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Cost Justifying the IPT Upgrade: Point by Point ROI Roadmap

Cost Justifying the IPT Upgrade: Point by Point ROI Roadmap. Jeff Wellen, VTG Systems Marketing. Roadmap. The context The numbers A Case Study The process Q&A. Company Leaders are asking IT departments to find savings. Nortel Study:.

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Cost Justifying the IPT Upgrade: Point by Point ROI Roadmap

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  1. Cost Justifying the IPT Upgrade: Point by Point ROI Roadmap Jeff Wellen, VTG Systems Marketing

  2. Roadmap • The context • The numbers • A Case Study • The process • Q&A

  3. Company Leaders are asking IT departments to find savings

  4. 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

  5. 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. “

  6. 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

  7. 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 55% of American households are on-line, 17% with Broadband Mobility is expected. ~ 20% is data networking ~ $80 Billion/year Voice is now or will be one more service on your data network

  8. 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 IP PBX diaplacing Traditional PBX’s • IP telephony market is now moving to mainstream from the early adopters stage US Enterprise Telephony Shipments

  9. IP PBXs displacing Centrex Centrex Revenue lost to IP PBX • 1.8 mil lines and over $1Bil in service revenue lost to IP PBXs • IP Centrex is response

  10. Roadmap • The context • The numbers • A Case Study • The process • Q&A

  11. Your IPC Savings and ROI will depend on real current spend… • PBXs • Depreciation • Internal Support • Equipment Repair • Hardware Upgrades • Annual Maintenance • Software upgrades • Local Administration • MACs • Centrex • Line charges • Internal Support • Voice mail • Feature Packages • Phone cost • Usage charges • Local Administration • MACs ???Professional assistance often needed

  12. … and your incrementalIPC costs, Convergence impacts cost assignment, budgets, and organizations. What costs to assign to IPT? 2005 Substantial shared technology and costs 1995 Distinct Systems and Organizations Phones PCs End Points (phones,softphones, PCs, PDAs) PBX Processors Servers Servers (Application, Video, XML) Management System Routers Routers (Voice enabled, QoS, VPN) Annual Maintenance LAN Switching LAN Switching (Switches, Wireless APs, Line Power) Day 2 Support Management System 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)

  13. Example Savings Areas MACs 3% Other 8% Maintenance 13% Carrier Costs 10% Software Upgrades 29% Con Call 24%

  14. Productivity Savings are real • Telecommuting and Office “virtualization” savings • Eliminates commute time (1 hr/day) • Reduces absenteeism (snow days, marginal sick-days) • Corporate LD rates for out-of-office calls vs cell phone • Employee satisfaction • Lower employee turnover • Real Estate savings • 2% Productivity improvement Soft Savings generate intense reactions and debate. We chose to focus on hard savings, accepted lower ROI.

  15. 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

  16. Typical Centrex charges

  17. 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.

  18. Some customers paying more than $40/station/mo

  19. Basic features are additional charges

  20. 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.

  21. Roadmap • The context • The numbers • County of LA • The process • Q&A

  22. 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

  23. County of LA Centrex pricing Best rate we’ve seen- public sector. Plus $7 for voicemail Rates above $20-$30 common Checkout the feature charges

  24. More costs, and usage may be charged as well

  25. 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

  26. Modeled for benchmark configuration $/Station and $/Station/Month $12.76/mo $10.72/mo $8.62/mo

  27. Projected System cost using benchmark

  28. Calculated Net OPEX Savings? Simple model No subjective savings Before lease payment On investment of $26 million

  29. What was the ROI? Optimized case, ignores financing choice What were the savings under a lease?

  30. Upgrade needed anywaySavings 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

  31. 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.

  32. Roadmap • The context • The numbers • County of LA • The process • Q&A

  33. Cisco Piloting ROI Consulting program • Web Based Tools • CNIC • www.cisco.com/partner/cnic/ •  IPT TCO Tool • wwwin-tools.cisco.com/ sales/servlet/ • Cisco Services ROI Tool • http://tools.cisco.com/CAIT/ASTOOL/ • Prepackaged Engagement • 3 partners • Pre-negotiated scope and price • Account teams lead customer coordination, network design, reviews • Custom Engagement • Negotiated deal by deal

  34. Customer Kickoff • Methodology • Expectations • Schedule • Deliverables Step 4. Engage Step 5. Collect Step 6. Analyze Step 7. Validate Step 8. Deliver • Interviews • Focus Groups • Interviews • Budgets • Contracts/Bills * • Cap Ex • Op Ex • 5 year proforma • IPT scenarios • Lease vs buy • ROI/NPV/IRR • Cashflow • Savings • Customer • Account Team • IPT Specialist • VTG/CMO/CA • Model • Business case • Exec Preso Engagement Methodology Step 1. Qualify • Discuss oppty and • partner options with • CMO,VTG • Interview Partners • Secure funding • Secure Customer support • Select partner • Schedule Step 2. Commit Step 3. Plan • Joint AT Project Planning • Account History • Politics, Technology • Sales Objectives • Methodology, Expectations • Schedule, Deliverables 2 weeks 2 weeks 2 weeks 1 week

  35. 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 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 Step 6b Financial Analysis ROI Cashflow Impact Annual Savings Annual Savings per Line

  36. 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. Salire/TBD/VTG New York City Multiple Departments Funded with FY03 Market development funds

  37. 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?

  38. Roadmap • The context • The numbers • County of LA • The process • Q&A

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