Money is tight these days, and only the most essential projects are getting funded. In the data networking realm that means all projects have to show tangible immediate benefits, and save money to boot.
In the Return On Investment discussion, these can often times be split out into hard dollar and soft dollar cost savings. Hard dollar costs are what the organization pays out in cash every month, quarter, and year. For example, PBX lease payments, voice trunk line charges, or call center staffing level, are all examples of hard dollar costs to which savings can be applied.
Soft dollar costs can be more significant, but they are harder to quantify. If it is possible to enable people to work faster, have access to data more quickly, or provide a higher level of customer service, it is clearly a benefit to the organization. Over time those improvements can be responsible for a higher net profit, but since they don’t involve the writing of checks from finance every month they are classified as soft cost from a ROI standpoint.
Let me give an example of an ROI calculation. We were working with an Atlanta company that had offices all over the southeast and they had a big problem. Their PBX leases were coming due. They were disenchanted with the costs and limited performance of their existing system and were looking for something new.
As a side note, one of the common ways that traditional PBX vendors sell is a system is to focus only on the monthly number, in a similar way that some car dealers do. The vendor lists out an entire system, prices it using a FMV lease, includes service and maintenance for the duration of the lease, and only gives one price – the monthly cost. The problem is, with a Fair Market Value lease, the residual value of the PBX is unknown! At the end of the lease, the customer finds out they have been paying every month, and have no assets at all to show for it!
At any rate, this organization was looking at either an Avaya system or a Cisco system to upgrade to. Since we focus on Cisco, he had to look somewhere else for Avaya. After completing the system design, pricing it out, and running it through financing (with a $1 buyout of the system at the end of the lease!), we had a monthly price.
Not surprisingly, the price was too high. That is one of the mistakes commonly made when specifying a Unified Communications system. Because not only does the phone system have to be replaced, many time the LAN switches and WAN routers have to be upgraded as well. This can make for an expensive project when one looks at just forking over the cash. Couple the price with the disruption of business processes that can happen with a voice system changeover makes the decision maker just want to not think about it.
A more successful way to approach the discussion is to quantify the hard dollar cost savings of the project. It is easy for vendors to wave their hands and say, “Our customer across town, with a business just like yours, is saving $20,000 per month by using our system!” It is more difficult to be specific about the exact hard dollar cost savings.
When looking for ROI, a simple tactic is to look for where the large monthly expenses are. If these expenses can be reduced or eliminated, then the project has a much higher likelihood of being funded. So we set about doing just that. Looking at the spreadsheet excerpt below, the existing costs are quantified on the left, and the proposed costs quantified on the right.
- UC ROI Example
The monthly finance payment was generated from an equipment and installation price of $260k, an annual manufacturer maintenance price of $40k, and a 5% annual interest rate. Financing is for 5 years with $1 buyout. It includes all LAN, WAN, UC voice, and installation pricing , with manufacturer maintenance for all five years.
The pricing requires further explanation. For the 17 sites, they were connected by Virtual Private Network, or VPN. When all the phones in the organization are part of one big UC installation, VPN/DSL connected sites only work for very small offices with 2-4 users. All the rest have to be connected with a Private Network, the most common these days being MPLS. Unfortunately, the new Internet and MPLS WAN for this customer ended up costing more than the existing Internet VPN connections. This is not good for ROI.
There are multiple benefits to the MPLS WAN, though. One of the biggest ones is that it can replace almost all of the voice T1′s and analog trunk lines at every site with a SIP trunk. All the existing local phone numbers are ported over to the SIP trunk, and all inbound and outbound calls go over this data link. This is where the real cost savings come into play.
As a side note, just like MPLS (MultiProtocol Label Switching), knowing what SIP (Session Initiation Protocal) stands for doesn’t really help at all.
So, the customer could extend the lease on their PBX’s, and continue to pay $26k per month, or they could get an entire new data network and a new phone system, fully installed, and pay $20k per month. That’s pretty much a no-brainer from a cost savings standpoint.
But it gets even better! The finance guy is now ready to listen because we have demonstrated how the new project will save real money on a monthly basis. Remember the soft dollar cost ROI discussion above? This now comes into play.
With a new phone system, there are multiple benefits that can potentially improve productivity:
- Inbound Automatic Call Distribution (ACD) for better customer service.
- Four digit dialing from any phone at any site to any other site. No more calling the main number for the other site, chatting with the person who happened to pick up the phone, then a few minutes later talking to whoever you intended to call. Just pick up the phone and call them!
- Presence and chat integration into the workstation. See when anyone else is on the phone or not, and run an internal, secure chat server that lets you have a conversation with a co-worker while they are one the phone.
- Centralized management of all the phone systems from a web browser. That means no more contracts with local phone companies in every town. A new employee can have a phone ready and working for them within hours of starting.
These are just some of the soft dollar cost ROI benefits from a Unified Communications system. There are others that I will list out in detail in another post.
With the combination of monthly cost savings, soft dollar cost benefits, and the upgrade of the entire network, the decision was made to proceed with the project. It turned out well, and the benefits of the increased productivity and cost savings were actually realized.
What I have found through many processes like these is the necessity of finding out what the organization is spending too much money on. The line in the spreadsheet for conferencing is there because some organizations spend a large amount of money on conference calling services every month. In many cases those conference calls can be managed internally for a lower cost.
Same thing with Project Office voice. Some organizations set up 2-4 month project offices at remote sites. It is expensive to arrange and deliver voice and data service to these sites; so the alternative of dropping in a voice gateway, switch, and phones, and having the system run off the main site system is very appealing.
The ROI of Unified Communications systems is very real. What is needed in many cases to make the project move forward is the actual information on what the organization currently spends, and the ability to show real numbers on both hard and soft dollar cost savings.
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Author: Rolf Versluis
Adcap Network Systems – Atlanta and Miami
Great Local Engineers Creating Systems that Work!
Posted at Adcap Tech Tips
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Last Updated: June 10th, 2010 |
