Transcript EVVBU Marketing Strategy Development Session

CNIC “How To” Training
For Cisco Field Sales and Channel
Partners
David Hume
Program Manager
Cisco Systems, Inc.
Session Number
Presentation_ID
© 2001, Cisco Systems, Inc. All rights reserved.
1
Objectives for Today
1.
Understand the importance of ROI in today’s
selling environment
2.
Learn to navigate the calculator and develop an
understanding of how to perform an ROI analysis
3.
Gain understanding of key ROI concepts and terms
4.
Identify most common ROI pitfalls
5.
Discuss the Test on the PEC
2
ROI - Definition
• For a given use of money in an enterprise, the ROI
(return on investment) is how much "return," usually
profit or cost saving, results. An ROI calculation is
sometimes used along with other approaches to
develop a business case for a given proposal.
3
Current IT Investment Climate
• Two+ years of declining corporate profits and
shrinking capital expenditure budgets
• Focus on back to basics approach to capex,
requiring a solid business case before
technology purchase is approved
• Greater involvement from business decision
makers who are asking tougher questions
• Focusing capex on only mission critical projects
(“need to have” vs “nice to have”)
• Less likely to invest in an emerging technology
2000 – 45% of enterprises said they would try an emerging technology
2001 – only 32% said they would try an emerging technology
4
ROI Helps Accelerate the Sales Cycle
•The ability to help customers determine ROI (55%) is the most
often cited means to speed up the adoption of IP Communications
55.3%
60%
50%
42.0%
40%
30%
20%
32.6%
25.1%
32.1%
29.1%
25.1%
10.8%
OTHER
ANALYST
RECOMMENDATION/MARK
ET RESEARCH
ROI DOCUMENTS OR
DATA
RFP/IMPLEMENTATION
PLAN
CASES STUDIES/SUCCESS
STORIES/TESTIMONIALS
TRAINING CLASSES WITH
CROSS FUNCTIONAL IT
COLLEAGUES
0%
TRAINING CLASSES WITH
PEERS OF SIMILAR
EXPERTISE
10%
END USER TRAINING
PERCENT OF RESPONDERS
What would help speed up the Decision Making Process?
Source: Cisco TDM Survey, October 2001
5
How Do I Get There?
http://www.cisco.com/partner/cnic/
Session Number
Presentation_ID
© 2001, Cisco Systems, Inc. All rights reserved.
6
Where Do R
O I Start???
Level 1 – ROI White papers
Level 2 – ROI Case Studies
Level 3 – ROI Snapshots
Level 4 – Custom Analysis
with CNIC
7
How Do I Know this Works?
• 2600+ Customer Profiles to date
• Positive ROI 72% of the time
• Average payback of 16-18 months
Avg. % Contribution to Cost Savings
Toll-Bypass/Voice/Data Access
22%
Equipment &
Maintenance
34%
44%
Network
Administration
Source: Converged Network Investment Calculator 2/02 8
What the Analysts Are Saying About
CNIC
“End-users have told us again and again that identifying the bottom-line
benefit when evaluating new technologies is a priority given today’s soft
economic climate. Effective ROI tools can serve as a key element to the
sales process because the offer the means for customers to measure the
actual long-term value of new technologies like IP Communications.
Cisco’s Converged Network Investment Calculator (CNIC) is
an elegant response that can play a very meaningful role in
persuading a customer to invest in a new Cisco technology.”
Ken Presti
IDC
“The most common complaints customers have about ROI calculators
are that they are too
Optimistic. Cisco Converged Network Investment Calculator (CNIC)
addresses the potential for overly
Optimistic ROI calculations by letting users enter in their own
assumptions –from productivity gains to wiring drop
Cost estimates. Building useful ROI tools is difficult. They have to be
detailed enough to yield meaningful results that are tailored
To each customers unique situation, yet simple enough to make it
usable. CNIC is a comprehensive calculator that considers
very detailed
Aspects of the real-world costs of IP Telephony.”
Kathryn Korostoff
President
Sage Research
9
What Can I Expect the ROI to Be?
•Paybacks vary based upon deployment scenario, with green fields
producing the most rapid payback
24
18
(Months)
14
9
6
0
Green
Field
TDM Centrex
Replacement
Multi-site
CCP
44%
Older PBX
Newer PBX
Replacement
Replacement
10
Where Can I Expect ROI?
Areas of Return
Green
Field
TDM Centrex
Replacement
Multi-site
CCP
44%
Older PBX
Replacement
Newer PBX
Replacement
Reduced Infrastructure
Costs
Reduced
Expansion/Upgrade
Reduced Cabling
Costs
Increased Productivity
of Support Staff
Moves, Adds, Changes
Reduction in
Outsourced Costs
Toll-Bypass
Voice Circuit
Consolidation
11
What about Soft Benefits?
• Improving End User Productivity
Applications like Unified Messaging increase
the productivity of the end user. CNIC limits
the soft benefits because, while they definitely
occur, CFO/CIO’s typically only want to
measure quantifiable benefits
12
“Enter The Calculator”
Session Number
Presentation_ID
© 2001, Cisco Systems, Inc. All rights reserved.
13
CNIC Tour
• Current Solution Modules
IP Telephony, Unity Messaging, IP Conference
Connection, Contact Center-CTI/ICM/ICD, FC Storage
Networking & IP Storage
• How to navigate through the calculator:
http://www.cisco.com/partner/cnic/
• File Access
Private, Public
• Online Help
• Cash Flow Schedule
• For more information access the CNIC Video Tour
14
15
16
17
18
19
Overview of Key Concepts
Session Number
Presentation_ID
© 2001, Cisco Systems, Inc. All rights reserved.
20
Key Concepts – Costs & Benefits
• Costs include any expenditure for equipment,
services or network management
• Benefits include cost savings, avoided costs,
productivity enhancements, improvements in
customer service, enhanced customer morale
• CNIC attempts to provide a framework to
capture all of the relevant costs and benefits
that are associated with purchasing a Cisco
technology
21
Key Concepts – Hard and Soft Costs
• Hard costs include areas like equipment,
maintenance and administration. They can be easily
quantified and there is a little doubt that they are real.
• Soft costs include areas like productivity and
customer service. These are often the greatest
drivers IT projects, but are at times fuzzy and difficult
to quantify. Customers are often reluctant to include
soft costs in an ROI analysis
22
Key Concepts – Length of ROI Analysis
• The length of time of the ROI analysis. Ranging
from 1-5 years.
• It is recommended that the analysis be a
minimum of 3 years long to accurately capture
the true financial costs and benefits.
• The longer the analysis length the more likely
that ongoing cost reductions will offset initial
technology acquisition costs.
23
Key Concepts - WACC
• Weighed Average Cost of Capital---The "cost" or "interest" a
company pays for its investment funds. Commonly referred to
as a "hurdle rate", it also represents the "minimum expected
returns" a company demands of its investments (much the
same as a bank would demand interest for loaning money to
purchase a house). The weighted average cost of capital
(WACC) is usually determined by the customer's Finance
department.
• Generally speaking, a higher WACC is indicative of industries or
companies which either have many valuable opportunity's
competing for investment funds, or higher expectations for
benefits derived from making an investment.
• CNIC uses a default of 10%
24
Key Concepts – Marginal Tax Rate
• For capital equipment where the useful life is in excess of oneyear, firms cannot charge its cost against income for tax
purposes. Hence, firms need to depreciate the capital
equipment, based on a depreciation schedule. Since
depreciation is a non-cash expense, it appears in the income
statement and impacts the taxes a firm pays in cash. A marginal
corporate tax rate is needed to calculate the income tax liability
for the given period. Once the income tax liability is calculated
for the given period , it is subtracted from the Cash Flow before
taxes to obtain net Cash Flow (after taxes). The tax rate will vary
among companies as well as across countries
25
Key Concepts – Depreciation
• A deduction you are allowed for the wearing
away and expensing over time of assets, such as
office equipment, vehicles, buildings, and
furniture.
• For assets that have an expected useful life of
more than one year, you spread the cost of the
asset over its estimated useful life rather than
deducting the entire cost in the year you place
the asset in service.
• Traditionally PBX’s are depreciated over 5-7
years
26
Key Concepts – Net Present Value (NPV)
• Defined as the present value (PV) of the expected
future cash flow (CFn) of an investment, discounted
at the cost of capital (k), less the cost of the
investment. NPV equals the increase in shareholders'
wealth.
• An NPV greater than 0 indicates that the project
should be undertaken
• NPV Example: 3-Year Analysis, WACC (10%), MTR 0%
Incremental Costs
Cost Savings
Cash Flow
Discounted CF
NPV = $24K
Year 0
($100K)
($100K)
($100K)
Year 1
Year 2
$50K
$50K
$45K
$50K
$50K
$41K
Year 3
$50K
$50K
$38K
27
Key Concepts – Internal Rate of Return (IRR)
• Interest rate that equates the Present Value of the
expected future cash flow (CFn) to the initial
investment outlay, where NPV =0. An IRR value above
the cost of capital (k) provides a satisfactory
investment, with a proposed project having a greater
IRR value being more attractive.
Incremental Costs
Cost Savings
Cash Flow
IRR = 50%
Year 0
Year 1
($100K)
$50K
($100K) $50K
Year 2
$50K
$50K
Year 3
$50K
$50K
28
Key Concepts – Payback/Breakeven
• The period required to recover the initial investment
of the project. The BE method of evaluating an
investment does not consider all cash flows and
does not discount the cash flow (CFN). This method
may not be appropriate in evaluating an investment
over an extended period of time.
Incremental Costs
Cost Savings
Cash Flow
Payback = 2 Years
Year 0
($100K)
($100K)
Year 1
Year 2
Year 3
$50K
$50K
$50K
$50K
$50K
$50K
29
Common ROI Pitfalls
Session Number
Presentation_ID
© 2001, Cisco Systems, Inc. All rights reserved.
30
Common ROI Pitfalls
1. Burdening the Voice ROI analysis with the complete
cost of the data network upgrade
2. Inputting costs for a PBX that has already been
purchased and paid for
3. Failing to take into consideration productivity gains
4. Not including all relevant costs and benefits
5. Failure to gather information on how a customer
evaluates capital expenditures (WACC, Depreciation
schedule, Marginal Tax Rate)
6. Not understanding the principal drivers of an ROI
analysis and how they impact the final outcome
-Lower Cost of “Network” Ownership
-Enhanced Business Communications
31
E-Learning Test
Session Number
Presentation_ID
© 2001, Cisco Systems, Inc. All rights reserved.
32
“Pop Quiz” for the Test
•
Which of the following are reasons why AM’s should be
interested in Presenting an ROI analysis for IP Telephony?
(choose 3)
A.
Sales can be completed faster with a proper cost justification
B.
1/3 of large enterprises require some form of cost justification
C.
A proper cost justification increases the odds of a successful
sale
D.
Most IT decesions now require some type of financial analysis
E.
Most IT Mgrs require a discussion of financial benefits
33
Pop Quiz continued
• Which one of the following IP Telephony deployment
scenarios, on average, leads to the quickest return
on investment?
A. End-of-Life PBX
B. Centrex
C. Greenfield
D. Newer PBX
34
Pop Quiz---Good Luck!!!
•
If a customer has a newer PBX or Key system, the AM
will want to emphasize which of the following choices in
an ROI Analysis?
A. Toll Bypass savings
B. Upgrading the data network
C. Wiring cost savings
D. The strategic value of applications
35
Contact Info
Session Number
Presentation_ID
© 2001, Cisco Systems, Inc. All rights reserved.
36
“It’s On The WEB…”
Converged Network Investment Calculator (CNIC)
“The ROI Guys”
Mike Kisch – Business Manager
Phone: 408-902-3112
E-mail: [email protected]
David Hume – Program Manager
Phone: 919-392-8601
E-mail: [email protected]
Cisco Network Investment
Calculator Home Page
Cisco Network Investment
Calculator Training Page
http://www.cisco.com/partner/cnic/
http://www.cisco.com/partner/cnic/training.shtml
37
Convergence_Internal
© 2001, Cisco Systems, Inc.
38
Hands On Case Studies
Session Number
Presentation_ID
© 2001, Cisco Systems, Inc. All rights reserved.
39
Case Study - Greenfield
• Overview: Ajax Inc. is moving into a new facility that will house 500
employees. They need to make a decision regarding their future voice and
data network. Ajax is an existing customer of Cisco and receives a 32%
discount. They have a WACC of 12% and a marginal tax rate of 35%. They
depreciate TDM and IP equipment over 5 years.
• Customer Data:
–Avaya PBX - $600K
• Network Support Data
–6 people currently support separate voice and
–Avaya Phones - $250K
Data networks
–PBX Installation/Training - $100K
–Annual PBX Maintenance Costs - $150K
• Cisco IP Telephony Cost Data
–Avg. Salary of $55K
–Customer believes that they can increase
productivity of support staff by 20%
–4 CallManager @ $19995/per CM
–150 MAC’s per year at a cost of $150/per
–500 phone
–Plans to reduce the # of wiring drops by 250 at a cost
of $135 per
•250 7960 @ $645
•250 7940 @$545
–4 Voice Gateways @ $3995 per
–Installation Cost – $75K
–Annual Maintenance - $125K
–Data Network Upgrade Cost of $45K
• WAN Data
–Annual call usage costs of $75K
–35% on-net/75% off-net
–Annual telco line costs of $100K of which 50% can
Be eliminated
40
Case Study - Centrex
• Overview: Acme Inc. currently is purchasing 250 Centrex lines from
Colorado Bell for a regional HQ and is looking at replacing those lines
with a Cisco IP Telephony solution. Colorado Bell receives a 32% from
Cisco. They have a WACC of 10% and a Marginal Tax Rate of 25%.
• Customer Data:
–Monthly Cost of Each Centrex Line - $35
• Cisco IP Telephony Costs
–(2) CallManager Servers @ $19995/per
–(250) 7940 @ $545/per
–(2) Voice Gateways at $3995/per
–Cost of Installation - $35K
–Annual Maintenance Cost - $45K
–Upgrade to Data Infrastructure of $25K
41
Case Study – Dated PBX Replacement
• Overview: Epsilon Corp. is a retail brokerage firm that has 100 sites
and over 15,000 employees. They are evaluating the purchase of a new
voice network to connect a regional HQ with 25 branch offices that has
2500 employees. Epsilon receives a 40% discount from Cisco and has
a WACC of 13% and a Marginal Income Tax rate of 31%. They are
evaluating Cisco’s IP Telephony and Unity Unified Messaging.
•
Customer Data:
•
–750 Moves per year, 50% Hard/50% Soft
–Cost for new PBX and Key Systems - $2.5M
–Cost for new phones - $500K
–Cost for new phones - $500K
–Cost for installation - $250K
–Cost for installation - $250K
–Annual Maintenance Costs - $225K
•
Cisco IP Telephony Cost Data:
Network Support Data
–Annual Maintenance Costs - $225K
•
Cisco IP Telephony Cost Data:
–(500) 7960’s @ $645 per
•
(8) CallManagers @ $15995 per
–(1500) 7940’s @$545 per
•
(500) 7960’s @ $645 per
–(500) 7910’s @$395 per
•
(1500) 7940’s @$545 per
–SRST costs of $100K
•
(500) 7910’s @$395 per
•
SRST costs of $100K
•
Voice Gateway costs of $100K
•
Installation - $250K
•
Annual Maintenance - $215K
–(8) CallManagers @ $15995 per
–Voice Gateway costs of $100K
–Installation - $250K
–Annual Maintenance - $215K
–Data network upgrade - $1MM
42
Case Study – Dated PBX Replacement
• Unified Messaging Data:
•
2000 users
•
Average salary $45K
•
Work 240 days a year, 9 hours per day
•
UM will improve their productivity by 15 minutes/day
43