Measuring UC Implementation Costs:

In this age of tight budgets, the best way to protect any new IT investment from the axe is to make it difficult for that axe to swing. Building a compelling business case from Day One—one that demonstrates cost savings, improved productivity, or even increased revenue—makes it tough to put that project in the stack of projects that business leaders cancel or postpone during the downturn. If the project is generating positive returns, it would be fiscally irresponsible to cut it. What’s more, the continuance of the project could be crucial to saving jobs associated with it. When it comes to UC, companies still struggle to create a compelling business case for integration of voice, video, messaging, and conferencing into a single set of services. Most still look to productivity gains as the biggest benefit. Or, they look at areas where improved communication can easily provide tangible benefit: e.g. using UC in the contact center to improve first call resolution, in the field to improve customer service or reduce mean time to repair (MTTR), or among project teams to shorten project timelines. Determining the cost inputs for a UC strategy requires looking at both sides of the equation. First, engage non-IT employees to determine benefits the technology can bring. Interview business-unit leaders, managers, and staff to determine the business problems that exist. Then, use IT expertise (or better yet, business-technology liaisons) to determine how UC can help resolve business problems, ultimately leading to increased revenue, improved productivity, or decreased costs. Second, determine the straight-forward IT costs, such as implementation, capital, and IT training—against which the cost benefits will be weighed. Determine the period of time for the cost analysis, as well as the depreciation schedule and the Net Present Value percentage. On the cost side, consider: ± Implementation – Typically, companies spend about 20% more in the first two years of their VOIP/UC deployments on the actual implementation than they would have spent in TDM. After they gain expertise, implementation costs are equivalent to TDM rollouts. ± Servers– This covers the cost of IP PBXs and UC application servers, as well as licensing costs for both servers and clients ± Handsets/End-Unit Devices or Applications– This includes IP hardphones or softphones. ± Gateways – Often, companies require gateways for TDM-to-IP traffic, unless they’re using SIP trunking throughout the organization (which is rare still). ± LAN upgrades – VOIP requires Power-Over-Ethernet switches, and most companies provide Uninterrupted Power Supplies to provide for backup. When organizations upgrade their LANs, the costs account for 32% to 47% of an overall VOIP project. These figures include the POE switches, UPS, management tools, and staffing costs, as well as first year of maintenance. As I’ve noted before in this blog, the costs associated with LAN infrastructure are often a major driver for interest in softphone adoption. ± Management/monitoring tools – Many companies don’t budget for management and monitoring tools, which is a mistake. Acquisition costs range from free (with open-source tools) to several million dollars. On average, small and midsize companies spend about $20,000 for each third-party monitoring tool, and large companies spend about $200,000 per tool. ± Training – Many vendors are including training with the sale of equipment. But when they don’t, companies spend between $1,000 and $5,000 per IT staff member for training, and they find the most success by training their end users with internal IT staff. ± Equipment licensing & maintenance – Vendors are shifting more to a software model in which the initial acquisition cost is lower, but maintenance and licensing is higher. Whereas vendors once charged about 10% to 14% for maintenance, those fees now are 16% to 22%. ± Ongoing WAN costs – This includes the cost of the converged WAN. Typically, this includes the circuit costs for services such as MPLS, Ethernet, and/or SIP trunking. ± Ongoing operational costs – This includes the cost to manage and maintain the network from a staff perspective. It includes the total compensation of internal staff members devoted to VOIP, plus the cost of any third-party MSPs managing the VOIP system. Also included are power and cooling costs. On the benefit side, IT staffs should calculate: ± Cabling costs – With IP telephony, there is no longer a need for three to four drops (two Ethernet; two RJ-11) per desktop. Companies typically save about 40% on cabling costs in new buildings (and average spend per drop is about $140). ± Sofphones vs. hardphones – There is a small but growing trend among companies to continue using existing analog or digital handsets with their IP or hybrid switches and move directly to IP softphones. Licenses for softphones range from about $50 to $150, compared to a range of $100 to $450 IP hardphones, so companies can save money with this approach. Among companies using softphones, 53.6% are using them as an adjunct to hardphones, and 35.7% are using them as a replacement to softphones. The balance are in pilot phase. The average number of employees with softphones is 430, up from about 100 last year. Make sure in your softphone calculation you remember the cost a good headset (which can run around $200 if you decide to go with Bluetooth) ± Centralizing servers – By centralizing servers at the data center, organization report savings in the number of servers they need to buy, along with reduced tools and resources to manage applications such as unified messaging, conferencing, and even the IP PBX itself. By using fewer servers than would be used in a distributed model, companies can save on power and cooling costs, as well. ± Audio conferencing – By replacing audio-conferencing services with an internal audio-conferencing bridge, companies can eliminate their monthly charge for audio-conferencing services. For organizations with limited audio conferences, most vendors offer bridges that are integrated with the IP telephony system (albeit limited to the number of participants). ± Hosted services – Companies concerned about capital outlay find savings through the use of hosted services. They eliminate the up-front costs of the IP PBXs and handsets because they are included in the monthly service fee. But, the overall service may or may not be less expensive. The point here is that hosted services eliminates the up-front capital cost and depreciation but typically costs more monthly to operate than in-house deployments. ± Moves, Adds, and Changes – Many companies have justified their entire IP telephony rollout though MAC savings alone. Externally provide MACs cost $65 to $400, depending on the city. Internally managed IP telephony MACs cost about $10, based on average telecom salaries. ± Staff changes (IT) – Though we do not see huge reductions in the staff required to manage VOIP vs. TDM environments, more companies decrease their staff than increase it. Among those who decrease the telecom staff, they lose about 2.8 people on average. Attrition is more common than layoffs; IT staffs frequently reassign their telecom staff to other areas of IT or don’t replace retirees. Those who increase their staff do so by one person. ± Staff changes (non-IT) – Some companies are able to reduce staff in other areas because of UC. For example, one client eliminated a receptionist by using VOIP-enabled IVR and unified messaging to direct incoming callers to employee voicemail boxes. ± Turnover Rates – By allowing employees to work from home, particularly those who work in a contact center, companies are reducing turnover rates. Typical contact-center turnover rates are 35% to 45%, but by giving those employees more flexible work schedules from their home offices, they are dropping turnover rates to 10% to 20%. UC allows companies to do this cost-effectively by paying for just a broadband access line ($25 to $45 per month, depending on service level) and eliminating the $50 to $70 monthly POTS charge for voice service. Features such as unified messaging, instant messaging, and desktop video conferencing further improve the collaboration capabilities of virtual workers. ± Ongoing network costs – Companies that have not converged voice and data traffic onto a single WAN can save money by eliminating idle capacity and combining access lines. The typical savings is 23%. ± Savings from SIP trunking – Replacing PRI lines with SIP trunks can save about 40% off the monthly circuit costs. ± Fixed Mobile Convergence – Companies with many mobile employees eliminate costly roaming charges by moving mobile calls to the corporate IP backbone (calling a local number and routing the call from the IP PBX through the corporate WAN). Taking these expenses and costs into account allows IT managers to overcome the “squishy” measure of “improved productivity” and instead create a verifiable business case for their initiatives, one that’s based on verifiable dollar values.