining 40% tackles more complex issues.
We will calculate ROI below. Bear in mind that the percentage figures for ROI can differ significantly based on the underlying assumptions. There isn't a universal model that applies to all scenarios. The results are largely contingent upon the specific assumptions you make.