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Executive Summary - LCMS Acquisition PART I: CORPORATE NEEDS OVERALL RECOMMENDATION

1) Continue to plan immediately and in coming months for LCMS acquisition. Continue to produce RLO content. 2) Carefully review 3.0 Beta version and receive progress reports on Viewer development from OutStart through January 2003. 3) If Evolution 3.0 and Viewer component approved by Digitalmed internal review, purchase OutStart's Evolution 3.0 in February 2003. 4) Plan system deployment in March 2003. This includes port to Linux and sandbox server + full 20 days training in Boulder. 5) Receive Viewer prototype in April 2003: integrate immediately, and receive updates through QA cycle and final release.

Q: WHY DOES DIGITALMED NEED AN LCMS? A: OVERVIEW •

PRODUCTION EFFICIENCY. Realize immediate efficiencies in production. Kaiser has purchased an LCMS and is now asking the provider what a reusable learning object might be. Digitalmed is ready to directly begin using an LCMS upon deployment.

GEOMETRIC ROI. The value of an LCMS, and thereby its ROI, grows with use. Leverage object repository for reuse, to enable a steeper efficiency curve and growing production flexibility.

INCOMPLETE SYSTEM WITHOUT LCMS. A "best of breed" LCMS, put in place alongside the existing highest quality LMS, ensures that Digitalmed maintains clear-cut differentiation (indeed, uniqueness) in the marketplace. The integration of these solutions increases their value.

TIME TO MARKET. Rationally organized, object-based content management enables proactive responses to a variety of potential future market requirements.

ANSWER CLIENT NEEDS WITH LONG-TERM SOLUTION. Integration of Rapid Content Development into the normal production process (a clear and pressing market requirement, by all accounts)

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A: WORK TO DATE PROVES NEEDS The most detailed and impressive answer to the question "Why do we need an LCMS?" is in the General Requirements: Learning Content Management System document, a detailed assessment of the needs and goals of moving both the production and publishing infrastructure to the model of Reusable Learning Objects (RLOs). This document specified 6 sets of requirements: • Content Management Requirements • Asset Management Requirements • Authoring Requirements • Testing Requirements • Publishing Requirements • Technical Requirements The document presents the results of two months of research, identifying "pains" in the production process, benefits for production, institutional clients and individual end users. The use case scenarios are concrete. The document shows how LCMS implementation can bring benefits to every aspect of the production process. The discovery process alone has given rise to forward-looking steps toward reusability and production efficiency. These steps are designed to make the transition to a software solution more seamless. Subsequent documents have identified "must haves" from among the requirements, levels of development effort required to meet the requirements, and a cost-benefits analysis (re-presented here in different form). It is also recommended that the staff expectation that the LCMS discovery process has fostered be factored in to a near-term executive decision. In summary: Needs have been identified. Best practices have been identified. The best tool to fit these needs and consolidate these best practices has been identified and recommended. Negotiations have proceeded and a price break achieved with the front runner. Internal consensus has centered on dividing the LCMS implementation into two phases: Phase I: Content Development; Phase II: Production. Content Development is understood here to mean content management, authoring and asset management. Production is understood here to mean live, realtime serving of courses containing dynamic RLOs. This is a viable and cost-effective roadmap for Digitalmed. It allows for continuity in LMS development and publishing, while implementing a revamped production process. It puts the company in a position where 3.0 requirements can be met without extended delay. The goals of the product as outlined in the General Requirements document remain true: • Improve productivity

LCMS Executive Summary CONFIDENTIAL 12/10/2002

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• • •

Enable reusability Reduce yearly maintenance Improve taxonomy

The users of the product as outlined in the same document remain true: • Instructional System Designers • Curriculum Planners • Content Developers • Reviewers • Editors • Publishers • Administrators • Production Support personnel Meanwhile, an important additional set of users has been identified: Rapid Content Development, long-term, on the client side This document attempts below to present qualitative and quantitative factors informing a possible Return on Investment. These are mainly focused on production efficiencies and measured in reduced cost per course.

Q: WHY DO WE NEED AN LCMS NOW? A: PRO • The production process has been adjusted sufficiently to meet the need for streamlined course production, in anticipation of an LCMS solution. • Files are hard to find, difficult to reuse. • There is no connection at all currently between the LMS and the Cumulus assets management tool. • Workflow is not handled in any automatic way. • Every course produced contains little searchable and reusable material • Updating courses is inefficient. The nature of the medical knowledge field is such that manual adjustment to content on a course-by-course basis is fundamentally work-intensive. Updating one object updates the instances of this object in multiple courses. • By buying now, we get all upgrades. This is true at least for OutStart. • The development team is ready to go (Kyle and Reggie?). • There is a company-wide expectation established. A: CON • One of the main "must haves" is flexibility in course layout. The goal is to match the current look and feel of the existing courses. Outstart's Evolution cannot do this now. Their Viewer development

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• • •

promises a prototype in Aprl, with an anticipated late July final release date. We must determine more closely if this is a show stopper. We need to prove that the Efficiency Model means lower cost per course. This remains to be demonstrated. If lower costs per course is in fact the Efficiency Model, we need to determine how many courses per year would mean "critical mass" in terms of justifying investment in a particular LCMS. We need to prove that a truly object-oriented model of RLOs is possible within the curriculum. How are context-free or contextwrapped content chunks to be created, practically? What results of retraining are demonstrable today? We have yet to solve the granularity issue and thus the reusability of legacy content.

Q: WHY NOT PURCHASE AN LCMS IN 3 MONTHS? A: PRO • In 3 months, OutStart will have version 3.0. Could this be a better product to begin with? • In 3 months, we may well be able to confirm work-in-progress on the Viewer technology. The schedule we have been given by Gene Zylkowsky (VP, Client Relations) is as follows: o Viewer Functional Specification completed at present o Viewer Design Document in progress (will be forwarded to Dehru asap) o Evolution 3.0 Beta: 12/13/02 o Evolution 3.0 Release: 02/07/03 o Viewer team begins development: 02/10/03 o Engineering freeze on Viewer dev.: 03/07/03 o Viewer Prototype: 04/18/02 o QA cycle: 04/21/03 – 05/30/03 o Release date (anticipated): 07/31/03 • In 3 months, given executive reassurance that an LCMS is coming, the production process will be further refined toward clinically vetted outlines and white papers, along with a more seasoned facility with object-oriented instructional design. A: CON • Lost efficiency decreases ROI • Up to now, we have seen our options as (a) buy a sophisticated authoring tool now or (b) begin work on Assembler now. Waiting has not been seriously considered. Why is it being considered now?

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Q: WHY NOT PURCHASE AN LCMS IN 6 MONTHS? PRO •

• CON • • •

In 6 months, OutStart will have the Viewer completed in nearrelease (late Beta?) form. The release version is anticipated to be ready by July. It would be prudent to wait to see concrete progress on this technology, which is vital to our requirements – indeed, one of the biggest show stoppers to re-presenting our look and feel (course elements layout). Without the Viewer technology we cannot author to our existing layout (course look and feel). This is a must have requirement, or at least has been to date. We could begin development immediately with multiple engineering resources on the Gen21 Assembler product, bringing it up to speed with our requirements in an estimated 4 months. Processes are already in place or being put in place to produce object oriented content. We cannot afford another extended, resource-intensive Annual Maintenance effort. Annual Maintenance would be automated within the LCMS.

Q: SHOULD WE DECIDE TO GO WITH GENERATION21 ASSEMBLER INSTEAD? PRO •

• • CON • • •

Level of Effort (LOE) estimates on necessary Gen21 LCMS development time show that Assembler could be modified to meet the high-impact requirements within 4 months (16 man months with multiple engineering resources dedicated to the tasks). We would have access to the source code. Integration of the LCMS with the existing LMS would be easier. The choice of Assembler contradicts the goal of meeting production (i.e. AUTHORING) needs immediately. Recent (12/6/02) LOE estimates confirm this. Assembler simply doesn't meet the "must have" requirements in the areas of authoring, versioning, metadata, data modeling, asset management, and custom publishing templates. Four (4) months of engineering work on Assembler translates to 4 months of lost efficiency relative to OutStart's Evolution. This factor could be modified by the considerations stated above regarding the impacts of OutStart's Viewer component development.

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PART II: PRODUCT IMPLEMENTATION COSTS PURCHASE, TRAINING, MAINTENANCE, DEVELOPMENT GEN21 ASSEMBLER

OUTSTART EVOLUTION

PRICE

CALCULATION BASIS

PRICE

CALCULATION BASIS

$0

Existing agreement

$120,000

20% discount on $150,000

TRAINING

$40,000

Includes 4 day intensive training and 20 days onsite instruction (1 person). This time period also includes port to Linux.

MAINTENANCE FEES

$27,000

yearly

PRODUCT

SUBTOTAL

0

DEVELOPMENT (TO REACH B

$320,000

TOTAL PRODUCT COSTS

$320,000

$187,000 16 man months @ 20,000/month

$160,000

8 man months @ 20,000/month

$347,000

ADDITIONAL COSTS, EQUAL AND MUTUALLY CANCELING FOR EACH PRODUCT GEN21 ASSEMBLER

OUTSTART EVOLUTION

HARDWARE

43,500

$43,500

ASSET MANAGEMENT

12,500

$12,500

Internal Maintenance

5,000

LCMS Executive Summary CONFIDENTIAL 12/10/2002

[fill in w/ info. from Kep]

5,000

[fill in w/ info. from Kep]

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Subtotal

$61,000

$61,000

TOTAL COSTS GEN21 ASSEMBLER

OUTSTART EVOLUTION

TOTAL PRODUCT COSTS

$320,000

$347,000

ADDITIONAL COSTS

$61,000

$61,000

GRAND TOTAL

$381,000

$408,000

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PART III: EFFICIENCY ESTIMATION (ROI)

PRODUCTION EFFICIENCY ESTIMATIONS Course Production, unit cost

$20,000

Number of courses per year

200

$4,000,000

Savings per course

20% of 20,000

($4,000)

Efficiency gain per year

200 x 4000

($800,000)

Savings per course, conservative

10% of 20,000

($2,000)

Efficiency gain per year, conservative estimate

200 x 2000

($400,000)

GEN21 VS. OUTSTART: PRODUCT EFFICIENCY DIFFERENTIAL Months lost efficiency using Gen21 Assembler

4

Efficiency differential, OutStart vs. Gen21 (OutStart efficiency gain x months lost divided by months in year) @20% efficiency gain

800,000 x 4/12

($266,666)

Efficiency differential, OutStart vs. Gen21 @ 10% efficiency gain

400,000 x 4/12

($133,333)

OUTSTART ROI – BREAK EVEN (8.6% EFFICIENCY) OutStart Evolution product acquisition

$347,000

8.6% Efficiency

($347,000)

ST

1

YEAR ROI

($0)

OUTSTART ROI @ 10% EFFICIENCY

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OutStart Evolution product acquisition

$347,000

10% Efficiency

($400,000)

1ST YEAR ROI

($53,000)

OUTSTART ROI @ 20% EFFICIENCY OutStart Evolution product acquisition

$347,000

20% Efficiency

($800,000)

ST

1

YEAR ROI

($453,000)

2ND YEAR OUTSTART ROI @ 10% EFFICIENCY 2ND YEAR MAINT. COSTS ND

2

YEAR 10% EFFICIENCY

2ND YEAR ROI

$27,000 ($400,000) ($173,000)

2ND YEAR OUTSTART ROI @ 20% EFFICIENCY 2ND YEAR MAINT. COSTS

$27,000

2ND YEAR 20% EFFICIENCY

($800,000)

ND

2

YEAR ROI

LCMS Executive Summary CONFIDENTIAL 12/10/2002

($773,000)

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APPENDIX: REQUIREMENT FULFILLMENT AND LEVEL OF EFFORT ESTIMATES Notes: • From Dehru Cromer's spreadsheet of 12/06/02 • Key: 0= not in product; 1 = product feature; 2 = area of expertise Questions answered: • How are the requirements met by each product? • What custom development needs to take place for each product to be introduced into production?

Mandatory Requirements for Content Development #

Requirement

Gen21 Assembler

OutStart Evolution

6.2

Reusable Knowledge Objects

1

1

Both have excellent structure for this

6.4

Content Maintenance Management

0

0

Neither has this built in. I think we can manage this outside LCMS

6.5

Metadata Flexibility

0

2

Big Gen21 shortcoming.

6.7

Content Search Capability

1

2

More difficult to visualize entire catalog in Gen21. OutStart shows folder structure of entire content library

6.9

Versioning

0

2

We're doing this anyway with LMS and Gen21 has commited.

7.1

Asset Management: Media Elements

1

1

Both have this. Gen21 needs work here.

7.4

Asset Storage and Maintenance

0

1

Cantos could still be our management for source files

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8.2

Custom Authoring Templates

0

1

10.7

Custom Publishing Templates

0

0

ESTIMATED Level of Effort (Man Months) Task

Stage

Gen21 Assembler

Versioning

pre

3

Meta Data

pre

2

1

Authoring & Data Model

pre

3

1

Asset Management

pre

3

Modify XMLEditor

pre

1

Custom Publishing Templates

post

2

1

Flash Templates

pre

1

1

Linux & Orion

pre

LMS Integration

post

1

3

Total Pre

13

4

Total Post

3

4

Total

16

8

LCMS Executive Summary CONFIDENTIAL 12/10/2002

OutStart Evolution

1

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FEEDBACK: FROM JENNIFER KURTZ, 12/12/02: > Add to cons for 3 months: slow down content production because would need to go back to an earlier way of doing things > For the figure of cost per course 20,000, add footnote about the more accurate 15,000 estimate and reasons for going with 20,000 > For the note on automation of annual maintenance, this is not true: annual maint. Needs to be outsourced or a special review board put in place (I didn't know this). They may go with eMedicine. In any case, I argued that at least the workflow and tracking and to some extent the object-oriented maintenance would help this process. Need to reword to avoid sounding like it would "automate" the process. Would look forward to LCMS providing the "last revision date" (metadata issue but also tracking, workflow). Further notes on annual maintenance: There is a plan for courses to go into annual maintenance following 3 schedules: -- 6 months: Regulartory content -- 12 months: Drug-related (she wasn't sure on this) -- 18 months: everything not included in the other 2 categories She also mentioned that they've tried to write standalone lessons (this as the granularity of the RLO) Also talked about learning a lot from eMedicine (as "takeaway")

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• TIME TO MARKET. Rationally organized, object-based content management enables proactive responses to a variety of potential future market...

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