Transcript What was the ROI?

Cost Justifying the IPT Upgrade:
Point by Point ROI Roadmap
Jeff Wellen, VTG Systems Marketing
Session Number
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1
Roadmap
• The context
• The numbers
• A Case Study
• The process
• Q&A
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2
Company Leaders are asking
IT departments to find savings
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3
Nortel Study:
• 30% of its enterprise users have converged
their voice and data networks
• Another 61% plan to do so in the next five
years.
• 60% of users view wireless local area
networks (LANs) as "critical" to improving
employee productivity.
91 Percent Will Combine Voice/Data In Five Years
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4
City of Mississaugua
• IPT is mainstream
• $3.3 million dollar network
with 2,300 Cisco IP phones
• 60 municipal buildings
throughout the city.
• $700,000 in annual savings
over Centrex
“According to the City, converging its voice and data networks will lower its total
cost of ownership by eliminating redundant infrastructure, centralizing
administration and simplifying maintenance. It will also enable a series of new
services including Enhanced 911 emergency calling, City-wide four-digit dialing and
online employee directories. The response time for "adds, moves and changes" has
been reduced from a minimum of two weeks to hours. Employees simply unplug
their phone and plug it in at a new location. The IP phone reconfigures itself and all
calls will be automatically routed to the phone extension, regardless of where it is
plugged in on the network. “
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City of
Greensboro, NC
•Access points throughout the city provide network access
to the City’s Inspection Department.
•Eliminates time and effort needed to travel to main office
for daily assignments and filing of daily reports
•Public Safety, Waste Management, Street Maintenance,
and other City Departments to be added in near future.
“The wireless network saves everybody a lot of time.
We have calculated that it adds two hour per day per
inspector, and we have 32 inspectors. That’s like
getting eight new people without paying for them!”
Walter Simmons
Code Manager
City of Greensboro, NC
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Data networks have become essential, ubiquitous,
robust, multiservice and cost effective
Several $100 Billion have been
invested by governments, carriers, and
enterprises in their IP networks in the
US over the past decade,
Moore’s Law working - Costs for IPT
technology dropping rapidly over past
5 years while improving quality and
features
~ 20% is data networking
~ $80 Billion/year
55% of American households are online, 17% with Broadband
Mobility is expected.
Voice is now or will be one more service on your data network
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IP PBX diaplacing Traditional PBX’s
IP telephony market is now
moving to mainstream from the
early adopters stage
• Key drivers for IP Telephony
Lower cost of ownership by reducing
expenditures associated with
equipment and maintenance, network
administration, and network carrier
charges
Improved communications capabilities
by facilitating employee mobility and
providing a solid foundation for the
deployment of advanced, feature-rich
services and solutions
Converged IP networks reduce the
expense of maintaining separate voice
and data networks and support models
100%
80%
60%
40%
20%
0%
2001
2002
IP PBX
2003
2004
2005
Traditional PBX
US Enterprise Telephony Shipments
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IP PBXs displacing Centrex
$Bil
$6
Centrex Revenue lost to IP PBX
Source: RHK
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
$5
$4
$3
$2
$1
$0
1997
1998
1999
2000
Mil
2001E 2002E 2003E 2004E 2005E
1,000+ lines, Lost Revenues
1,000+ lines, Lost Lines
• 1.8 mil lines and over $1Bil in service revenue lost to IP PBXs
• IP Centrex is response
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Roadmap
• The context
• The numbers
• A Case Study
• The process
• Q&A
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Your IPC Savings and ROI will depend on
real current spend…
• PBXs
• Centrex
Depreciation
Line charges
Internal Support
Equipment Repair
Internal Support
Voice mail
Hardware Upgrades
Annual Maintenance
Feature Packages
Phone cost
Software upgrades
Local Administration
Usage charges
Local Administration
MACs
MACs
???
Professional assistance often needed
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… and your incremental IPC costs,
1995
Distinct Systems and Organizations
2005
Substantial shared technology and costs
Phones
PCs
PBX Processors
Servers
End Points
(phones,softphones, PCs, PDAs)
Servers (Application, Video, XML)
Management System
Routers
Routers (Voice enabled, QoS, VPN)
Annual Maintenance
LAN Switching
Day 2 Support
Management System
LAN Switching
(Switches, Wireless APs, Line Power)
Management Systems
Telephone cable
plant
Annual Maintenance
Annual Maintenance
Day 2 Support
Day 2 support (data and voice service)
Ethernet
Cable Plant
Ethernet Cable Plant (powered)
Convergence impacts cost assignment, budgets, and organizations.
What costs to assign to IPT?
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Example Savings Areas
Other
8%
Carrier
Costs
10%
Con
Call
24%
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MACs
3%
Maintenance
13%
Software
Upgrades
29%
13
Productivity Savings are real
• Telecommuting and Office
“virtualization” savings
Reduces absenteeism (snow
days, marginal sick-days)
Corporate LD rates for out-ofoffice calls vs cell phone
Employee satisfaction
Lower employee turnover
Real Estate savings
• 2% Productivity improvement
Percent Annual Productivity Improvement
Eliminates commute time
(1 hr/day)
Productivity Improvement After Implementing
Unified Communications
3%
2%
1%
0
Product
Managers
Customer
Care
Sales
Representatives
Executives
Source: The Radicati Group, Inc.
Soft Savings generate intense reactions and debate. We
chose to focus on hard savings, accepted lower ROI.
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Lets look at Centrex as example
• Centrex Tariffs are public information and
therefore easier to benchmark
• Assumes PBX and Centrex features at
rough feature and price parity
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Typical Centrex charges
Reference Number
Optional Features
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Service
Analog Business Line
Analog Business Line w/ EUCL
Call Waiting
Selective Call Forwarding
Busy Call Forwarding
Delayed Call Forwarding
Speed Calling
Three-way Calling
Call Return
Call Screen
Priority Ringing
Repeat Dialing
Remote Access to Call Forwarding
Call Trace
Line Hunting
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Units
Rates
per line
Monthly Rate
$18.00
per line
Monthly Rate
$22.00
per feature
Monthly Rate
$3.89
per feature
Monthly Rate
$4.65
per feature
Monthly Rate
$3.89
per feature
Monthly Rate
$3.89
per feature
Monthly Rate
$3.89
per feature
Monthly Rate
$3.89
per feature
Monthly Rate
$4.65
per feature
Monthly Rate
$4.65
per feature
Monthly Rate
$4.65
per feature
Monthly Rate
$4.65
per feature
Monthly Rate
$1.38
per line
Monthly Rate
none
per line
Monthly Rate
$0.47
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Centrex and PBX Pricing varies widely
customer to customer
Centrex Example
$28/mo for analog
$38/mo for ISDN
Region, line volume, duration, features, distance, usage, etc.
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Some customers paying more than $40/station/mo
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Basic features are additional charges
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PBX and Centrex Endpoints are pricey
• Refurbished, 1 Year Warranty
Nortel M5316 = $329
Nortel M5221 = $169
Definity 6408 = $199
Definity 6424 = $289
Customer current telecom spending is complex,
often misunderstood, and requires time and
expertise to capture accurately.
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Roadmap
• The context
• The numbers
• County of LA
• The process
• Q&A
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County of LA
• Largest County in US
• 80,000 employees
• 39 Departments and central telecom group
• 80% Centrex, Many PBX’s
• Centrex Displacement Scope
61,000 Centrex Lines and 17,700 Centrex Voicemail boxes
Centrex costs examined include line charges, voice mail, usage,
and MACs
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County of LA Centrex pricing
Basic Station Line and Features (include all
Centrex features)
Optional Features Call Trace
Call Screen
Remote Access to Call Forwarding
Speed Call 6
Speed Call 30
Speed Call 50
Speed Call 70
Speed Call 30
Speed Call 50
Speed Call 70
Auto call Back System
Auto call back Line
Ringdown line
Call Waiting
Limited call Acceptance
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$12.75
Best rate we’ve seenpublic sector.
$0.50
$0.55
Plus $7 for voicemail
$0.50
$0.25
$0.55
Rates above $20-$30
common
$0.75
$0.85
$0.85
$0.30
Checkout the
feature charges
$0.50
$1.00
$0.35
$0.45
$0.25
$3.00
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More costs, and usage may be charged as well
per line
Basic rate ISDN Analog Business Line with service package
Basic Rate Centrex ISDN
Primary Rate - ISDN
per T-1
HICAP - T1
Dialing Plan - Option
Alternate Routing -Option
Calling Name Display-Option
Message Waiting Indication -Option
Network Ring Again
PRI Subgroup
Private Facility Connection
User to User Information
Caller ID- All line types
Monthly Rate+EUCL
$32.47
Monthly Rate+EUCL
$30.85
Monthly Rate
$176.00
monthly rate *
$195.00
Monthly Rate
$71.24
Monthly Rate
$9.50
Monthly Rate
$9.50
Monthly Rate
$9.50
Monthly Rate
$9.50
Monthly Rate
$9.50
Monthly Rate
$94.99
Monthly Rate
$9.50
Monthly Rate
$3.00
Local Calls
Zone Calls
Intra-LATA Calls
Voice Mail Box
minutes of use
Per Minute
$0.009
minutes of use
Per Minute
$0.009
minutes of use
Per Minute
$0.0288
per box
CostPer Add
Monthly Rate
$6.75
Installation/One-time
$67.21
labor-per line
Installation/One-time
$95.00
per jack
Unit Rate
$3.00
$165.21
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Used IPT benchmark for 10 year analysis
• 5000 stations, 50% 7940 and 7905 IP Phones
• Upgrading of CAT5500s to CAT 4500s
• Call Manager 3.3 with dual MCS 7845 and ER
• PRI Gateways with dual 6509s with 4 6xT1 modules
• Mix of new powered line cards and power cubes
• CiscoWorks ITEM for NMS/EMS, PC is CFE
• Unity 4.0 on 2 Compaq ML570 platforms
• Partner implementation services
• Power and HVAC upgrades, (UPS, vents)
• SMARTnet and SAS/U across the board
• 5 Year Lease Terms and average credit score (4)
• Customer data/voice group to manage
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Modeled for benchmark configuration
$/Station and $/Station/Month
Benchmark IPC System Pricing-5000
System
Cost Element
Switch replacement/upgrade
Line Power
Phones
Call Manager SW and Servers
PRI Voice gateway
Voicemail(100% penetration)
NMS
Partner Implementation (PDI)
Description
New 4500s net of tradein
50/50 Cubes and POE
50/50 High and low end
CM Redundancy, E911,TFTP
dedicated Catalyst 6k pair
All Costs (w/data network upgrade)
$ per station
$ per station per month
$643.00
$ per station
$ per station per month
$523.00
$ per station
$ per station per month
$458.00
IPT w/ VM (no data network)
IPT only (no VM, no data network)
PDI and training
Other Recurring Costs
PSTN Interconnect (PRI) per phone
12:1 ratio, $325/month per T1
Day 2 Support per station
Internal or External
Ongoing OP Ex $ per station per month
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$/Station
$/Station/mo
$ 120.00
$60.00
$250.00
$25.00
$30.00
$65.00
$3.00
$90.00
$2.04
$1.02
$4.25
$0.43
$0.51
$1.11
$0.05
$1.53
Annual Maintenance
$/station $/station/mo $/station/ mo
$ 40.00
$ 1.00
$
$ 2.00
$ 6.00
$12.00
$1.00
$ 22.00
$10.93
$3.33
$0.08
$0.00
$0.17
$0.50
$1.00
$0.08
-
$8.89
$10.00
$5.37
$1.10
$4.25
$0.59
$1.01
$2.11
$0.05
$1.53
$12.76/mo
$1.83
$22.00
$7.79
Total
$12.76
$10.72/mo
$1.83
$10.72
$8.62/mo
$0.83
$8.62
$1.13
$5.00
$6.13
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Projected System cost using benchmark
Cap Ex Estimate
Plant Improvements ( closet vents/conditioning)
Switch replacement/upgrade net of trade in
UPS for closets
Line Powered Modules (50%)
Phones (50/50 7940, 7905;50% cubes, with licenses)
Call Manager
PRI Voice gateway
NMS
PDIO services(est, partner, w/training)
IPC price per station
Average Price per Annual Maintenance
station after
%, net of discounts
discounts
and trade-in
6
0
$55
35%
$28
10%
$48
1%
$229
2.5%
$21
20%
$29
20%
$3
$84
$503
$60
Voicemail System
25%
$563
Total voicemail boxes replaced
Total stations replaced
Voicemail system cost
IPC system cost
W/ data Network Exc. Data Network
17,763
17,763
61,000
61,000
$
1,065,780
$1,065,780
$
30,683,000
$25,254,000
Total System (est.)
$
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31,827,543
$26,319,780
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Calculated Net OPEX Savings?
Net Savings
Cost Reductions
Centrex Line charges
Centrex Feature Charges
$
$
8,784,000
-
Centrex voicemail
Usage Charges
MAC Cost
Network Operations Efficiency
$
$
$
$
1,438,803
1,055,221
494,460
-
$
11,772,484
$
$
109,800
212
401
$
$
$
$
1,129,008
310,853
1,145,580
1,000,000
$
3,585,441
Annual Op Ex Savings
Cost Increments
DID line charges
Supertrunks for voice IPC solution gateways
SBC charges per SuperTrunk
New Annual Line Charges
New Annual Maintenance and warranty-Voicemail
New Annual Maintenance and warranty-IPC
New CoLA PM and Technical Support
New Annual Op Ex Costs
Net Annual Op Ex Savings (Years 1-5)
$
8,187,043
Net Annual Op Ex Savings (Years 6 on)
$
9,187,043
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Simple model
No subjective savings
Before lease payment
On investment
of $26 million
28
What was the ROI?
ROI Estimate
Total System (est.)
w/ Data Network
$
31,827,543
$26,319,780
Annual Net Savings (Years 1-5)
ROI (Years 1-5)
$
8,217,726
26%
$9,388,526
36%
Annual Net Savings (Years 6 on)
ROI (Years 6 on)
$
9,217,726
29%
Exc. Data Network
$
10,388,526
39%
Optimized case, ignores financing choice
What were the savings under a lease?
Savings w/ Financing Estimate
6 year Lease
w/ Data Network
Exc. Data Network
Annual Payments
Annual Savings (Year 1-6)
$7,428,201
$758,842
$5,907,075
$2,279,969
Annual Savings (Year 7 on)
$8,187,043
$9,357,843
10 Year Cumulative Savings
$37,301,226
$51,111,185
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Upgrade needed anyway
Savings fund priority projects
Route IP-TV video streams from building entrances,
sensitive locations, high crime areas to central
security
Provide guards with ability to lookup employee and
contractor photo for added security
Emergency Notification
Use new IVR contact center products to improve
service levels for courts, housing, unemployment
office, etc.
Disaster recovery; remote operations and
management connectivity
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Lessons Learned
• Biggest challenge is to determine current spend, PBX or Centrex, not IPC
spend
• $$$ not enough for most customers. Need agreement that IPC is part of
strategic direction.
• Support for IPC constituencies can be built by earmarking savings to
important internal projects (Surveillance, Emergency Notification, Business
Continuity, Mobility, etc.)
• IPC evaluation should use same planning horizon as legacy PBX, 10+ years.
• Think leasing early. Very attractive rates and delivers cash savings sooner
• Data network upgrades will be driven by application growth, security, traffic,
and other non-voice data network requirements. IPC financial justification
should not be burdened with expected data network upgrades.
• Look for optimizations early (phone mix, network state, SmartNet)
• Think carefully about partnering for Day 2 support. ILEC can be ally or foe.
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Roadmap
• The context
• The numbers
• County of LA
• The process
• Q&A
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Cisco Piloting ROI Consulting program
Web Based Tools
Prepackaged
Engagement
• 3 partners
• CNIC
Custom Engagement
• Negotiated deal by
deal
•www.cisco.com/partner/cnic/
• IPT TCO Tool
•wwwin-tools.cisco.com/
sales/servlet/
•Cisco Services ROI Tool
•http://tools.cisco.com/CAIT/ASTOOL/
Presentation_ID
•Pre-negotiated scope
and price
•Account teams lead
customer coordination,
network design,
reviews
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Engagement Methodology
Step 1. Qualify
Step 2. Commit
Step 3. Plan
•Joint AT Project Planning
•Discuss oppty and
•partner options with
CMO,VTG
•Secure funding
•Secure Customer support
•Select partner
•Schedule
•Interview Partners
Step 4. Engage
•Customer Kickoff
•Methodology
•Expectations
•Schedule
•Deliverables
Step 5. Collect
•Interviews
•Focus Groups
•Interviews
•Budgets
•Contracts/Bills *
•Cap Ex
•Op Ex
2 weeks
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•Account History
•Politics, Technology
•Sales Objectives
•Methodology, Expectations
•Schedule, Deliverables
Step 6. Analyze Step 7. Validate
•5 year proforma
•IPT scenarios
•Lease vs buy
•ROI/NPV/IRR
•Cashflow
•Savings
2 weeks
•Customer
•Account Team
•IPT Specialist
•VTG/CMO/CA
2 weeks
Step 8. Deliver
•Model
•Business case
•Exec Preso
1 week
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Engagement detail
Step 5a
Information Collection
Centrex pricing schedule
Billing- Customer record of Service and Equ.
Traffic Reports
MAC stats
Network readiness (no survey)
Data Upgrade projects underway
Voicemail penetration
Feature penetration
Essential services and needed new services ++
Planning Horizon (10 years)
Pilot candidates
Step 5b
System Cost Estimate
Hardware and Software
Maintenance
Professional Services
New switching Routing/Switching/Gateways
Incremental Telco costs
Lease rates
Validate benchmark against pilot candidate
Support Model-Internal Voice and Data group vs 3rd party
Step 6a
System Savings Estimate
Step 6b
Financial Analysis
Line charges, Voice mail, conference Calling
Toll bypass, MACs
Productivity enhancements
- Relo downtime
- Directory lookup
- New Apps (police call outs)
Personnel saving
Cable Plant maintenance
ROI
Cashflow Impact
Annual Savings
Annual Savings per Line
Presentation_ID
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Example Engagements
Customer
Consultant
Notes
County of LA
VTG
61,000 line Centrex displacement using leasing.
ISD ordered IP PBX for central service dep’t. Sent
11 to training, now engaged as IPT advocate.
26/36% ROI and ~$50 Million saved over10 years
County of
Ventura
Salire/VTG
10,000 line Nortel PBX and Core displacement.
Complete network rebuild needed but must lower
costs as well. $300k per year to being spent just to
replace broken phones
65% ROI.
State of CA EED BearingPoint/VTG
Multiple Departments. Employment Development
Dept, 4000 line Centrex displacement
55% ROI
Miami-Dade
County
Signature Group/VTG
Customer needs to justify $1 million investment to
date in IPT to expand.
New York City
Salire/TBD/VTG
Multiple Departments
Funded with FY03 Market development funds
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Recap - Questions to consider…
How much are you now
spending per station?
Line Charges
Conference Bridges
Voice mail
Usage
Features
MACs
Other
How much of a cost
reduction would make
change attractive?
What new IP enabled
services would add value
to your organization?
Emergency Broadcast Notification
Unified Communications
802.11 phones= campus mobility
IP Surveillance
Security Applications
Mobility/Relocation/Teleworkers
Business Continuity
User initiated provisioning
Directory Services
Video Conferencing
What is value of new
applications/productivity
Improvements?
What are your current
data network upgrade
plans?
Switching (Edge)
Routing
WAN connectivity
QoS
Application driven upgrades
Telecommuting
Redundancy
Security
What incremental data
network upgrades are due
to IPC?
Can Cisco help work though a business case?
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Roadmap
• The context
• The numbers
• County of LA
• The process
• Q&A
Presentation_ID
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