Analyzing VoIP ROI

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Managers considering VoIP in their organizations are often asked to "show their numbers." What is the cost of successfully deploying VoIP, and what is the likely return on that investment?

Two examples of VoIP deployments and their positive ROIs were related by Cisco to Unified Communications Alert, which reports as follows:

  • "H.B. Fuller Company, a worldwide manufacturer and marketer of specialty chemicals, expects to save approximately $2 million over five years from a roll out of 3000 IP phones along with Cisco Unity unified messaging. H.B. Fuller says the primary ROI drivers are the reduction of $60,000 in annual network administration and training costs, significant annual savings in inter office calling charges, a $52,000 reduction in wiring costs at one site alone, and the elimination of 85% of costs associated with PBX upgrades. In addition, H.B. Fuller expects to save $37,000 annually in moves, adds and changes costs."

  • "[F]or Cray Inc., the global market leader in supercomputers, a deployment of 650 IP phones is said to have generated a seven-month payback on investment and a 33% productivity increase in network support. Cray says it was able to save $30,000 in the first year in costs it would have absorbed due to moves, adds and changes with its previous PBX system. In addition, it is saving $25,000 annually in inter-office calling costs now that it has converged voice onto its enterprise network. Cray notes that when it compared the cost of Cisco's telephony and data gear to the cost of selecting a PBX, the up front costs were equal. But it was when factoring in additional operating costs and productivity benefits that Cray made the purchase decision to go with an IP/PBX."[8]

A VoIP deployment should be addressed through the same decision-making process as any major IT project. The steps involved in putting together such a project are reviewed in this section. The final section of this chapter circles back to show you where to start your first VoIP projects—in situations where your ROI is likely to be good.

Treating VoIP as a Major IT Project

Consider a VoIP deployment a major IT project. Good IT managers are familiar with what is involved in pulling off a successful, staged IT project. Like any such project, VoIP involves rolling out a major new data-networking application, along with the hardware and infrastructure to support it. The project should be staged and budgeted throughout its life cycle.

IT project life cycles are typically illustrated using a PERT or Gantt chart. These charts are common in project scheduling; they show tasks and the resources assigned to the tasks over time. Every IT project goes through similar stages during its life cycle. The stages have different durations, different costs, and probably use different tools and personnel. Figure 2-5 shows a high-level view of the chart for a major IT project.

Figure 2-5. IT Project Life Cycle

To deliver and maintain excellent application service, you need to be involved from the beginning of the life cycle of a project. For each major project you undertake, you will likely find several different tasks that you need to address, tasks similar to the ones discussed in the following sections.

Getting It Going

The first steps in a major project entail upfront planning—deciding what you need and what you are going to buy to meet that need. Then it is time to get everything installed, running, and integrated.

  • Planning and what-if analysis— Any time you embark on a major project, it is important to know where you are starting from. That way, you will have a better idea of what is involved in reaching your target. And you don't want to make a change that will result in an overall reduction in the quality of the services you have been providing. With VoIP, you are probably deploying new software, using new network devices, and generating new network traffic. You should therefore consider the following questions: Is the existing network ready? What might happen to the applications currently running on the network? How well will the VoIP traffic perform? What happens if the network goes down?

    Before you get started, assess how ready your network is in its present state. That way, you have a better idea of what you have to purchase, and you know what to expect performance-wise when you have finished. And it is a good thing to be able to show your users and management what they can expect, along with the benefits they will receive from the new project.

  • Evaluation and purchase of equipment, software, and services— This stage is sometimes known as the bake-off. When you are evaluating products from multiple vendors, it is vitally important to run consistent, repeatable tests—to compare apples to apples. Vendors often cite performance statistics using different metrics. For example, a network device's throughput might be measured as the maximum data rate attainable with zero percent data loss, or as the average data rate realistically achieved by an application. When you are making purchasing decisions on which a significant portion of your budget is riding, testing is also vital to verify that each vendor's products will interoperate in your network with your current equipment.

  • Deployment and verification— A networking team that is familiar with transaction-oriented applications will be challenged as it deploys multimedia applications like VoIP. The team may discover that its IP routers are not configured properly only after verification testing points out slowdowns or failures. It may discover bandwidth limitations only after users complain. And it may discover impacts on other applications only after it has to field new help desk complaints. You'd like to replace this thankless firefighting with the kind of proactive management that leads to user satisfaction, right from the start of a staged roll out. Proactive management is discussed in the next section and in much more detail in Chapter 6, "Ongoing VoIP Management."

Keeping It Running Well

VoIP management involves ensuring the reliability of telephone calls (how well you are reaching your "five nines" uptime target) and the quality of the telephone calls (whether phone calls sound as good over the IP network as they do when using the PSTN). The two goals may encompass hundreds or thousands of components, including the following:

  • The contents of the data network along the path between the parties in a conversation, including routers, switches, network interface cards (NICs), and cabling

  • The range of telephony components, including the VoIP servers and their hardware and software

  • Whatever the users come in contact with, including IP phones, desktop computers, and their software and configuration

In the past, managing telephone systems has been relatively straightforward, compared to managing VoIP. Those in the telephony community are accustomed to managing costly, high-quality devices that use dedicated telephone wiring. Their management activities were more like expensive insurance—having a specialist to call if something ever went wrong, someone who visited the key hardware a few times a year to install the latest updates.

With VoIP, the management activities need to be proactive, as they must be with other IT applications. These management activities can be categorized as follows:

  • Monitoring and event management— With the complexity of today's applications and networks, many products let you monitor the performance of specific devices, LAN segments, or applications. Many of these products, however, cannot tell you the level of quality or performance your users are experiencing. For most enterprises, network performance is vital to the success of the business as a whole. And, of course, telephone service is perhaps the most vital application of them all.

  • Fault isolation and diagnosis— When applications and networks consisted of terminals accessing mainframes, problem determination was much easier. Now, with a mix of protocols, applications, and dispersed intelligence, your job is much more difficult. If a user is unable to get a dial tone, is the server or the network at fault? You need to make this top-level decision quickly, because you often have different teams who specialize in either network or application troubleshooting.

  • Service-level management— Users need to be as happy as you are with the level of service being offered. Service-level agreements (SLAs) provide a standard for the actual performance you are delivering.

  • Planning for future growth— Establish trends showing the network behavior and performance over time, so you can tune your existing infrastructure and plan future investments. As you need to grow or change your existing system, you return to the top of the life cycle chart again, doing planning and analysis for the improvements.

To keep the VoIP system running well, you want to report on what is happening across the many components involved. You want to evaluate their performance and capacity, and see what the trends indicate. The trends can change quickly: Adding more users may result in many more calls on the network. A new business plan for your sales team also can change traffic patterns. The call volume during peak periods can rise dramatically, beyond original expectations. These kinds of changes drive the need to include good benchmarking and ongoing assessment as part of day-to-day VoIP management.

Project Dependencies

Your VoIP project may have dependencies on other IT projects. Quality of service (QoS) is a requirement for VoIP, and a network infrastructure upgrade to support QoS may be a prerequisite for a VoIP deployment. Different teams could be handling the network upgrade and the VoIP roll out. Careful planning and coordination will be a necessity to keep the projects on track.

Try to keep things simple. Take each high-level task in the project and break it down into subtasks. If you can reduce the dependencies, then do so. A VoIP deployment is complicated enough by itself.

Now that you have seen how to apply IT project principles to your VoIP project, it is time to discuss how to estimate the ROI for this project.

Estimating Investments and Returns

A return on investment is calculated by taking the expected returns from a project, subtracting the cost of implementing the project, and dividing by the amount of time required. The divisor is usually given in years, so that the resulting units are measured in annual ROI.

An economical way to begin calculating ROI is with a spreadsheet. Start by roughing in the costs and the expected returns. The savings and returns are often spread out over many months or years. Most fields contain "guesstimates" initially, but they give you a place to start and a set of questions to ask vendors and service providers. Figure 2-6 shows an initial spreadsheet for calculating ROI. The contents of the "Total Costs per Year" row are broken down in Figure 2-7; the "Total Returns Per Year" are described in Figure 2-10.

Figure 2-6. A Basic ROI Model: Total Costs Subtracted from Total Savings, from Year to Year.

Figure 2-7. First Step in Reviewing Costs of the VoIP Project Stages over Time

Figure 2-10. Returns from Investment in VoIP Are Found in Several Areas of Organization

Accountants understand that money spent on a VoIP project might have been spent elsewhere, with a different potential return. The simple approach illustrated here does not itemize the time value of money; consider adding rows for it, as necessary.

Don't assume that you are starting on your ROI estimate blindly. Draw on your past IT project experience. Look at other, similar IT projects where you have rolled out major applications. For example, look at your first staged e-mail deployments or review the implementation of your customer relationship management (CRM) system. The seven project stages discussed previously will have occurred during these previous projects. Using these past projects for guidance, do your ROI analysis with your own internal data. Be careful of drawing numbers from industry averages, because your company may be different.

Incidentally, depending on the vendors you are evaluating, there are mature software tools available to help you calculate VoIP ROI. For example, Cisco customers can work with their account representative to use the Cisco Converged Network Investment Calculator (CNIC).[9] Customers of Infonet's Global Multimedia Service (GMS) have access to a similar tool.[10]


Recent literature on implementing VoIP often provides information about the savings, but rarely includes details on the associated costs. That is a symptom of being in the early stages of the technology-adoption process. VoIP has matured considerably, and the staging of a VoIP project is now well understood. Calculating costs is therefore amenable to a detailed breakdown that shows budgeted costs.

A first pass at such a breakdown might simply be to add up the costs of hardware, software, bandwidth, and personnel. That is the right idea, but those can be complex numbers to just type right into a calculator. Instead, construct a spreadsheet in which the rows represent the major stages of the project and the columns represent time periods. On the first page of the "Cost" section, show the time periods by years, as shown in Figure 2-7. On the underlying pages, which make up the individual cells, it is a good idea to show the breakdown by quarters, because that time frame may more closely correspond to your budgeting process.

Behind each cell in Figure 2-7, you will have essentially another spreadsheet, broken down quarter by quarter. For example, consider the first row, the "Planning and What-If Analysis" stage. This is clearly the first set of items to consider.

What-if analysis first involves training the key members of your IT and telephony teams about the technology and implications of VoIP. Second, it involves decisions affecting the scope and additional costs of the project, including the questions "Where do you want to deploy VoIP?" and "What new features do you plan to take advantage of?" Third, it involves some testing and evaluation. For example, when you assess the current state of your data network, you need to determine what changes are necessary to accommodate VoIP traffic. Doing an assessment has a cost in terms of the time and material needed to do it. And you will have many meetings and many assignments for those attending the meetings; how is their time accounted for? Finally, this is probably a good time to get outside, expert assistance from folks who have done this before, so you need to include a budget for consulting. An example of the costs for this first stage is shown in Figure 2-8.

Figure 2-8. For Each Stage, Look at the Costs for Each Component per Quarter. Roll This Information Up into the Annual Costs

The next stage, after you have envisioned the outlines of your first VoIP deployment, is where you decide what equipment to acquire and how it might best be configured. Figure 2-9 shows the "Evaluation and Purchase" stage. In this stage, the budget for hardware and software will probably be considerably higher than for other IT projects. This is also the project stage where you initiate a small pilot deployment, which introduces training for end users and the help desk team. Again, you need to consider any pilot deployments in the budget.

Figure 2-9. The "Evaluation and Purchase" Stage Probably Involves a Pilot Program, Which May Be the First Time End Users and the Help Desk Get Directly Involved

Continue planning for these kinds of steps for each stage of the project. Following the "Deployment and Verification" stage, you will surely need some new tools to help you monitor, manage, and verify the health of your new system. You also need to invest in training your IT crew to use these new tools. But remember that some or all of these steps in your project may be completed by a systems integrator or VoIP consultant, and you need to understand their initial and ongoing costs.


On the other side of the ROI formula for VoIP are the returns you expect to realize. As discussed at the beginning of this chapter, these may well consist of productivity improvements for your end users, improved profit due to improved customer satisfaction and increased sales, and expense reductions for the teams maintaining the telephony and data-networking infrastructure. Figure 2-10 shows the opening page of the "Returns" section of your spreadsheet.

Be sure to separate the returns experienced by the end users—who are actually conducting your business better or faster—from those experienced by the IT and telephony staffs—who are reducing their costs or supporting your end users better or faster.

End-user productivity improvements were discussed in detail in the "New Features" section of this chapter. These include the use of unified messaging or advanced call routing, the integration of telephony into end users' day-to-day business applications, and the fact that end users can become more mobile more quickly.

A separate consideration is how your organization's end users might respond to your customers better. VoIP is often driven by a business unit wanting to improve levels of customer satisfaction. Plenty of evidence suggests that high customer retention positively influences profit. Strong, fast interconnection between the telephone system and the CRM, which VoIP can offer, positively influences customer retention. And any time customers find it easier to contact a representative, who may be on the road or working from home, they experience a more positive interaction with your company and your brand. VoIP's easy call-forwarding mechanisms can make a representative's physical location completely transparent to a customer.

Savings realized from improved productivity might be difficult to calculate in advance of a VoIP implementation. In that case, you might want to focus initially on cost savings, which are easier to predict. There are extensive savings to be achieved by the IT and telephony staff, as discussed in detail earlier in the "Cost Savings" section of this chapter. The savings relate to getting down to a single common infrastructure, constructed from low-cost, industry-standard components and managed by a single team.

Finally, consider how to factor in the advantage of taking the first step toward network convergence. Data networks serve the applications that use them. New applications are making the design and management of networks much more complex. More and more, the different kinds of traditional networks—in particular, telephone, radio, television, and computers—are converging onto packet-switched IP networks. The original networks arose because users and applications had very specific requirements. For example, two-way telephone conversations take little bandwidth but must have low latency, simulating face-to-face speech. By contrast, television requires a great deal of bandwidth, but because it is a one-way broadcast, it has no concerns about latency. These conflicting requirements must be honored in the new converged networks.

VoIP is probably the simplest step on the path to convergence. It brings with it the hard network-tuning lessons required by multimedia applications (such as low latency and low packet loss), but it has relatively meager bandwidth requirements. It is time to get started, and VoIP is the place to begin.


Taking Charge of Your VoIP Project
Taking Charge of Your VoIP Project
ISBN: 1587200929
EAN: 2147483647
Year: 2004
Pages: 90

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