Perhaps the most time-consuming piece of building a business case for Voice Over IP is simply gathering data--and knowing what data to gather.
Nemertes has gathered data in this area for several years, both through our formal research and through building specific cost models for companies. Though no two business cases are exactly the same, I have noted many commonalities among companies as they evaluate the value of a VOIP rollout.
One necessity is to understand exactly what the company spends today, so you have a basis for comparison--and a set of costs from which you can build a return-on-investment. So, understand what you pay for annual maintenance (and what it includes), staff members who manage telecom, management and monitoring tools, network costs associated with telecom, and so on.
Where things get a little more challenging is determining VOIP costs. Vendors can provide some data--certainly capital costs, and perhaps implementation fees--but they cannot provide an accurate figure for operational costs. Nemertes has gathered cost data in several areas that we use in the cost models.
The cost side of the equation includes the following:
Engineering and design: Larger companies often have the staff to design the architecture internally, though we see all sizes of companies relying upon third parties to help with the engineering and design. Prices here vary widely and depend on the complexity of the rollout.
Baseline network assessment: Some vendors and service providers offer the network assessment as part of the sales process, but most still charge. A good budget figure is $2,500 per location (small branch offices do not count for the location count). On average, companies spend about $30,000 for this piece. Still, like engineering and design costs, the baseline network assessment varies, so getting a few bids is a best practice.
Implementation: This includes the staff time (and thus, money) to install the system, plus the vendor or service provider cost. Nemertes gathers actual data on implementation, and the average cost per end unit (IP handset, audio bridge, etc.) is about $135.
Capital: This includes IP PBXs, LAN switches, handsets, gateways, and audio bridges. The costs vary quite widely here, depending on the vendor, the architecture (centralized, distributed, hosted), and size of rollout. On average, companies spend $554 per unit for IP PBXs and handsets. This price is steadily decreasing as companies reduce the amount they’re spending on handsets and move toward centralized architectures (which reduces the cost per unit).
Softphone licenses: Licenses vary based on vendors and size of rollout, but they typically range from $50 to about $120. Increasingly, telecom staffs are replacing handsets with softphones for certain positions in IT, sales, and customer service.
Network upgrades: Both LAN and WAN upgrades are potential cost areas. We found LAN upgrades can be up to 45% of the total capital cost, averaging $421 per end unit.
Management tools: Telecom staffs add between one and six management, monitoring, or administration tools to handle IP telephony. Consequently, costs vary widely, from free open-source tools, to multi-million-dollar performance management implementations. The average costs for management are $20,000 for small rollouts (up to 500 end units) to $200,000 for large rollouts (500 to 2,500 end units) to greater than $1 million for very large rollouts (more than 2,500 end units). Also, some companies use Managed Service Providers, which alleviates the need to buy in-house tools, though that decision will add monthly operational costs to compensate the vendor for managing the IP telephony system.
Operational (staff, maintenance, licensing, training): This set of costs is difficult to obtain prior to actually using the technology. Maintenance, training, and licensing are available from vendor RFP responses, but determining the staff costs is challenging. We typically see it take one to four times longer to isolate and resolve an IP telephony problem compared to a TDM problem. Staff operational costs range from $150 to $1,300 per end unit per year, with the vendor and rollout size affecting actual cost. The average annual operational cost (just including the compensation costs for staff) is $570.
When building the cost model, assembling the current and future costs in a spreadsheet is a crucial early step. From there, you can determine which costs go away entirely or partially, and which new costs will be added. One of the challenges, of course, is calculating cost changes over time. Very few organizations (with the exception of small companies) do a flash-cut over to IP telephony and VOIP. Typically, it takes place over several months or years, so typical cost evaluations look at a three- to seven-year period.
In the next column, I will explore the more compelling data--the savings side of the equation.
