cost justifying the ipt upgrade: point by point roi roadmap
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1© 2001, Cisco Systems, Inc. All rights reserved.
Session NumberPresentation_ID
Cost Justifying the IPT Upgrade: Point by Point ROI Roadmap
Jeff Wellen, VTG Systems Marketing
222© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Roadmap
• The context
• The numbers
• A Case Study
• The process
• Q&A
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Company Leaders are asking IT departments to find savings
444© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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
555© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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. “
666© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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 perinspector, and we have 32 inspectors. That’s like getting eight new people without paying for them!”
Walter Simmons Code Manager City of Greensboro, NC
777© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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
888© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
IP PBX diaplacing Traditional PBX’s
• 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
0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005
IP PBX Traditional PBX
IP telephony market is now moving to mainstream from the early adopters stage
US Enterprise Telephony Shipments
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$0
$1
$2
$3
$4
$5
$6
1997 1998 1999 2000 2001E 2002E 2003E 2004E 2005E00.511.522.533.544.5
1,000+ lines, Lost Revenues 1,000+ lines, Lost Lines
Source: RHK$Bil Mil
IP PBXs displacing Centrex
• 1.8 mil lines and over $1Bil in service revenue lost to IP PBXs
• IP Centrex is response
Centrex Revenue lost to IP PBX
101010© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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…
• CentrexLine charges
Internal Support
Voice mail
Feature Packages
Phone cost
Usage charges
Local Administration
MACs
• PBXsDepreciation
Internal Support
Equipment Repair
Hardware Upgrades
Annual Maintenance
Software upgrades
Local Administration
MACs
???Professional assistance often needed
121212© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Convergence impacts cost assignment, budgets, and organizations.
What costs to assign to IPT?
Phones
PBX Processors
Management System
Annual Maintenance
Day 2 Support
PCs
Servers
Management System
Annual Maintenance
Day 2 Support
Routers
LAN Switching
Telephone cable plant
Ethernet Cable Plant
End Points (phones,softphones, PCs, PDAs)
Servers (Application, Video, XML)
Management Systems
Annual Maintenance
Day 2 support (data and voice service)
Routers (Voice enabled, QoS, VPN)
LAN Switching(Switches, Wireless APs, Line Power)
Ethernet Cable Plant (powered)
1995Distinct Systems and Organizations
2005Substantial shared technology and costs
… and your incremental IPC costs,
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Example Savings Areas
MACs3%
Maintenance13%
Other8%
CarrierCosts10%
ConCall24%
SoftwareUpgrades
29%
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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
0
1%
2%
3%
ProductManagers
CustomerCare
SalesRepresentatives
Executives
Source: The Radicati Group, Inc.
Per
cen t
An n
u al P
rod u
c ti v
i ty Im
p ro v
eme n
t
Productivity Improvement After ImplementingUnified Communications
Soft Savings generate intense reactions and debate. We chose to focus on hard savings, accepted lower ROI.
151515© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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 Service Units Rates
Analog Business Line per line Monthly Rate $18.00
Analog Business Line w/ EUCL per line Monthly Rate $22.00
Optional Features Call Waiting per feature Monthly Rate $3.89
Selective Call Forwarding per feature Monthly Rate $4.65
Busy Call Forwarding per feature Monthly Rate $3.89
Delayed Call Forwarding per feature Monthly Rate $3.89
Speed Calling per feature Monthly Rate $3.89
Three-way Calling per feature Monthly Rate $3.89
Call Return per feature Monthly Rate $4.65
Call Screen per feature Monthly Rate $4.65
Priority Ringing per feature Monthly Rate $4.65
Repeat Dialing per feature Monthly Rate $4.65
Remote Access to Call Forwarding per feature Monthly Rate $1.38
Call Trace per line Monthly Rate none
Line Hunting per line Monthly Rate $0.47
171717© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Centrex and PBX Pricing varies widely customer to customer
Region, line volume, duration, features, distance, usage, etc.
Centrex Example
$28/mo for analog
$38/mo for ISDN
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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.
212121© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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 Scope61,000 Centrex Lines and 17,700 Centrex Voicemail boxes
Centrex costs examined include line charges, voice mail, usage, and MACs
232323© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Basic Station Line and Features (include all Centrex features) $12.75
Optional Features Call Trace $0.50
Call Screen $0.55
Remote Access to Call Forwarding $0.50
Speed Call 6 $0.25
Speed Call 30 $0.55
Speed Call 50 $0.75
Speed Call 70 $0.85
Speed Call 30 $0.85
Speed Call 50 $0.30
Speed Call 70 $0.50
Auto call Back System $1.00
Auto call back Line $0.35
Ringdown line $0.45
Call Waiting $0.25
Limited call Acceptance $3.00
Best rate we’ve seen- public sector.
Plus $7 for voicemail
Rates above $20-$30 common
County of LA Centrex pricing
Checkout the feature charges
242424© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
More costs, and usage may be charged as well
Basic rate ISDN Analog Business Line with service packageper line Monthly Rate+EUCL $32.47
Basic Rate Centrex ISDN Monthly Rate+EUCL $30.85
Primary Rate - ISDN Monthly Rate $176.00
HICAP - T1 per T-1 monthly rate * $195.00
Dialing Plan - Option Monthly Rate $71.24
Alternate Routing -Option Monthly Rate $9.50
Calling Name Display-Option Monthly Rate $9.50
Message Waiting Indication -Option Monthly Rate $9.50
Network Ring Again Monthly Rate $9.50
PRI Subgroup Monthly Rate $9.50
Private Facility Connection Monthly Rate $94.99
User to User Information Monthly Rate $9.50
Caller ID- All line types Monthly Rate $3.00
Local Calls minutes of use Per Minute $0.009
Zone Calls minutes of use Per Minute $0.009
Intra-LATA Calls minutes of use Per Minute $0.0288
Voice Mail Box per box Monthly Rate $6.75
CostPer Add Installation/One-time $67.21
labor-per lineInstallation/One-time $95.00
per jack Unit Rate $3.00
$165.21
252525© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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
262626© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Benchmark IPC System Pricing-5000System Annual Maintenance Total
Cost Element Description $/Station $/Station/mo $/station $/station/mo $/station/ mo
Switch replacement/upgrade New 4500s net of tradein 120.00$ $2.04 40.00$ $3.33 $5.37Line Power 50/50 Cubes and POE $60.00 $1.02 1.00$ $0.08 $1.10Phones 50/50 High and low end $250.00 $4.25 -$ $0.00 $4.25Call Manager SW and Servers CM Redundancy, E911,TFTP $25.00 $0.43 2.00$ $0.17 $0.59PRI Voice gateway dedicated Catalyst 6k pair $30.00 $0.51 6.00$ $0.50 $1.01Voicemail(100% penetration) $65.00 $1.11 $12.00 $1.00 $2.11NMS $3.00 $0.05 $1.00 $0.08 $0.05Partner Implementation (PDI) PDI and training $90.00 $1.53 - - $1.53
All Costs (w/data network upgrade) $ per station $643.00 22.00$ $ per station per month $10.93 $1.83 $12.76
IPT w/ VM (no data network) $ per station $523.00 $22.00$ per station per month $8.89 $1.83 $10.72
IPT only (no VM, no data network) $ per station $458.00 $10.00$ per station per month $7.79 $0.83 $8.62
Other Recurring CostsPSTN Interconnect (PRI) per phone 12:1 ratio, $325/month per T1 $1.13Day 2 Support per station Internal or External $5.00Ongoing OP Ex $ per station per month $6.13
Modeled for benchmark configuration $/Station and $/Station/Month
$12.76/mo
$10.72/mo
$8.62/mo
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Projected System cost using benchmark
Cap Ex Estimate
Average Price per station after discounts
Annual Maintenance %, net of discounts
and trade-inPlant Improvements ( closet vents/conditioning) 6 0
Switch replacement/upgrade net of trade in $55 35%UPS for closets $28 10%Line Powered Modules (50%) $48 1%Phones (50/50 7940, 7905;50% cubes, with licenses) $229 2.5%Call Manager $21 20%PRI Voice gateway $29 20%NMS $3PDIO services(est, partner, w/training) $84
IPC price per station $503
Voicemail System $60 25%$563
W/ data Network Exc. Data NetworkTotal voicemail boxes replaced 17,763 17,763Total stations replaced 61,000 61,000Voicemail system cost 1,065,780$ $1,065,780IPC system cost 30,683,000$ $25,254,000
Total System (est.) 31,827,543$ $26,319,780
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Calculated Net OPEX Savings?Net Savings
Cost ReductionsCentrex Line charges 8,784,000$ Centrex Feature Charges -$
Centrex voicemail 1,438,803$ Usage Charges 1,055,221$ MAC Cost 494,460$ Network Operations Efficiency -$
Annual Op Ex Savings 11,772,484$ Cost IncrementsDID line charges 109,800$ Supertrunks for voice IPC solution gateways 212 SBC charges per SuperTrunk 401$
New Annual Line Charges 1,129,008$ New Annual Maintenance and warranty-Voicemail 310,853$ New Annual Maintenance and warranty-IPC 1,145,580$ New CoLA PM and Technical Support 1,000,000$
New Annual Op Ex Costs 3,585,441$
Net Annual Op Ex Savings (Years 1-5) 8,187,043$
Net Annual Op Ex Savings (Years 6 on) 9,187,043$
Simple model
No subjective savings
On investment of $26 million
Before lease payment
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What was the ROI?
ROI Estimate w/ Data Network Exc. Data Network
Total System (est.) 31,827,543$ $26,319,780
Annual Net Savings (Years 1-5) 8,217,726$ $9,388,526ROI (Years 1-5) 26% 36%
Annual Net Savings (Years 6 on) 9,217,726$ 10,388,526$ ROI (Years 6 on) 29% 39%
Optimized case, ignores financing choice
Savings w/ Financing Estimate6 year Lease w/ Data Network Exc. Data Network
Annual Payments $7,428,201 $5,907,075Annual Savings (Year 1-6) $758,842 $2,279,969
Annual Savings (Year 7 on) $8,187,043 $9,357,843
10 Year Cumulative Savings $37,301,226 $51,111,185
What were the savings under a lease?
303030© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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
313131© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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.
323232© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Roadmap
• The context
• The numbers
• County of LA
• The process
• Q&A
333333© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
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
343434© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Engagement Methodology
•Joint AT Project Planning
•Account History•Politics, Technology•Sales Objectives•Methodology, Expectations•Schedule, Deliverables
•Discuss oppty and •partner options with CMO,VTG
•Interview Partners
Step 1. Qualify Step 3. Plan
•Customer Kickoff
•Methodology•Expectations•Schedule •Deliverables
Step 4. Engage
•Interviews•Focus Groups•Interviews•Budgets•Contracts/Bills *•Cap Ex•Op Ex
Step 5. Collect
•Model•Business case•Exec Preso
Step 8. Deliver
•5 year proforma•IPT scenarios•Lease vs buy•ROI/NPV/IRR•Cashflow•Savings
Step 6. Analyze
•Customer•Account Team•IPT Specialist•VTG/CMO/CA
Step 7. Validate
•Secure funding•Secure Customer support•Select partner•Schedule
Step 2. Commit
2 weeks 2 weeks 2 weeks 1 week
353535© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Engagement detail
Step 5aInformation CollectionCentrex pricing scheduleBilling- Customer record of Service and Equ.Traffic ReportsMAC statsNetwork readiness (no survey)Data Upgrade projects underwayVoicemail penetrationFeature penetrationEssential services and needed new services ++Planning Horizon (10 years)Pilot candidates
Step 6bFinancial AnalysisROICashflow ImpactAnnual SavingsAnnual Savings per Line
Step 6aSystem Savings EstimateLine charges, Voice mail, conference CallingToll bypass, MACsProductivity enhancements - Relo downtime - Directory lookup - New Apps (police call outs)Personnel savingCable Plant maintenance
Step 5bSystem Cost EstimateHardware and SoftwareMaintenanceProfessional ServicesNew switching Routing/Switching/GatewaysIncremental Telco costsLease ratesValidate benchmark against pilot candidateSupport Model-Internal Voice and Data group vs 3rd party
363636© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Example Engagements
Multiple Departments
Funded with FY03 Market development funds
Salire/TBD/VTGNew York City
Customer needs to justify $1 million investment to date in IPT to expand.
Signature Group/VTGMiami-Dade County
Multiple Departments. Employment Development Dept, 4000 line Centrex displacement
55% ROI
BearingPoint/VTGState of CA EED
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.
Salire/VTGCounty of Ventura
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
VTGCounty of LA
NotesConsultantCustomer
373737© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Recap - Questions to consider…
How much are you nowspending per station?
Line ChargesConference Bridges
Voice mailUsage
FeaturesMACsOther
How much of a costreduction would make
change attractive?
Can Cisco help work though a business case?
What new IP enabled services would add value
to your organization?Emergency Broadcast Notification
Unified Communications802.11 phones= campus mobility
IP SurveillanceSecurity Applications
Mobility/Relocation/TeleworkersBusiness Continuity
User initiated provisioningDirectory Services
Video Conferencing
What is value of new applications/productivity
Improvements?
What are your current data network upgrade plans?
Switching (Edge)RoutingWAN connectivityQoSApplication driven upgradesTelecommutingRedundancySecurity
What incremental data network upgrades are due
to IPC?
383838© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID
Roadmap
• The context
• The numbers
• County of LA
• The process
• Q&A
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