The Financial Approach to Projects for the ICT Director & ICT Manager
by Leo J. Estercam
2009 5th Edition ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
© 2002, Leo Jo Estercam
a
ALL RIGHTS RESERVED. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published on the Internet and available for download with the understanding that the author is not engaged in rendering legal, accounting, or other professional service. Published with Adobe Acrobat Publisher™ The book is made available on the internet site of the author; downloading the book implies that an email has been send to the author with the identification of the new reader. All eMail should be send to
[email protected] To the third edition The main updates in this edition are related to the Chapter 8 “The Post-Mortem ROI re-engineering” based on the experience of two install base IP-Telephony environments, thus enabling the reader to get a complete picture of all the phases a project runs through.
Third Edition Brussels (Belgium), September 2004 Fourth Edition Add of the Service Level Management chapter. Brussels (Belgium), February 2009 ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
Overview Introduction to the Financial Approach The Total Cost of Ownership (TCO) The initiation of a project The origin of the need The SWOT analysis The Request for Information (RFI) The Request for Proposal (RFP) The Service Level Agreement (SLA) The Return on Investment analysis (ROI) Post-Mortem ROI re-engineering Service Level Management (SLM)
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Index to all chapters Chapter 1: Introduction to the Financial Approach 1. 1.1. 1.2. 1.3. 1.4. 1.5.
Introduction to the Financial Approach Introduction Purpose statement Overview Conclusion References
3 3 4 5 7 7
Chapter 2: The Total Cost of Ownership 2. 2.1. 2.2. 2.3.
The Total Cost of Ownership Introduction Purpose statement Definitions & difference between TCO and ROI Definition by market leaders Gartner Cisco Systems Whatis?com Webopedia My vision is leaning towards … 2.4. Components of the TCO Study 2.4.1. Analysis of the Actual Costs Introduction Methodology Definition of the Total Scope ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
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Examples Correlation of the costs Analysis if those costs 2.4.2. Analysis of the new costs Introduction Methodology 2.4.3. Comparative study between the two above Example of a comparative study 2.5. How to transfer information on TCO within the company? 2.6. Conclusion 2.7. References
10 16 17 18 18 18 20 20 28 36 36
Chapter 3: The Project Initiation 3. 3.1. 3.2. 3.3.
3.4. 3.5.
The Project Initiation The origin of needs Today’s projects The stages of a project The SWOT analysis Initial Scope definition Prospection Vendor prospection Integrator prospection Client visits Build it up step by step SWOT Force Field Analysis Conclusion References
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Chapter 4: The Request for Information 4. The Request for Information 4.1. Introduction 4.2. Purpose statement 4.3. Contents of a Request for Information 4.3.1. Introduction 4.3.2. Contents Purpose of the RFI Participation of the RFI Description of the current environment New requirements for the environment Questions and initial requirements 4.4. The analysis of the RFI responses 4.4.1. Analysis 4.4.2. From now on Budget review SWOT & TCO review Presentation to the Board of Directors 4.5. Conclusion 4.6. References
3 3 3 4 4 4 4 5 6 7 7 9 9 9 10 11 11 11 12
Chapter 5: The Request for Proposal 5. The Request for Proposal 5.1. Introduction 5.2. Purpose statement 5.3. Index of a Request for Proposal 5.3.1. Introduction ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
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5.3.2. Parts of the RFP 5.3.3. The general introduction 5.3.4. The Instructions for the RFP 5.3.5. General provisioning Evaluation criteria of the offer Planning for the answers Duration of the agreement 5.3.6. Contractual provisioning Who is allowed to respond to the RFP Destinatee of the offer Confidentiality Deontology within the project Contractual commitment Warrantees Intellectual property Force Majeure Renounce of rights Disputes Contents of the offer Exchange of letters, contact persons and requests for additional information Language statement Requirements to fulfill the timing (optional) Costs for the offer Signature of the offer Pricing Closing date Validity of the offer Accountability of the offer Documents that must accompany the offer ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
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Administrative offer (optional) Technical offer 5.3.7. The conditions for the resulting contract Sale Agreement Delivery and installation statement Place of delivery Reception of the delivery Acceptance Delay and Penalty Statement Legal aspects about the ICT-contract Warrantee Payment conditions 5.3.8. Technical provisioning Description of the actual status Directives for the new situation Service Level Agreements Questionnaire 5.3.9. Organization of the project Collaboration Relation Project Management Project Master Plan 5.3.10. Presentation canvas for the answer 5.4. Analysis of the Request for proposal Redefinition of RFP versus size Estimation of time 5.4.1. Reading of the RFP answers Administrative part Technical part 5.4.2. Analysis of the answers ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
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5.4.3. Fast Evaluation of the answers resulting in a short list 5.4.4. Presentation of the project by the short listed enrollers 5.4.5. Refining the answers of the short listed 5.4.6. Final Selection 5.4.7. Presentation of the elected to the Board of Directors 5.4.8. Communication to the enrollers 5.5. Conclusion 5.6. References
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Chapter 6: Service Level Management & Service Level Agreements 6. Service Level Management & Service Level Agreements PART 1 Service Level Management 6.1. Trend setting of SLM 6.2. Strategies around measurement 6.3. Service Level Management: feedback of the Meta Group 6.4. Foundations of Service Level Management 6.4.1. Theory & Principles Definition The Challenge 6.5. The reasons to implement SLM From the need perspective The Perception of SLM What is the meaning of “Availability” Performance 6.6. Service Level Reporting PART 2 Service Level AGREEMENTS 6.7. Service Level Agreements 6.7.1. What a SLA must be 6.7.2. The 6 benefits ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
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6.7.3. Types of SLA 6.7.4. SLA Process Creation of the process Negotiate the SLA 6.7.5. Components of the SLA 6.7.6. Service level indicators 6.8. Reality 6.8.1. Service Level management Practices 6.8.2. Service Level Management products Monitoring tools Recommendations 6.8.3. How to start Implementation Go life ! Measurement techniques Definition of SLA-availability Classes of SLA Measuring availbility Network Response time measurement Base lining Review of the criteria Abnormalities 6.8.4. Calculation of the SLA Planed interruptions Recurring short interruptions Unexpected interruptions 6.8.5. Penalties 6.8.6. Anti cumulation factor 6.8.7. MAC’s to be done in the network Customer initiated MAC’s ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
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Third Party (Integrator/SP/Constructor) initiated MAC’s Procedures PART 3 Service Level Contract 6.9. Service Level Agreements - Purpose 6.9.1. Contents proposal for the contract 6.9.2. General Overview 6.9.3. Purpose statements Aim of the Contract Scope of the contract Contractual conditions & documents 6.9.4. Service Level Agreements Definitions Service Levels Baseline 70 Penalties 71 Reporting Meetings 74 Escalation procedures Claim management 6.10. Contractual Conditions 6.10.1. General 6.10.2. Liability 6.11. What in general you SLA does not Cover Introduction ACTIONS BY THIRD PARTIES ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
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71
74 75 76 76 76 78 78 80
THE QUALITY OR RELIABILITY OF CUSTOMER NETWORKS CUSTOMIZED COMPONENTS INFRINGEMENT TRANSITION AND CHANGE ADVICE TO THE POTENTIAL ASP CUSTOMER 6.12. Conclusion 6.13. References
82 83 85 86 87 89 90
Chapter 7: The Return on Investment 7. 7.1. 7.2. 7.3.
The Return on Investment Introduction Purpose statement The 4 questions for ROI The value of the IT Applications returning Value Compare with peers Project that optimize the value 7.4. Be aware of what’s on the market ! 7.5. Conclusion 7.6. References
3 3 4 4 4 5 5 5 6 10 10
Chapter 8: The Post-Mortem ROI re-engineering 8. 8.1. 8.2. 8.3.
The Post-Mortem ROI re-engineering Introduction Purpose statement Stages in the re-engineering Review of the needs
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Review of the TCO 5 8.3.1. The general expenses before the introduction of the project 5 8.3.2. The total cost of the investment (TCI) to realize the project up till today 6 8.3.3. The general expenses after the introduction 8 Review of the ROI 9 8.4. Actions to be taken 10 8.5. Example of a Post Mortem TCO-ROI Report 11 8.5.1. Preamble 11 8.5.2. Review of the needs & requirements 12 NEEDS 12 REQUIREMENTS 13 GENERAL 13 8.5.3. Review of the TCO 13 8.5.4. Parameters for the TCO Study 16 8.5.5. What was taken into account 16 8.5.6. What was not taken into account 17 8.5.7. What was taken as a double charge 17 8.5.8. General Expenses before the project 18 8.5.9. TCI 19 8.5.10. General Expenses after the project 21 8.5.11. The Calculations 22 8.5.12. Review of the ROI 23 Main reason of lack of ROI availability 24 8.5.13. Conclusion of this first ROI Post Mortem Study 26 8.6. Conclusion 28 ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
9 SERVICE LEVEL MANAGEMENT 9.1 Trend setting van SLM 9.2 Service Level Management: feedback van de MetaGroup 9.3 Foundations of Service Level Management 9.3.1 Theory & Principles 9.3.1.1 The Challenge 9.3.1.2 The Perception 9.3.1.3 Service Level Reporting 9.3.1.4 Service Level Agreements 9.3.1.5 Standard Efforts 9.3.2 Reality 9.3.2.1 Service Level management Practices 9.3.2.2 Service Level Management products 9.3.2.2.1 Monitoring tools 9.3.2.2.2 Reporting tools 9.3.3 Recommendations 9.3.3.1 Basics 9.3.3.2 Implementation 9.3.3.3 Capturing data for SLAs 9.4 Definitie van SLA-beschikbaarheid 9.5 Klassen van SLA 9.5.1 Beschikbaarheids meting 9.5.1.1 Netwerk antwoordtijd meting 9.5.1.2 Baselining 9.5.1.3 Herziening van de baseline criteria 9.5.1.4 Afwijkingen ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
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9.5.1.5 Berekening van de SLA 9.5.1.6 Geplande netwerkonderbreking 9.5.1.7 Onderbrekingen met veelvuldige tussenposen 9.5.1.8 Onverwachte netwerk onderbrekingen 9.5.2 Boeten 9.5.2.1 LAN an het data centrum 9.5.2.2 WAN met kantoren (gemeten over drie maanden) 9.5.2.3 WAN en hoofdkantoor en/of Groot Kantoor 9.5.2.4 Anti cumulatie factor 9.5.3 MAC’s in het netwerk uit te voeren 9.5.3.1 KLANT geïnitieerde MAC’s 9.5.3.2 Integrator/SP/constructeur geïnitieerde MAC’s 9.5.3.3 Procedures 9.6 In te vullen door de inschrijver 9.6.1 Beschikbaarheid volgens SLA 9.6.2 VTO Tabel 9.7 Reference
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About the author Born in 1954, he studied on the State University of Ghent (R.U.G) for Ir. in Agriculture (1975) and on the Free University of Brussels (V.U.B.) for “Computer Sciences” (1977). Later on, in 1999 he got a degree of the Boston University for “Project Planning & Control” and of the ISIM University (Denver, Colorado) “Project Management Organization”.
His professional carrier started with SWIFT for 9 years as Supervisor Network Support until the support center in Belgium closed, followed by just over 10 years with Ziegler as ICT Manager and for over 6 years with Getronics as Manager of Infrastructure Integration and acting as consultant and auditor. Currently he is active at the European Union as responsible for telephony services.
ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
ESTERCAM Leo Jo 2/27/2009 C:\D\Word Documents Prive\Boek\The_Financial_Approach_for_ICTManagers.doc
The financial approach
ESTERCAM Leo Jo
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The financial approach
ESTERCAM Leo Jo
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The financial approach
1.
Introduction to the Financial Approach
1.1.
Introduction History taught us that ICT was born out of the need for automation in the accounting department. As Information Technology grew, we have seen a swing from economical interest towards technology interest. The ICT department became a separate unit within the corporation and could decide by himself about the spending; most of them went into technology since ICT directors those days were grown up information scientists. During this period, the 70-ties, the ICT spending were enormous since there were no quasi no limits to the budget. With the upcoming regression in the mid 80-ties, ICT we have seen a lot of companies doing reorganizations in their IT-department, mostly with lay-offs of the current management, replacing it with ‘fresh blood’. The only result was that with the new management also new technology was introduced which in his turn demonstrated to be even more expensive than the previous. It is during this last decade, that the first attempts were emerging from green-fields to work on a “Return on Investment” study and that initial “Total cost of Ownership” reports were created. After this wave, we reach the end of the 90-ties and suddenly all money became available to cover the millennium psycho. And now, with the beginning years in the new millennium, the control of ICT is back to the Financial Director’s office although the ICT-director in most cases also takes part of the Direction Committee.
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The financial approach
1.2.
Purpose statement The need for financial balance is everywhere but in most cases the ICTDirector cannot defend his ‘technological’ project anymore in the Direction Committee without a complete justification based on Total Cost of Ownership and Return on Investment analysis. This book will give an in depth study on what is needed for the ICT Director or ICT Manager in order to make his/her projects acceptable and economically reasonable for a company.
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The financial approach
1.3.
Overview In the following chapters I will describe the different stages of a project seen from an economical perspective i.e. starting from the need to spend less money on ICT or at least spend the same amount but give much more functionality. This need is a direct reflection from what everyone sees on the market nowadays: the latest Walkman with MP3 and CD (even re-writable compatible) playback will be on the shelf for a net price which is less than his predecessor who could only read printed CD’s. When looking at the price of a Personal Computer then the current brand Intel®Pentiun IV 1.4 GHz, with 512KB memory, an 80 Gigabit hard-disk, a flat screen 17” and so on, is equal priced as my first Olivetti M24 80286 with 128MB Hard-disk and 8MB memory. That’s the perception of the economical buyer, which actually we all are when it comes to spending money from our own pocket. As ICT-Director you have to make that same method of approach towards new technology and only through TCO and ROI studies you will be able to justify the new project. The content of this book follows the complete life cycle of a project. I start from the Total Cost of Ownership analysis, but the starting point could also be an emerging need that must be fulfilled. From here we will develop the ‘Request for Information’ and the ‘Request for Proposal’.
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The financial approach With the RFP responses at hand, we will be able to calculate the Return on Investment based on real figures. At this stage the project will be accepted or rejected by the “Board of Directors”. In the end, after a project has been completed, a Post-Mortem Return on Investment giving a real TCO after a few months or years (depending on the depreciation period and the supposed break-even point of the investment) will reveal the reality and enable you to refine the analysis.
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The financial approach
1.4.
Conclusion Projects today cannot be arise anymore out of a technological angle, but have to be qualified by a business need and an economical base. This book will help you as ICT-Director to develop such studies.
1.5.
References
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The financial approach Index 1.
Introduction to the Financial Approach ................................................................................... 3 1.1. Introduction .......................................................................................................................... 3 1.2. Purpose statement ............................................................................................................... 4 1.3. Overview................................................................................................................................. 5 1.4. Conclusion............................................................................................................................... 7 1.5. References............................................................................................................................. 7
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Total Cost of Ownership
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Total Cost of Ownership
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Total Cost of Ownership
2.
The Total Cost of Ownership
2.1.
Introduction Although there are a multiple definitions of TCO (Total Cost of Ownership) mostly depending on who writes them, I would like to elaborate the vision of the ICT-Director who is closely linked to the total process of the company. Throughout this chapter, I will enlarge the scope by letting vendors or manufacturers have their vision since we are more and more confronted with specific tools, mostly created by those same instances, to ‘help’ us to justify projects based on their method of calculation.
2.2.
Purpose statement The purpose of this chapter is to go in detail on what is required to enable the ICT-Director to justify a specific need with relevant data towards the Board of Directors of his/her company. Although it will not show as such, since all studies are different depending on their scope, included is a complete TCO study as attachment. During the last two years I had the opportunity to have a couple of projects which needed that specific justification in order to be sustainable by the Board of Directors; both went through and have proven to be realistic by bringing what was forecasted and at the expected price.
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Total Cost of Ownership
2.3.
Definitions & difference between TCO and ROI
Definition by market leaders Gartner This statement comes from Gartner: Gartner's definition of TCO, which is widely accepted throughout the industry, states that TCO consists of the costs incurred throughout the lifecycle of an asset, including acquisition, deployment, operation, support, and retirement. Instead of looking only at the initial investment, TCO considers all the costs over the life of an asset, such as a new server or storage network, upgrades, maintenance, and software development. When comparing a number of purchase alternatives the final analysis often reveals that initial acquisition costs have little to do with the cumulative TCO. The true long term cost may actually exceed its initial purchase price by many times, or an asset with a comparatively higher acquisition price may turn out to be the best value over time. The concept of TCO is familiar to most IT and finance executives who often use it to justify the acquisition of new equipment. Now, IT and financial executives are forced to utilize TCO for even higher stakes--justifying the continued level of investment in the IT infrastructure to support the business through a difficult economic downturn and recovery. This is why TCO is so important today. ---------------------------------------------------------------------------------------ESTERCAM Leo Jo
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Total Cost of Ownership At the December 2001 Data Center Conference sponsored by the Gartner Group, a majority of attendees indicated that reducing TCO is among their main concerns
Cisco Systems Total Cost of Ownership can be defined as: The Total Cost of Ownership (TCO) analysis is limited to the expense implications of an Information Technology (IT) investment. TCO fails to capture the strategic value created by IT. TCO is losing relevance as enterprises try to align IT investment with business strategy. TCO treats technology as a cost center rather than a source of strategic value to the company. TCO analysis is unable to compare IT initiative against other corporate capital expenditures.
Return on Investment can de defined as: Calculates the expense side as well as quantifies the strategic value of the IT initiative Investment Decision Values include: o Net Present Value (NPV) o Internal Rate of Return (IRR) o Payback/Break-Even (BE) ROI is a more comprehensive approach that attempts to demonstrate how technology can help a company achieve it’s objectives ---------------------------------------------------------------------------------------ESTERCAM Leo Jo
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Total Cost of Ownership
ROI studies allows companies to compare the relative value of competing corporate expenditures Conclusion: ROI is the preferred form of financial analysis because it more accurately measures the total impact of an Information Technology (IT) investment The World-Wide-Web being from time to time a resource, I will quote some definitions:
Whatis?com
{ http://whatis.techtarget.com/definition } TCO (total cost of ownership) is a type of calculation designed to help consumers and enterprise managers assess both direct and indirect costs and benefits related to the purchase of any IT component. The intention is to arrive at a final figure that will reflect the effective cost of purchase, all things considered. When you decide to buy a computer you may go through a TCO analysis: for example, the greater cost price of a high-end computer might be one consideration, but one that would have to be balanced by adding likely repair costs and earlier replacement to the purchase cost of the bargain brand. TCO analysis originated with the Gartner Group several years ago and has since been developed in a number of different methodologies and software tools. TCO analysis performs calculations on extended costs for any purchase these are called fully burdened costs. For the consumer's purchase of a computer, the fully burdened cost may include costs of purchase, repairs, maintenance, and upgrades. For the business purchase of a computer, the fully ---------------------------------------------------------------------------------------ESTERCAM Leo Jo
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Total Cost of Ownership burdened costs can also include such things as service and support, networking, security, user training, and software licensing. The TCO has to be compared to the total benefits of ownership (TBO) to determine the viability of the purchase.
Webopedia
{ http://www.webopedia.com/TERM/T/TCO.html } Abbreviation of Total Cost of Ownership, a very popular buzzword representing how much it actually costs to own a PC. The TCO includes: Original cost of the computer and software Hardware and software upgrades Maintenance Technical support Training Most estimates place the TCO at about 3 to 4 times the actual purchase cost of the PC. The TCO has become a rallying cry for companies supporting network computers. They claim that not only are network computers less expensive to purchase, but the TCO is also much less because network computers can be centrally administered and upgraded. Backers of conventional PCs, especially Microsoft and Intel, have countered with Zero Administration for Windows (ZAW), which they claim will also significantly reduce TCO.
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Total Cost of Ownership
My vision is leaning towards … When making a study on Total Cost of Ownership or Return on Investment, I propose to be as close as possible to the reality i.e. close to the financial figures that drive the business. Therefore, figures coming out of vendor specific studies will almost always reflect that by purchasing his product, the resulting TCO or ROI will be in favor of your company. I consider such studies as interesting but not binding and certainly not reflecting the total picture of costing structure for your company. Mostly those studies will position the supplier’s product against their competitions qua costs; this obviously doesn’t reflect the repercussion of it for your company. When probing with respect to TCO for a new project, I suggest to start with the TCO studies suppliers will present in order to gather information for this supplier and, sometimes even more interesting, from their competitors. In the next phase you should make the TCO for your project seen from a macroscopic perspective. This study will incorporate all the real costs involved within the scope of the project and avoid adding gains/losses from immeasurable issues frequently referenced to as ‘employee satisfaction will increase’ and so on. TCO studies should only consider measurable data covering the total scope of the project itself; when during those calculation the scope gets enlarged, then all the factors of the enlarged scope must be incorporated unless the study will not reflect the reality anymore. This is why a supplier’s TCO study will never reflect you real TCO.
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Total Cost of Ownership
2.4.
Components of the TCO Study A TCO study consists of three parts: Analysis of the actual costs Analysis if the new costs Comparative study between the two above
2.4.1. Analysis of the Actual Costs
Introduction With the word “Actual” we include all in- and outflows seen from an accounting perspective that are impacting the total scope of the project we’re facing.
Methodology The methodology is based on three issues being: Definition of the total scope of the project Correlation of the costs involved with this scope Analysis of all those costs from the accounting department
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Total Cost of Ownership
Definition of the Total Scope Initially the project was started and intended to cover an outcome i.e. focus to a specific point. In the second phase, you will analyze what issues are directly related to it; i.e. a study of the environment of that scope. This can be seen as the first scope enlargement. Once you have all the components together and you consider that no further impacts will be correlatable with this project, you consider the Total Scope as defined. A document will have to describe your findings.
Examples The need was that Company XYZ wanted to connect its 32 subsidiaries worldwide. Initially the scope was limited to following aspects Acquisition of the hardware Acquisition of the services for installation of the hardware The lease of the Wide Area Network (WAN) connections The yearly maintenance fee for the hardware When looking at that scope one can clearly identify missing topics s.a. ICT staff requirements to keep that new network operational including a 24h helpdesk ICT staff to monitor the network Trained ICT staff for the new equipment Pro- and reactive maintenance on the network Study on the feasibility with respect to the ISP’s worldwide Study on the Local-Loop issues ---------------------------------------------------------------------------------------ESTERCAM Leo Jo
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Total Cost of Ownership The new Total Scope which must be taken into consideration for the TCO study had to incorporate all those hidden or forgotten issues in order to be realistic. For every item a net cost must be allocated. Special care should be taken when estimating work force for e.g; a HelpDesk environment. One person can do the HelpDesk but this does not mean that with the hire of one full time employee the problem is resolved. Experience learned us that a round the clock HelpDesk requires at least 4 fulltime employees; in case of exception, you will have then to inject other ICTstaff members to take over during a limited period of time. Besides those 4 employees, you also have to calculate the management time spend for the team (planning and so on) which boils easily down to 4 hours per week or 1/8th of a management task. Thus populating a HelpDesk service serving a total of e.g. 32 locations on a 24 hour 7 days a week, all year will have a TCO as follows:
HelpDesk Office TCO - Training for setup & ongoing (4 persons) - Management Software
140.000,00 € 120.000,00 € 100.000,00 € 80.000,00 €
- Management platform
60.000,00 €
- Exceptions
40.000,00 € - Staffing (4 persons)
20.000,00 € 0,00 €
Year 1 Year 2 Year 3 Year 4 Year 5
- Management
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Total Cost of Ownership This drawing clearly indicates that the highest cost is directly relates to staff expenses; in this case 4 persons including premiums for week-end, public holidays and so on. Add on top of this the need to cover escalated calls i.e. call forwarding to specialized ICT staff to resolve the problems. The TCO or this example showed following issues: The total project costs were as follows
TCO: General Overview
Hardware acquisition Services aquisition Yearly Maintenance
160.000,00 € - Core routers & Firewalls - Business Critical 24x7x4 - Business Supporting 8x5x4 - Showroom 6x5x4
140.000,00 € 120.000,00 € 100.000,00 € 80.000,00 € 60.000,00 € 40.000,00 € 20.000,00 €
Helpdesk
0,00 €
- Acquisition
Spread over a 5 year period with depreciation of the acquisitions over 3 years gives following cost per site
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Total Cost of Ownership Total Cost of Ownership "Outsourcing" Over 4 years Hardware acquisition Services aquisition
Year 1
Year 2
Year 3
Year 4
154.577,02 €
154.577,02 €
51.525,67 €
51.525,67 €
51.525,67 €
116.370,10 €
116.370,10 €
38.790,03 €
38.790,03 €
38.790,03 €
Yearly Maintenance - Core routers & Firewalls
10.535,20 €
42.140,80 €
10.535,20 €
10.535,20 €
10.535,20 €
10.535,20 €
- Business Critical 24x7x4
9.945,00 €
39.780,00 €
9.945,00 €
9.945,00 €
9.945,00 €
9.945,00 €
- Business Supporting 8x5x4
8.016,00 €
32.064,00 €
8.016,00 €
8.016,00 €
8.016,00 €
8.016,00 €
- Showroom 6x5x4
7.352,69 €
29.410,76 €
7.352,69 €
7.352,69 €
7.352,69 €
7.352,69 €
Helpdesk - Acquisition
5.400,00 €
5.400,00 €
5.400,00 €
- Yearly fee
29.631,00 €
118.524,00 €
29.631,00 €
29.631,00 €
29.631,00 €
29.631,00 €
341.827,01 €
538.266,68 €
161.195,60 €
155.795,60 €
155.795,60 €
65.479,89 €
10.682,09 €
16.820,83 €
5.037,36 €
4.868,61 €
4.868,61 €
2.046,25 €
Totals Average cost per site per year
TCO: Average cost per site per year €
€
5.000,00 €
4. 86 8, 61
4. 86 8, 61
6.000,00 €
5. 03 7, 36
€
H/W depreciation over 3 years
3.000,00 € 2.000,00 €
2. 04 6, 25
2. 04 6, 25
€
€
4.000,00 €
1.000,00 € 0,00 € Year 1
Year 2
Year 3
Year 4
Year 5
Average cost per site per year
When no outsourcing was done then Company XYZ could save on equipment and services Year 1
Year 2
Year 3
Year 4
Year 5
Average cost per site per year Outsourced
5.037,36 €
4.868,61 €
4.868,61 €
2.046,25 €
Average cost per site per year DIY
3.049,22 €
3.049,22 €
3.049,22 €
864,35 €
864,35 €
1.988,14 €
1.819,39 €
1.819,39 €
1.181,90 €
1.181,90 €
Delta
2.046,25 €
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Total Cost of Ownership TCO Delta between Outsource & DIY 2.000,00 1.800,00 1.600,00 1.400,00 1.200,00 1.000,00 800,00 600,00 400,00 200,00 0,00
€ € € € € € € € € € €
1.988,14 €
1.819,39 €
Year 1
Year 2
1.819,39 €
Year 3
1.181,90 €
1.181,90 €
Year 4
Year 5
The delta in this example must be less or equal to the TCO of the own populated HelpDesk which is Helpdesk
Staffing per year - Management
6.197,34 €
- Staffing (4 persons)
99.157,41 €
- Exceptions
5.000,00 € Total
110.354,75 €
Equipment - Management platform
4.957,87 €
- Management Software
9.999,00 €
- Training for setup & on-going (4 persons
7.932,59 €
Total
22.889,46 €
Grand Totals
133.244,21 €
HelpDesk Per Site
4.163,88 €
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Total Cost of Ownership Yearly salary increase
3%
Helpdesk Staffing per year
Year 1
Year 2
Year 3
Year 4
Year 5
6.197,34 €
6.383,26 €
6.574,76 €
6.772,00 €
6.975,16 €
- Staffing (4 persons)
99.157,41 €
102.132,13 €
105.196,10 €
108.351,98 €
111.602,54 €
- Exceptions
5.000,00 €
5.150,00 €
5.304,50 €
5.463,64 €
5.627,54 €
- Management
Equipment - Management platform
1.652,62 €
1.652,62 €
1.652,62 €
- Management Software
3.333,00 €
3.333,00 €
3.333,00 €
- Training for setup & on-going (4 persons)
2.644,20 €
2.644,20 €
2.644,20 €
Grand Totals
117.984,57 €
121.295,21 €
124.705,17 €
120.587,61 €
124.205,24 €
HelpDesk Per Site
3.687,02 €
3.790,48 €
3.897,04 €
3.768,36 €
3.881,41 €
HelpDesk Per Site 3.950,00 € 3.897,04 €
3.900,00 €
3.881,41 €
3.850,00 € 3.790,48 €
3.800,00 €
3.768,36 €
3.750,00 € 3.700,00 €
3.687,02 €
3.650,00 € 3.600,00 € 3.550,00 € Year 1
Year 2
Year 3
Year 4
Year 5
Conclusion: this rather simple TCO study on HelpDesk, shows that the outsourcing of this service is 50% cheaper than doing it yourself. Project Conclusion: the financial best solution for the project was to outsource the complete Wide Area Network project resulting in a net gain going from € 1,700 to € 2,700 over 5 years having extra redundancy for their network ---------------------------------------------------------------------------------------ESTERCAM Leo Jo
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Total Cost of Ownership being SLA covered for non observation of the agreements Loss / Gain between Outsourcing & DIY
0,00 € -500,00 € -1.000,00 € -1.500,00 € -2.000,00 €
-1.698,88 € -1.971,08 € -2.077,64 €
-2.500,00 € -3.000,00 €
-2.586,47 € Year 1
Year 2
Year 3
Year 4
-2.699,52 € Year 5
Correlation of the costs For every item out of the Total Scope, you now collect (or try to collect) the costs that are involved. Costs can be inflows as well as outflows but they have to be recorded as hard figures and no feelings or assumptions. The main aid here is the accounting department from all it’s different angles; information is mostly scattered over different instances depending on the nature of the unit. Example: ---------------------------------------------------------------------------------------ESTERCAM Leo Jo
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Total Cost of Ownership When purchasing a hardware component, have it installed and later on maintained, you will be confronted with three instances of the accounting being: Acquisition and Amortization One time exploitation costs Recurring costs Depending on those items, there will be different ways of writing them into the books and it is your task, together with the accountant to group things together.
1 At this stage you will be confronted with the amortization policy on one
end, and with additional factors that suddenly pop up and need to be correlated with your project. When such items are found, then you have to enlarge your scope a second, third etc. time and add them to the Total Scope of your project.
Analysis if those costs Once you have all the costs together, you are now able to calculate the actual TCO for the project’s scope. To make this analysis acceptable, you must consider following issues: Remaining costs of the acquisition of goods (amortization residue) for x coming years/months, Residuum value after amortization (if any), Recurring varying exploitation costs to third parties (e.g. P.T.T. bills) ---------------------------------------------------------------------------------------ESTERCAM Leo Jo
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Total Cost of Ownership Recurring fixed exploitation costs (e.g. maintenance costs) Intervention costs (based on an extrapolation over the last x-years) People costs for maintaining and monitoring the current environment related to the Total Scope, General Infrastructure costs (Housing costs1, Electricity, Gas, heating, cooling) With those figures it will now be possible to have a detailed view of the real exploitation costs related to the Total Scope. It will be the base to start from in order to justify or deny the acquisition of the new Total Scope.
2.4.2. Analysis of the new costs
Introduction Based on global market studies or results from Request for Information’s you will be able to forecast a generic budget for the new come about. Normally this budget has been approved by the Board and you now need to refine it, reflecting the real needs.
Methodology Here you start from the Total Scope document and fill in all the new items as they are presented.
1
Housing costs can be very important when the products occupy e.g. large m²’s in an expensive building when considering a SAN (Storage Area Network) rework towards an outsourced or collocated SAN. ---------------------------------------------------------------------------------------ESTERCAM Leo Jo
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Total Cost of Ownership Things to consider are: Acquisition of new equipment with its depreciation method Operational ready costs (transport, installation & configuration) Training costs for your personnel People costs (either need for acquisition or lay-offs) Recurring varying exploitation costs to third parties (e.g. P.T.T. bills) Recurring fixed exploitation costs (e.g. Maintenance) Contract renunciation costs incurred on running contracts (those costs can be spread over multiple months or years depending on their nature) Intervention costs (based on extrapolation related to either the previous product or adjusted to newer needs) General new Infrastructure costs (Housing costs, Electricity, Gas, heating, cooling) Depending on the nature of the cost and your company accounting principle, you will have to spread the costs over multiple months or years, take parts of them as investment in one year or even consider leasing agreements. This is generally the wildest part of the setup for cost separation.
1 The collection of those figures can be done in different stages. The first stage is after analysis of the RFI’s in refining the budget needs. Next phase will come when the answers of the RFP’s will be available; here a clear and net picture of the total costs seen from the different enrollers will be available. Be very careful to completeness of the figures; too often enrollers will not mention certain costs clearly. In those cases a comparative table will directly show which enroller has forgotten or omitted which cost.
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Total Cost of Ownership
2.4.3. Comparative study between the two above Finally, with both tables, it will be possible to determine the Total Cost of Ownership for the Total Scope of the project and elect the party you will be working with together. This final study will determine if the project finally is feasible and at what cost spread over a given period of time. By varying the time period, it might be possible to spread the total yearly/monthly charges.
1 In the event of ICT now enlarged with Telephony services, we will have to consider the depreciation period from a different angle. Generally speaking, Telephony systems (PABX, Telephones, etc.) were depreciated over 7 to 10 years or rented for 5 to 9 years where day-to-day ICT equipment (mainframes, Personal computers, routers, switches, …) were enrolled in a 3 year depreciation cycle. The reality is somewhere in between but as we all know, ICT day-to-day equipment has a life-cycle of maximum 4 years and so will also be qualified the IP-PBX systems.
Example of a comparative study Description of the scope The Academic Company XYZ wanted to deliver Internet Access to their student rooms spread over one city wide. Discussions showed that there were beyond this initial scope, several dissatisfactions with respect to their current Internet Access and Telephony system in the Headquarters; both needed replacement but when was not defined yet.
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Total Cost of Ownership The Scope study turned out to give a “Total Scope” where the complete Head Quarter facilities were refurnished qua Local Area Network, all student rooms were not only internet connected but also were given an telephone and the full telephony system was centralized. The TCO study, with a minor ROI add-on, showed that today’s total exploitation costs will remain unchanged over the coming 5 years. Methodology used During the enlargement and the definition of the Total Scope, several informative data was collected from different accounting cells within the company in order to get an image of the actual total cost of the exploitation. This required among other things costs incurred for the actual telephony systems (depreciation, loan agreements, final take-over fee, intervention fees[average per annum] and maintenance) all the available telephone lines (PSTN, ISDN, BRA, PRA), DDI’s and aDSL (rental and running costs) the internet access (line and consumption) actual Local Area Network infrastructure (loan agreements, final take-over fee, intervention fees[average per annum] and maintenance) Due to the loan agreement, special care had to be taken on the periods covered per item and their residual value to be paid when not replaced at that time. The result of this study was the exploitation cost for the Total Scope and comments with respect to end-periods for the loans as shown in the table below.
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Total Cost of Ownership
OVERVIEW Actual Exploitation Costs Per Year
Telefony (today) Total TSP Total Telefonie (2*4200 + Office D)
17.638,31 € 25.613,94 €
Totaal Telephonie
43.252,25 €
Total number Telephone lines DDI 10 numbers
92 18
21,4164 €
17.381,32 € 257,00 €
External Access (vandaag) E1 line (CIR 256K) Current ISP Internet access
7.952,04 € 21.417,96 €
Total External access
29.370,00 €
Grand total Networking
72.622,25 €
Leasing Infrastructuur Existing Infrastructure 14.777,34 € 3.273,69 € 212,37 €
HQ HQ (bis) HQ (ter)
18.263,40 €
Total Infrastructure Total Telephony & Infrastructure
61.515,65 €
Total Networking & Infrastructure
90.885,65 €
Starting from here, all new components taken from the answers to the RFP’s were gathered and expanded over the different periods; variables were target installation date Parallel periods end-loan periods. Again here all incurred costs were split in ---------------------------------------------------------------------------------------ESTERCAM Leo Jo
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Total Cost of Ownership one time acquisitions (services and training) 3 year spread acquisitions without loan agreement 4 year spread acquisitions with loan agreement recurring costs (TSP, ISP, maintenance) View of the TCO
Total Cost of Ownership (per year) Telefonie Belgacom 2%
Infrastructuur Residenties 14%
Infrastructuur HQ 6% Infrastructuur HQ (bis) 2%
Telefonie Residenties 10%
Telefonie HQ 3%
MAN Belgacom 60%
Telefonie HQ (bis) 3%
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Total Cost of Ownership New situation 2 with infrastructure 1 2
DDI 1000 numbers PRI E1 2 * 30 channels Totaal TSP Total telephony on new
7,4368 € 606,0000 €
infrastructure Totaal Infrastructure
89,24 € 7.272,00 € 7.361,24 € 18.406,12 € 25.566,17 €
Total Telephony & Infrastructure
51.333,53 €
Both figures were now merged to result in a complete TCO over a given period. Total Cost Overview Infrastructuur Residenties Infrastructuur HQ Infrastructuur HQ (bis) Telefonie Residenties Telefonie HQ Telefonie HQ (bis) MAN Belgacom Telefonie Belgacom
€ 46.161,75 € 18.608,73 € 6.957,44 € 33.546,85 € 10.101,39 € 8.304,73 € 197.257,09 € 7.361,24
Infrastructuur Service Provider
€ 123.680,89 € 204.618,33
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Total Cost of Ownership Spread over the time: Only Residences with infra & Telephony + Internet access HQ infra + Telephony, end current PBX End leasing current infrastructure End leasing residences 2001 LAN Infrastructure (current) LAN Infrastructure (new) MAN Infrastructure ISP MAN/WAN old ISP MAN/WAN New TSP Telefonie old TSP Telephony New Telephony PBX (old) Telephony PBX (new) Telephony Residences Telephony HQ
2002 Leasing
2003
2004
2005
2006
Leasing Leasing
Leasing Leasing Leasing Leasing
After the spread over the different year the following result came to the foreground:
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Total Cost of Ownership The two following graphs show the results of the TCO study:
TCO Analysis € 400.000
€ 300.000
€ 200.000
€ 100.000
€0
-€ 100.000
2001
2002
2003
2004
2005
2006
-€ 200.000 LAN Inf rastructure
MAN Inf rastructure
Belgacom MAN/WAN IPVPN
Belgacom Telef onie
Telephony PBX
ROI Totals € 200.000
Inkomsten
y = -19983x + 178490 R2 = 0,3888
€ 183.010
€ 180.000 € 160.000
Trend Line
€ 145.197
€ 145.197
€ 140.000 € 120.000 € 100.000
Exploitation costs over 5 years
€ 90.886
€ 65.489
€ 80.000 € 60.000 € 40.000
€ 21.516
€ 20.000 €0
2001
2002
2003
2004
2005
2006
The result of this TCO study with enlarged scope was that Company XYZ replaced its
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Total Cost of Ownership complete infrastructure in their 3 Head-Quarters Local Area Network delivering higher bandwidth to every desk, telephony PBX and TSP access to give telephony access to +500 persons (increase of 350%) increased the ISP Internet bandwidth with 400% and kept the exploitation at level for the next 5 years.
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Total Cost of Ownership
2.5.
How to transfer information on TCO within the company?
Strategies for Communicating Total Cost of Ownership Analyst: Marilyn Fung Writer: Carolyn LeVasseur In creating a strategy for communication the total cost of ownership (TCO) to the business units, IS organizations must be aware of the media, tools and techniques that would be most effective for the intended audience. IS organizations should consider the following factors before choosing a communication method:
• • • •
Amount of effort necessary and the costs Timing and participation required from the audience Effectiveness of the media, tools and techniques Appropriateness of the message, given the media
When communicating a message, IS organizations should realize that opportunities to reach an audience may be limited. They may have only one chance to get their message to a particular group of people, so it is critical to select a method with the highest probability of success (see Figure 1). Ultimately, how well TCO is communicated to the various levels of the business units determines future success in managing IT.
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Total Cost of Ownership
Figure 1. Multiple Levels of Communication Although it is a good practice to assign someone in the IS organization to be responsible for TCO communications, it is unrealistic to expect a single individual to deliver all the TCO communications necessary to penetrate the whole enterprise. Communication requires a team effort; therefore, it is of primary importance to educate all levels of an IS organization regarding the value of TCO in managing the IT environment. All members of an IS team should be committed to, and share responsibility for, communicating TCO in their frequent
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Total Cost of Ownership interactions with their counterparts in an enterprise (see Figure 2). Furthermore, it is wise to take advantage of existing communication channels between IS and the business units and adjust the content of the TCO message based on the interests and influence levels of the audience. Finally, a good attitude from the communicator builds and strengthens the working relationship between an IS organization and an enterprise. Attributes of a good communicator include:
• • • • • • • •
Knowledgeable Articulate Respectful Realistic Good listener Open-minded Trustworthy Sincere
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Total Cost of Ownership
Figure 2. Ad Hoc Communications Whereas some IS organizations have established formal communication channels and meet regularly with the business units, most IS organizations do not have a comprehensive communication strategy that encompasses all aspects of IT communications. Frequently, each level of an IS organization acts on its own without coordinating communication efforts or determining the content of communications from other parts of an IS organization. Consequently, this has led to inconsistent and confusing messages from IS organizations to their customers. Communication styles vary with IS organizations. Some IS organizations approach communication passively and provide information only when asked or when absolutely necessary. Hence, the enterprise hears from an IS organization only when problems with
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Total Cost of Ownership the systems, applications or network occur. Thus, a negative and incompetent image is projected to the rest of the enterprise. Structured Communication Strategy Many IS organizations have been successful at developing technical IT architectures and frameworks, but the majority have neglected the communication strategies necessary to complement these technological developments. Without a structured, proactive, high-level IT communication plan, it is unrealistic to expect IS organizations to communicate effectively the value of TCO to the enterprise (see Figure 3).
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Total Cost of Ownership
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Total Cost of Ownership Furthermore, IS organizations must focus on the larger picture and view TCO as part of the metrics and evaluation methods of a successful IT investment portfolio and then communicate this accordingly. It is crucial to communicate the value of TCO in the context of its relationship to other IT initiatives and budget planning activities. Thus, an audience can understand the impact of TCO on its services, work, processes, interactions, budgets and bottom line. Because TCO is an important, valuable tool for an enterprise to utilize in managing its IT investments, IS organizations must communicate with an enterprise proactively and systematically. Embed TCO into the Business Process In addition to communicating TCO to the enterprise, IS organizations must ensure that TCO is embedded into the business processes so that it will continue to be an asset in managing IT. The first step in achieving this goal is for IS organizations to identify the technology areas and processes that should be part of the TCO program and then work with the key stakeholders in these areas to determine the performance metrics necessary to ascertain TCO. After identifying a source of data, an IS organization must convince the data owner to establish a process that includes tracking data and contributing metrics periodically, preferably automatically, in an agreed-on format. In addition, IS organizations should collect and analyze various metrics to determine TCO. This information should be communicated and disseminated through the established communication channels to the various parts of an IS organization and to the rest of the enterprise. TCO helps to analyze IT efficiency and effectiveness and make fact-based decisions regarding IT investments. Ultimately, TCO should be used along with other enterprise value metrics to demonstrate IT's contribution to an enterprise. TCO Is a Continuous-Improvement Process Rather than just a "snapshot" in time, TCO should be a component of an ongoing continuous-improvement process. The success of a TCO program is determined by how well an IS organization achieves two goals:
• •
Communicating TCO to the enterprise within an IS organization and within the appropriate business areas Embedding TCO into the business processes
Many issues must be addressed to overcome these great challenges. This series of articles has outlined the following steps to help IS departments achieve their goals:
•
Understand the benefits of communicating TCO to an enterprise
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Total Cost of Ownership • • • • • • • • • •
Identify and remove barriers within an IS organization regarding communication Identify and remove barriers between an IS organization and the business units Identify factors impacting the quality of IS communication Learn how to communicate to a nontechnical audience Become familiar with the four modes for communication Know the interest and influential power of the audience Match the media and tools to the appropriate audience Establish a structured IT communication strategy Embed TCO into the business processes Establish TCO as a continuous-improvement process
To maximize the benefit of a TCO program, IS organizations must focus on the major factors cited above and continue to devote efforts to overcoming barriers and challenges. Of supreme importance are implementing the TCO methodology on a long-term basis and communicating the value of TCO to the enterprise.
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Total Cost of Ownership
2.6.
Conclusion With this final report on TCO, you will be able to get the project accepted by the board of Directors since it will be inline with the initial budget, it will cover the Total Scope thus avoiding hidden costs. it will ensure you that you at last know where you’re heading to both financially and functionality wise.
2.7.
References Gartner Group Gartner, Inc. is a research and advisory firm that helps more than 10,500 clients understand technology and drive business growth. Gartner's businesses consist of Gartner Research, Gartner Consulting, Gartner Measurement and Gartner Events. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has 4,000 associates, including 1,200 research analysts and consultants, in more than 90 locations worldwide. Fiscal 2001 revenue totaled $963 million.
Cisco Systems Cisco Systems, Inc. is the worldwide leader in networking for the Internet. Cisco's Internet Protocol-based (IP) networking solutions are the foundation of the Internet and most corporate, education, and government networks around the world. Cisco provides the broadest line of solutions for transporting data, voice and video within buildings, across campuses, or around the world. Cisco was founded in 1984 by a group of computer scientists from Stanford University. Since the company's inception, Cisco engineers have been
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Total Cost of Ownership prominent in advancing the development of IP- the basic language to communicate over the Internet and in private networks Cisco Systems, Inc. WorldWide Diversity Department 170 W. Tasman Drive, M/S SJ-05/3 San Jose, CA 95134-1706 T: (408) 526-4000 Whats?Com whatis.com 117 Kendrick Street, Suite 800 Needham, MA 02494
Webopedia The only online dictionary and search engine you need for computer and Internet technology. Webopedia is a free online dictionary for words, phrases and abbreviations that are related to computer and Internet technology.
Webopedia provides easy-to-understand definitions in plain language, avoiding the use of heavy jargon when possible so that the site is accessible to users with a wide range of computer knowledge
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Total Cost of Ownership Index to Chapter 2 2.
The Total Cost of Ownership...................................................................................................... 3 2.1. Introduction .......................................................................................................................... 3 2.2. Purpose statement ............................................................................................................... 3 2.3. Definitions & difference between TCO and ROI ......................................................... 4 Definition by market leaders.................................................................................................... 4 Gartner .......................................................................................................................................... 4 Cisco Systems .............................................................................................................................. 5 Whatis?com .................................................................................................................................. 6 Webopedia .................................................................................................................................... 7 My vision is leaning towards ….................................................................................................. 8 2.4. Components of the TCO Study ......................................................................................... 9 2.4.1. Analysis of the Actual Costs.................................................................................... 9 Introduction ................................................................................................................................. 9 Methodology ................................................................................................................................. 9 Definition of the Total Scope .................................................................................................10 Examples.......................................................................................................................................10 Correlation of the costs ...........................................................................................................16 Analysis if those costs..............................................................................................................17 2.4.2. Analysis of the new costs ........................................................................................18 Introduction ................................................................................................................................18 Methodology ................................................................................................................................18 2.4.3. Comparative study between the two above ........................................................ 20 Example of a comparative study ............................................................................................ 20 2.5. How to transfer information on TCO within the company?...................................... 28 2.6. Conclusion............................................................................................................................. 36 2.7. References........................................................................................................................... 36
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Project Initiation
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Project Initiation
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Project Initiation
3.
The Project Initiation
3.1.
The origin of needs The origin of a project can be twofold: environmental changes with capacity implications or technology driven An environmental change can be the startup of a new application or a change on an existing with implications on the behavior, extension of the existing environment (increase/decrease in personnel, acquisition of new buildings) Capacity changes are a result from an internal change process s.a. volume increase in eMail, volume increase due to business needs or positive business development. Technology driven request are mostly forthcoming from marketing strategies developed by the product vendors or by the competition. The first is a direct result from ‘commercials’ out of technical interest groups and merely are features that one can classify as “nice to have”. The second is based on competition: you have it, I want to have it too. With the current market evolution, it is clear that the latter project initiation has become obsolete with the regression we see today in the economical landscape, but it was a major driver for projects in the 70’s, 80’s and even till mid 90’s. If I take the networking arena as example, the who didn’t move to an IP network?, who didn’t move from a shared network (HUB technology) to a switched environment? and who didn’t implement “layer-3” and never used it? All those project were merely driven by marketing, publications and the perception to be in with the new trend.
ESTERCAM Leo Jo
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Project Initiation
Today’s projects Today projects need to be justified from a technological and an economical perspective even before it has been started. The germ of project today is purely forthcoming from a business need. Typical business needs are a new application is introduced (e.g. SAP) business is increased and causing excessive response times environmental costs are too high there is a need to reduce exploitation costs the company is moving to new premises mergers or consolidation between companies
3.2.
The stages of a project In general we can state that a project should cross following six phases during its lifetime. 1. 2. 3. 4. 5. 6.
Initiation phase Prospection Request for Information & the analysis of the responses Request for Proposal & the analysis of the responses Roll out phase Follow up and Maintenance phase
In this chapter I will discuss on the phases 1 and 2.
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Project Initiation
3.3.
The SWOT analysis Once the project is born, the first step will be to define the initial scope of the project, see what implications are.
Initial Scope definition With the initial scope the project environmental impact need to be reviewed and isolated from other environmental issues. It actually puts the project between different barriers, barriers that will evolve when time goes by due to extension of the scope and so on. At this moment a first market prospection will be initiated in order to determine who will be able to help up in (a) a technological perspective and (b) as a service provider in the large sense of the word.
Prospection The prospection will help the ICT to have a first idea of what’s out on the current market; he will define and isolate the manufacturers of the technology that he thinks will suit his primary needs.
Vendor prospection Today you will be often confronted with vendors doing their own prospection through marketing, seminars and even direct visits. This opportunity will help you to determine what there is out at the market place and position each vendor with respect to his/her competitors. ESTERCAM Leo Jo
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Project Initiation It is also important to have a look behind the scenes in order to get a vision on their Road-Maps and forecasts. This it of the utmost importance when your project concerns new technology. Do visit multiple vendors when possible in order to get a broad vision on the possibilities, advantages and drawbacks.
Integrator prospection Some vendors will propose specific integrators, others will just give you a list of accredited integrators. On the other hand, is most cases you will have your trusted supplier or integrator who did already the job in the past. Through integrator prospection you need to gain awareness of three major issues: his knowledge on the (new) technology you want to acquire his experience on the subject his vision to the market (whenever he is vendor independent1) Since you started with the vendor prospection, you will easily discover the knowledge of the integrator on the subject. When the integrator is a user of the product then this is a plus point but he can hide the drawbacks based on his experience; ask for a visit et his own premises when he is the owner of the technology; it will not only show you he has and uses it, but also gives an idea of in what environment he is using it and with what kind of other products/softwares around it.
1
The issue around the independentness on a vendor seen from an integrator’s perspective is always rather confusing. All integrators will distribute a limited number of products from a limited number of vendors. The target is to get his vision on the market evolution limited to the products he is able to deliver.
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Project Initiation
Client visits Last but not least you should interrogate vendors and/or integrators for their references with relation to your project that can be visited. You can either visit the client alone or with his vendor or integrator; both are even valuable since all parties have advantages that the contact should be clean.
Build it up step by step Once the contacts are made with the manufacturers, there will be a knowledge transfer of what is possible today and what the roadmap for a given technology is. In a next phase, we have to look for those who can install and support that solution for us. Here two possibilities are open namely, you organize to do it yourself or you have it done by an integrator. In a Do-It-Yourself perspective, the first thought should go to training and who to train. In an outsourced perspective you will to prospect the market for possible integrators and correlate them with the manufacturers of the technology. In most cases they will propose integrators who get mutual support; this ensures that continuity in support can be achieved.
ESTERCAM Leo Jo
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Project Initiation
SWOT In this phase you will step back and make a SWOT analysis of the project in order to see where you stand. Although SWOT was not directly meant for this, I use it as method to qualify the overall view of the project at his startup phase. SWOT Analysis is an effective method of identifying your Strengths and Weaknesses, and to examine the Opportunities and Threats you face. Often carrying out an analysis using the SWOT framework will be enough to reveal changes which can be usefully made.
To carry out a SWOT Analysis write down answers to the following questions: •
Strengths
What are the advantages of the project ? o What do you think it will bring to the company? o
Consider this from your own point of view and from the point of view of the people you deal with. Don't be modest, be realistic. If you are having any difficulty with this, try writing down a list of characteristics that will be solved with this project. Some of these will hopefully be strengths!
ESTERCAM Leo Jo
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Project Initiation •
Weaknesses
What could be improved within your own organization? o What is the state of expertise? o What should be avoided? o
Again this should be considered from an internal and external basis do other people perceive weaknesses in the project that you don't see? Do your competitors do any better? It is best to be realistic now, and face any unpleasant truths as soon as possible. •
Opportunities
Where are the good chances facing you? o What do you get as a plus-value out of it? o What are the interesting trends? o
Useful opportunities can come from such things as: Changes in technology and markets on both a broad and narrow scale o Changes in government policy related to your field o Changes in social patterns, population profiles, lifestyle changes, home-worker, etc. o Local Events o
ESTERCAM Leo Jo
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Project Initiation •
Threats
What obstacles do you face? o What is your competition doing? o Are the required specifications for products or services changing? o Is changing technology threatening your position, your personnel? o
Another method is the Force Field Analysis
Force Field Analysis Force Field Analysis is a method used to get a whole view of all the forces for or against a plan so that a decision can be made which takes into account all interests. In effect this is a specialized method of weighing pros and cons. Where a plan has been decided on, force field analysis allows you to look at all the forces for or against the plan. It helps you to plan or reduce the impact of the opposing forces, and strengthen and reinforce the supporting forces. Carrying Out a Force Field Analysis To carry out a force field analysis, follow the following steps: List all forces for change in one column, and all forces against change in another column. Assign a score to each force, from 1 (weak) to 5 (strong). Draw a diagram showing the forces for and against, and the size of the forces. Example Force Field Analysis
ESTERCAM Leo Jo
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Project Initiation An example of the analysis is shown below:
Once you have carried out an analysis, you can decide on the viability of the project. Where you have decided to carry out a project, it can help you to analyze how you can push through a project that may be in difficulty. Here you have two choices: To reduce the strength of the forces opposing a project To increase the forces pushing a project
ESTERCAM Leo Jo
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Project Initiation Often the most elegant solution is the first: just trying to force change through may cause its own problems as e.g. staff can be annoyed into active opposition to a plan instead of merely not welcoming it. If you were faced with the task of pushing through the project in the example above, the analysis might suggest a number of points: By training staff (increase cost by 1) fear of technology could be eliminated (reduce fear by 2) It would be useful to show staff that change is necessary for business survival (new force in favor, +2) Staff could be shown that the new machines will introduce variety and interest to their jobs (new force, +1) Wages could be raised to reflect new productivity (cost +1, loss of overtime -2) Slightly different machines with filters to eliminate pollution could be installed (environmental impact -1) These changes swing the balance from 11:10 (against the plan), to 8:13 (in favor of the plan)
ESTERCAM Leo Jo
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Project Initiation
3.4.
Conclusion SWOT and Force Field Analysis is an effective method of getting a picture of all the forces for and against a plan. It helps you to weigh the importance of these factors and asses whether a plan is worth pursuing. Where you have decided to proceed with a plan, carrying out a Force Field Analysis helps you identify changes that might be made to improve the plan.
3.5.
References SWOT : Link : http://www.mindtools.com/swot.html
ESTERCAM Leo Jo
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Project Initiation Index 3.
The Project Initiation .................................................................................................................. 3 3.1. The origin of needs.............................................................................................................. 3 Today’s projects .......................................................................................................................... 4 3.2. The stages of a project...................................................................................................... 4 3.3. The SWOT analysis ............................................................................................................. 5 Initial Scope definition.............................................................................................................. 5 Prospection ................................................................................................................................... 5 Vendor prospection ................................................................................................................. 5 Integrator prospection .......................................................................................................... 6 Client visits ............................................................................................................................... 7 Build it up step by step .............................................................................................................. 7 SWOT ............................................................................................................................................ 8 Force Field Analysis...................................................................................................................10 3.4. Conclusion .........................................................................................................................13 3.5. References.......................................................................................................................13
ESTERCAM Leo Jo
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The request for Information
ESTERCAM Leo Jo
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The request for Information
ESTERCAM Leo Jo
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The request for Information
4.
The Request for Information
4.1.
Introduction The Request for Information, RFI, is meant to give the ICT Director/Manager and his team a broader view of what the possibilities are to realize the project he wants to initiate. Basically the RFI defines the Global Business needs and requests a possible solution to fulfill them.
4.2.
Purpose statement The purpose of the RFI is to have two fundamental information streams available before continuing with the project: Have an up-to date view of what the market is providing as solutions with respect to hardware and services Refine the Global Budget for the project
ESTERCAM Leo Jo
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The request for Information
4.3.
Contents of a Request for Information
4.3.1. Introduction Generally speaking the RFI will be distributed to trusted partners of your organization, partners with whom you were working before. In the event that you were dissatisfied, you will send the RFI to new prospected companies.
4.3.2. Contents
Purpose of the RFI In the purpose statement you define the intention of the need for information, what you have in mind. The outcome of the RFI responses will enable you to define the strategy and architecture for the initial need. Here you also state that the fact of answering to the RFI does not entitle any purchase commitment. The answer of the RFI will be used to refine the scope of the project.
Composition of the RFI This paragraph will rephrase the contents of the RFI chapters. Mostly they are: Participation to the RFI Description of the current environment New requirements for the environment ESTERCAM Leo Jo
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The request for Information Questions and initial requirements
Participation of the RFI This chapter defines two aspects of the request being a) the how to answer and b) the contact person within your organization. How to answer topic This statement defines following issues: The language for the replies (main text and attachments) Number of copies required Limit date to answer to the RFI Optionally you can define Maximum number of pages allowed Request if the proposed solution can be implemented as of today or is depending on an evolution foreseen in the next x months. Always include a statement that no costs can be charged by the enroller.
ESTERCAM Leo Jo
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The request for Information Contact person IN the case of RFI it is recommended to give only one contact person; this person should be the project initiator or project owner of your company.
Description of the current environment With this chapter you have the opportunity to describe in rather detail the environment which will reflect the initial scope of the project. Try to be as detailed as possible, within the initial scope, so that the enroller can focus on this description in order to fulfill the new needs later on. Stuff the description with pictures and drawing whenever possible. When different locations are involved in the project, the clearly indicate them with country, city and address; it might be useful to indicate also the number of users per location. When you describe a network environment, then indicate what kind of servers and mainframes are connected and how, describe the used protocols and if possible give a word on the traffic flow. When you describe a service environment, then indicate what the service is delivering and how it if done today (centric, centralized or distributed).
ESTERCAM Leo Jo
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The request for Information
New requirements for the environment In this chapter you describe the new needs where the outcome of the project will have to comply with. Try to cover the needs for every sub environment with descriptions of your forecast to implementation the basic changes you want to see what you want to remove from the existing environment the trend you want to follow with the implementation of the project which new services you expect With your description you can define up front if you keep the door wide open for new technologies, if you like to go for one specific technology or somewhere in between. Try to define what space you give to the enroller as creativity for his answer.
Questions and initial requirements With this chapter you define questions which need a dedicated answer. In contradiction with the creativity of the enroller in his description of the new environment, here you request to the point answers. Group the questions per topics and be precise in quoting them.
ESTERCAM Leo Jo
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The request for Information Summary of frequently used questions: Technical infrastructure questions (layout, security, access, design, protocols, integration with the existing, scalability, …) Management issues around the project (integrated management, co-, in- or outsourced management of the new environment, reporting) Service Levels (minimum requirements, throughput, response times, hard SLA’s) Migration scenario proposal Timing scenario How do the enroller sees the realization of the project, can he do it alone or will he imply third parties. Finally the enroller must be requested to give a broad estimate of the total cost for the project including the hardware budget the software budget the services budget (split by installation and on-going) the maintenance budget the fixed costs associated related to third parties (Mainframe specific issues, Service provider monthly rentals, …)
ESTERCAM Leo Jo
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The request for Information
4.4.
The analysis of the RFI responses The next phase in the RFI process is the analysis of the responses from the applicants.
4.4.1. Analysis Since the aim of the RFI was the receive a clear image of what solution can be brought for the given objective out of the project scope, the most interesting part will be the technical advise for conceptual design. This part will be handled by the technical staff of the ICT team who will in turn give a report to the ICT Manager with the revised conceptual design of the project. Nevertheless it will, on the other hand, give indications for the project referring to budget aspects and continuity. Last but not least the presentation of the responses will position the applicants’ vision on your project and how they position themselves towards your project. This will enable you already to select in this early stage a limited number of parties for the rest of the project.
4.4.2. From now on With all this information you have enough material now to Review the budget allocated to the project Review the initial SWOT & TCO analysis
ESTERCAM Leo Jo
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The request for Information Presentation to the Board of Directors
Budget review This stage will determine whether or not you will continue with the project; once you have fixed the budget, it has to be accepted by the Board of Directors of our company. With the reviewed budget you have actually three possibilities Below the initial budget estimate Above the initial budget estimate Within the initial budget Depending on the budget’s position you have to consider following issues: Below initial budget Does the RFI respond to all the needs? Have you forgotten to include aspects of the projects? Have the applicants understood your need? Above initial budget Is the response not over killing your project? Have they included issues which were initially forgotten? Did the applicants understand your needs? Within the initial budget Be anxious is the message and crosscheck for missing issues. With this information you will be able to finalize the budget needs for the given project.
ESTERCAM Leo Jo
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The request for Information
SWOT & TCO review Having a clear view on the project now, you will be able to refine the SWOT analysis. With the refined budget, you will need to rework the initial TCO analysis; The result will be the most valuable input to defend the new project in terms of being reasonable, attainable and affordable.
Presentation to the Board of Directors At this stage the IT Director has enough information to make the final step to have his project accepted by the Board. The presentation will demonstrate that the project is profitable to the company business needs and will be cost-effective. You will have to convince the board for the project with the SWOT and TCO figures.
4.5.
Conclusion When the RFI structure is observed as described above, the enroller will be able to put enough creativity and punctuality in his answer so that you will be able to refine the scope of the project to its final outcome and be able to adjust the budget in order to meet the desired needs.
ESTERCAM Leo Jo
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The request for Information With the answers to the RFI, you have now enough information to refine the TCO (see Total Scope definition), start building the ROI and finally prepare the Request for Proposal (RFP) which will lead to the final price setting for the project including its Total Scope. Thanks to the two studies made, TCO and RFI, you will have gained confidence in the project and approval by the Board of Directors; the next phase will now be determined to realize the project within approved budget and time.
4.6.
References
ESTERCAM Leo Jo
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The request for Information Index 4.
The Request for Information ..................................................................................................... 3 4.1. Introduction .......................................................................................................................... 3 4.2. Purpose statement ............................................................................................................... 3 4.3. Contents of a Request for Information.......................................................................... 4 4.3.1. Introduction ................................................................................................................ 4 4.3.2. Contents........................................................................................................................ 4 Purpose of the RFI ..................................................................................................................... 4 Participation of the RFI ............................................................................................................ 5 Description of the current environment................................................................................ 6 New requirements for the environment................................................................................. 7 Questions and initial requirements ......................................................................................... 7 4.4. The analysis of the RFI responses .................................................................................. 9 4.4.1. Analysis ......................................................................................................................... 9 4.4.2. From now on ................................................................................................................. 9 Budget review..............................................................................................................................10 SWOT & TCO review................................................................................................................. 11 Presentation to the Board of Directors ............................................................................... 11 4.5. Conclusion.............................................................................................................................. 11 4.6. References............................................................................................................................12
ESTERCAM Leo Jo
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The request for Information
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The request for Proposal
ESTERCAM Leo Jo
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The request for Proposal
5.
The Request for Proposal
5.1.
Introduction The “Request for Proposal” or short RFP is the compilation of the results out of the “Request for Information” into a more in depth focus towards the needs for the new project and will be send to a selective list of parties, normally a subset of those subscribed to the RFI and result in a firm offer for the concretization of the initial request. The examples are representative for the Belgian RFP writing and are therefore included in Dutch, French in order to be representative and legally reproducible.
5.2.
Purpose statement The purpose of the RFP is to receive a detailed offer from the different addressed parties with their view of how the project should be realized.
ESTERCAM Leo Jo
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The request for Proposal
5.3.
Index of a Request for Proposal
5.3.1. Introduction The Request for Proposal is the document to which you can always refer to after the answers were collected and will thus be the point of reference for the approval/denial of the responses based on omitted points. It is therefore utmost important that the RFP at this stage reflects not only the needs as such, but also the rules and regulations the Enroller will have to comply with.
5.3.2. Parts of the RFP The RFP should have at least following chapters: The general introduction The instructions for the RFP General provisioning Contractual provisioning The legal conditions for the resulting contract Technical provisioning Organization of the project Presentation canvas for the answer
5.3.3. The general introduction With the introduction one should describe briefly the following topics:
ESTERCAM Leo Jo
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The request for Proposal The purpose statement of the project and its objective. The environment for the project With this description the reader should be able to have a clear view of what the total scope of the project will have to cover. This relates to the RFI, where a more broader scope was requested; after the analysis of the RFI responses, the scope was narrowed to outline more specifically the project as such.
5.3.4. The Instructions for the RFP In the instruction for the RFP, following subjects should be described in detail: Definition of concepts used further on such as e.g. Taskmaster, Enroller etc. Example: Taskmaster
Company XYZ Mss/Mr Name : IT Director Address eMail address:
[email protected]
Enroller The Enroller is defined as the supplier or integrator receiving this RFP and who based on it will issue his binding offer.
5.3.5. General provisioning In the general Provisioning section the following topics will be covered: ESTERCAM Leo Jo
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The request for Proposal
Evaluation criteria of the offer Describe how you and your team will quote the different aspects of the offer itself. Give eventually weight factors to each topic or divide the offer up into multiple subtopics each having a certain percentage of weight. Example: The offers will be evaluated based on: Technical characteristics The total cost of the project The application of specific condition Comply with administrative and legal conditions Quality
Weight 30% Weight 30% Weight 10% Weight 10% Weight 20%
Example of formula’s: The total price of the project including a x-year maintenance period will be based on the initial purchase price, a warrantee period of one year and a (x-1)year maintenance contract as follows: The price will be quoted using following formula: K = 50 + 50 * ( ( MEDIAN – P ) / MEDIAN ) Where P = global purchase price If K > 0 then the total points are equal to K If K +100%
3% van de maandelijkse onderhoudskosten 10% van de maandelijkse onderhoudskosten 20% van de maandelijkse onderhoudskosten 50% van de maandelijkse onderhoudskosten 100% van de maandelijkse onderhoudskosten
9.5.2.2 WAN MET KANTOREN (GEMETEN OVER DRIE MAANDEN) SLA + 10% SLA + 20% SLA +30% SLA +100% SLA >+100%
CTI
3% van de driemaandelijkse onderhouds- en WANkosten 10% van de driemaandelijkse onderhouds- en WAN kosten 20% van de driemaandelijkse onderhouds- en WAN kosten 50% van de driemaandelijkse onderhouds- en WAN kosten 100% van de driemaandelijkse onderhouds- en WAN kosten
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9.5.2.3 WAN EN HOOFDKANTOOR EN/OF GROOT KANTOOR
SLA + 10% SLA + 20% SLA +30% SLA +100% SLA >+100%
CTI
3% van de maandelijkse onderhouds- en WANkosten 10% van de maandelijkse onderhouds- en WAN kosten 20% van de maandelijkse onderhouds- en WAN kosten 50% van de maandelijkse onderhouds- en WAN kosten 100% van de maandelijkse onderhouds- en WAN kosten
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Service Level Management
9.5.2.4 ANTI CUMULATIE FACTOR De berekening van de driemaandelijkse kost als boete is evenwel niet cumuleerbaar; wanneer voor een bepaalde periode reeds een boete van x% betaald is en de daarop op twee daarop komende periodes opnieuw een boete zou moeten betaald worden dan wordt deze verminderd met de reeds betaalde boete van de vorige periode(s) tot een maximum van twee 2 maanden.
CTI
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Service Level Management
9.5.3
MAC’S IN HET NETWERK UIT TE VOEREN
Moves, Add’s en Changes zal men uitvoeren in het netwerk in samenspraak met de KLANT. Men kan twee soorten van MAC’s onderscheiden nl. deze op aanvraag van de KLANT en deze op aanvraag van de integrator/SP/constructeur.
9.5.3.1 KLANT GEÏNITIEERDE MAC’S Volgende veranderingen vallen hier onder: ¾ ¾ ¾ ¾ ¾ ¾
Toevoegen van een nieuw (hoofd)kantoor of agent Verhuizen van een (hoofd)kantoor of agent Afbouw van een bestaande knoop Wijzigingen aan VLANs Wijzigingen in het Data Centrum ...
9.5.3.2 INTEGRATOR/SP/CONSTRUCTEUR GEÏNITIEERDE MAC’S Volgende veranderingen vallen hier onder: ¾ ¾ ¾ ¾ ¾
CTI
Lijnsnelheidsaanpassingen Veranderingen van parameters op de netwerk apparatuur Wijzigingen van de firmware/software op de netwerk apparatuur Wijzigingen van de hardware op de netwerk apparatuur ...
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9.5.3.3 PROCEDURES Tijdens het ‘Proof-of-Concept’ zal men de procedures om MAC’s uit te voeren eenduidig opstellen volgen het ITIL principe. De inschrijver noch de KLANT mogen een aanpassing doorvoeren zonder de andere partij hiervan op de hoogte te brengen. Iedere RFMAC (Request for MAC) moet gevalideerd worden door de KLANT en de inschrijver op wekelijkse basis en vervolgens onderworpen worden aan een planning al naargelang het type van interventie. De inschrijver geeft hierop zijn “Verbintenis Tot Oplevering” of VTO.
De inschrijver zal de maximum termijnen opstellen voor het opleveren van de MAC’s waar enerzijds hardware vereist is of anderzijds veranderingen nodig zijn op gebied van het carrier netwerk en zich garant stellen om deze na te leven. Indien hij deze criteria niet kan naleven zullen de volgende boeten van toepassing zijn in % van de som van aankoopprijs en installatie kosten: CTI
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SLA MAC ‘on time delivery’ Gegarandeerde Penaliteit opleverdatum VTO + 14 30 %
CTI
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9.6
IN TE VULLEN DOOR DE INSCHRIJVER
In onderstaande tabel geeft de inschrijver weer welke SLA hij/zij kan garanderen overeenkomstig de financiële offerte hij/zij indiende in de tabel met referentie “Total cost of Ownership Kantoren, WAN & Datacenter”.
9.6.1
BESCHIKBAARHEID VOLGENS SLA
Type
vork begin
vork einde
SLA1
00:00:00
23:59:59
NVT
Agent Kantoor Groot kantoor Hoofdkantoor Data Centrum
SLA2
SLA3
‘Polling’ mechanisme. Minimum antwoordtijd op een ping. Polling frequentie. Actie als geen antwoord op de polling.
CTI
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2/27/2009
SLA4
Service Level Management
9.6.2
VTO VTO 1 VTO 2 VTO 3a VTO 3b VTO 4
CTI
VTO TABEL
Type Oplevering Validatie van een aanvraag tot interventie Opmaak planning van een interventie Leveringstermijn H/W Leveringstermijn S/W Uitvoer van de interventie
Maximum tijd
Page § 9 – 43 C:\D\Word Documents Prive\Boek\Chapter_9-Service-Level-Management.doc
2/27/2009
Service Level Management
9.7
REFERENCE ¾
Foundations of Service Level management van Rick Sturm, Wayne Morris & Mary Jander [ SAMS, ISBN 0672317435, April 2000]
-oOo-
CTI
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MultiSvc IP Tel_update.FM Page -1 Sunday, August 22, 1999 7:06 PM
M u l t i S e r v i c e I P Te l e p h o n y Bu s i n e s s Cas e
MultiSvc IP Tel_update.FM Page 1 Sunday, August 22, 1999 7:06 PM
Multiservice IP Telephony Business Case
Executive Summary
organizations with the vision to begin implementing a
This business case provides senior managers responsible
network service infrastructure today, a reduced operating
for defining the IT and networking directions of their
cost structure is illustrated in two different return on
companies the necessary supporting data and financial
investment (ROI) scenarios. This analysis shows a minimum
models to support effective decision making on the
of a 169 percent ROI generated over a three-year life-cycle
implementation of multiservice networking.
period for a 100-user business location and a 136 percent
The term “multiservice networking” means the integrated support of data, voice, and video (DVV) business
ROI for a 1000-user campus location. Refer to Figure 1 for the breakdown of the 100-user cost savings.
communications services by existing enterprise data networks. This support is ultimately intended to subsume
Figure 1
100 User Cost Savings
over time the voice and video service delivery traditionally provided by the telephony network. Key technology enablers for these services are the associated voice-over-IP (VoIP)
Toll Bypass 23%
Adds, Moves and Changes 37%
protocol suites and their supporting products. The key drivers for multiservice networking are improved customer service, cost reduction, and competitive innovation. The multiservice application services that are
Maintenance 10%
discussed in this case include: • Unified messaging • Call centers
Staff 30%
• Personal telephony • Collaborative data sharing—Through use of utilities such as Microsoft’s NetMeeting
The key conclusion is that while cost savings is arguably a benefit realized by implementing multiservice networking,
• Interactive and stored video
the long-term substantial benefits come from the applications
The business case illustrates the need for multiservice
deployed providing operations optimization, ongoing
networking service implementation while at the same time
product and service innovation, and continuing excellence in
traditional telephony services and legacy private branch
customer service.
exchange (PBX) products are reaching the twilight of their current architectural and product lifecycles. And, for those
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Effective communication, particularly communication
Key Business Success Factors In his book “In Search of Excellence: Lessons from America’s
that goes outside the company to key customers, suppliers,
Best-Run Companies,” Tom Peters concludes the following
and business partners, has never been more important.
key business success factors: “In the private or public sector,
A supporting proof point lies in the results of a recent
in big business or small, we observe that there are only two
study performed by KPMG LLP. In this study, KPMG
ways to create and sustain superior performance over the
surveyed 225 vice president-level executives from the top
long haul. First, take exceptional care of your customer via
2000 consumer markets and financial services companies in
superior service and superior quality. Second, constantly
the United States.
innovate.”
Two-thirds of the decision makers surveyed stated
The latter point is particularly relevant in a competitive
that they focus retail e-commerce strategies primarily on
environment where rapid change is the only constant.
enhancing communications with and exposure to customers,
Today’s competitive strengths may be significantly reduced or
rather than on sales and profitability. This illustrates that
rendered entirely moot by events that can occur within a
many businesses are becoming much more sophisticated
matter of weeks, days, hours, or even minutes. These include
about understanding true cause and effect relationships that
the market entry of a new set of competitors, a recent
have the most impact on business success.
company merger, an unexpected acquisition, or the passage
Additionally, 29 percent considered increased name
of legislation that results in the lowering of one or more
recognition and the ability to provide faster customer service
previously sacrosanct competitive barriers.
as contributing factors to success. These results indicate that,
For most businesses, sustaining competitive advantage
like Peters, many decision makers are focusing on taking
despite these events is becoming less a matter of internal
exceptional care of their customers via superior service and
grit and more a matter of the ability of the business to
superior quality.
rapidly implement and deploy technology, information,
Related retail e-commerce research supports this
or services. It is this mastery that enables the business to
assertion. This research shows that as much as 66 percent of
continually reinvent itself through, in the words of Peters,
existing e-shopping carts are abandoned before the related
constant innovation.
business transaction is completed. This rate could be
One example of the rising importance of the need to
reduced, and an attendant rise in revenue and profits could
prioritize in both of these areas comes from the future plans
be achieved, if shoppers had access to a live agent during the
of the top 100 IT spenders in Europe. A recent survey of
course of making the transaction.
these plans shows that their key drivers at the moment are
The need to overcome the functional and scalability
improved customer service (61 percent), cost reduction
limitations of the existing telephony system along with
(58 percent), and competitive innovation (40 percent).
the increased business opportunity that can potentially
By comparison, most other issues, including business
be realized through successfully leveraging superior
reengineering and Year 2000 support, pale in comparison.
customer-service technology both point to the same
For many large, medium, and small businesses, one of
conclusion. The successful businesses of the future will be the
the most significant issues is successfully leveraging new
ones who are the most successful in implementing network
telephony and data services more quickly and effectively
telephony services in order to create demonstrable
than the competition. Representative issues that many
competitive advantage.
shops encounter include the inability to grow the in-house
Another proven skill in successful decision making is the
telephony system in order to keep pace with required
ability to identify the right stage in the life cycle of a strategy
business growth, outdated equipment that is simply unable
technology, at which the best benefits can be realized from
to keep pace with more advanced requirements, lack of
the implementation of that technology, while at the same
responsiveness from their current carrier or PBX vendor, and
time incurring the least risk. This objective is no different
inefficient business communication that results from separate
when it comes to effective decision making regarding
messaging systems for voice and data.
network telephony implementation.
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The characteristics of the early majority implementers as
Figure 2
Current and Projected Data DS0s versus Voice DS0s
defined by Geoffrey Moore in the noted industry work
Data Channels Voice Channels
“Crossing the Chasm” provide insight into the key hurdle 40
of users who:
35
• Want to purchase productivity improvement for existing
30
operations • Want to minimize discontinuity with previous approaches • Want technology evolution versus revolution • Want the associated product(s) to enhance, not overthrow,
DS0s (Millions)
metrics that need to be satisfied. The early majority are a set
25 20 15 10 5
the established ways of doing business • Don’t want to debug someone else’s product
0 1997
Contrast these attributes with those of the early
1999
2000
2001
2002
Source: Dataquest, 1999
adopters who: • Expect to get a jump on the competition through:
1998
At the same time that the balance of power is shifting in the
– Reduced product pricing
public network, the maturation of the product architecture of
– Faster time to market
the traditional PBX is also occurring to a significant extent.
– More complete customer service
Today it is estimated by the Gartner Group that
– Some other comparable business advantage • Expect radical discontinuity between old ways and new, and will champion cause against entrenched resistance • Prepare themselves to deal with bugs and glitches that come with early product releases
approximately 30,000 systems, or 12 percent, of the installed base of PBX systems are now more than ten years old. In addition, according to Gartner, many of those systems need to be either totally replaced or significantly overhauled. By midyear 2000, the state of PBX product development will
Industry findings support this assertion. A study conducted
have shifted dramatically. At that point, many of the
by AT&T in 1998 found that 88 percent of managers
traditional PBX vendors will have shifted away from the
polled said it’s crucial that IP services can be accessed by
classic architectures of the past and instead will more actively
existing phones and fax machines. However, more than
embrace value-added active interworking with a variety of
75 percent of these same respondents said they needed
server-based architectures and systems.
systems that provided call detail data-specific enough to
In October 1998, a significant event in the PBX industry
justify the expense undertaken in converting voice from
occurred at NetWorld+Interop when two of the three largest
circuit-switched services to network telephony. Oleh
PBX vendors, Lucent and Siemens, each announced new
Danyluk, AT&T’s general manager for next-generation IP
LAN-based PBX products at about the same time as industry
services, commented on these findings that, “If you don't
leader Cisco Systems. All three vendors stated that their
meet those expectations, you won't get through.”
systems will currently support as many as 100-users, with plans to scale to 1000-users over the next 12 to 18 months.
The Network Power Shift
This event is particularly noteworthy because the last
Most industry experts agree that, because the annual growth
major PBX architectural shift, the transition from analog to
rate of data-network traffic (between 60 and 80 percent for
digital PBX architecture that began in the late 1970s, was a
many users) is averaging nearly ten times the annual growth
result of the major market leaders at the time (AT&T and
rate of voice traffic (between 7 and 9 percent), the total
Northern Telcom) deciding to endorse, rather than fight, the
volume of global data traffic will exceed that of voice within
concept by introducing solutions of their own.
the next 12 to 18 months.
In light of these industry events, users are well advised to
Study results from industry watcher Dataquest support
question more than ever their vendors’ long-term
this assertion. In this study, the number of data versus voice
architectural plans for today’s current circuit-switch-based
DS0 channels across the globe was both historically tracked
PBXs. In addition, users should also question their vendors’
and projected based upon carrier forecasts. Results are
plans to deliver and install IP telephony and server-based
shown in Figure 2. These projections show that the balance
solutions over the coming 12 to 18 months.
of traffic will dramatically shift within two years. Public Copyright © 1999 Cisco Systems, Inc. All Rights Reserved. 3 of 28
MultiSvc IP Tel_update.FM Page 4 Sunday, August 22, 1999 7:06 PM
Note that this does not mean the short-term end of circuit-switch-centric PBX products. It is likely that these products will continue to be delivered for at least five more years, but will be accompanied by a significant shift to
• The implementation of a set of application services that collectively support a better way of conducting business • The achievement of effective cost-of-ownership that occurs in tandem with new application service deployment • The realization of sufficient application service stability
support of IP telephony services. This assertion is also supported by relevant industry data. According to the Yankee Group, 31 percent of the top 5000 telecom spenders in the United States have deployed voice or fax over data networks as part of initial evaluations of the technology. Despite the fact that Internet service providers (ISPs), competitive local exchange carriers (CLECs), and others are currently undercutting establishment prices by 30 to 50 percent by charging five to seven cents per minute compared to 10 cents per minute, it is clear that “cheap minutes” and toll-rate arbitrage by themselves will not drive the long-term need for network telephony services. If true customer-service excellence and delivery innovation are the prime objectives driving the implementation, it is clear that the base telephony service
that provides a credible basis for initial production deployment But what are these key application services, and what are their associated cost-of-ownership implications? Part of the answer comes from significant industry research conducted jointly in 1998 by Renaissance Worldwide and the Metzler Group. In this study, over 1200 network managers were asked to rate which key convergence applications would likely reach early mainstream status by the middle of 2000. The applications and application services considered within this study are included in Table 1. Table 1 Survey Results of Key Convergence Applications in the Year 2000
must be complemented by the deployment of one or more key application services that facilitate a more effective means of customer-service delivery, a more streamlined means of operating the business, or a combination of the two. Therefore, the implementation of network telephony is less of a box replacement proposition, but rather an infrastructure transition proposition.
• Network telephony • Internet call waiting • Click-to-dial services • Unified messaging • Interactive collaboration (applications such as Microsoft NetMeeting, CUSeeMe) • Virtual worlds
• Interactive video streaming • Distance learning • Enhanced personal communications services • Interactive gaming • Portal television • Personal supervision and observation • Webcasting
Key Multiservice Telephony Applications Background
The study concluded that network telephony, unified
Two important themes were established earlier. The first is
messaging, and interactive collaboration were among those
that ongoing innovation, continuous excellence in customer
services most likely to reach early majority status by the
service, and the ability to react quickly to unforeseen business
middle of the year 2000. While not explicitly addressed in the
or industry change are three critical success factors in
study, most industry observers and users also agreed that Call
maintaining competitive excellence. The second is that if a
Center technology will become critically important to the
business can be successful in consistently achieving most or
success of both current and future e-commerce initiatives.
all the key success factors while minimizing both technical and business risk, it then achieves the best of all worlds. Another point to be made is that it is not always a single benefit or application that drives a more effective means of doing business. It is the combination of new products and technologies that can constitute sufficient critical mass to drive the rationale for early majority implementation. The business benefits of multiservice networking stem from a convergence of factors, and most industry observers agree on the combination of these three key success factors:
Call Centers
Call centers are sites where groups of skilled representatives or agents receive and answer incoming telephone calls, managing customer contact. Traditionally, call centers have used toll-free voice communications between a customer and a company’s customer service, marketing, or technical support organization. The range of functionality supported by a call center ranges from five telephones with a PBX system to the use of more advanced telephony technologies such as interactive voice response (IVR), automatic call
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distribution (ACD), voice-mail system, facsimile server
service. The reason is that this class of implementation is
(where data could be transmitted through facsimile), and
increasingly able to support a greater extent of traditional
computer telephony (where inquiries could be received and
telephony services but also supports means by which
responded to through computers).
face-to-face interaction can occur, if needed, and text or
In cases where moderate to complex product-ordering or technical-support requirements exist, any of these methods can easily result in frustration for both customer and customer service representative, because neither can see the other, nor can either see a model of what the customer is trying to order or the conditions that are causing product problems to occur. In addition, customer frustration can occur when operating in self-help mode and not interacting with a customer service representative. Recall the previously cited research that shows that as much as 66 percent of existing e-shopping carts are abandoned before the related business transaction is completed, illustrating the fact that the other extreme, one in which customers take far greater control in managing their own product destiny, is often not a satisfactory solution either. More businesses are now finding that a blending of the two, online call centers that make an increasing use of network-based telephony services, can often be a far more effective approach to the delivery of higher-quality customer
Figure 3
graphical interchange can occur, if required. Network Telephony
In the network-telephony model, the Web user begins a transaction at the company or institution Web site, but has the option of directly connecting to a customer service representative by using what is called “click-to-dial” functionality. The result can be an audio, video, or simultaneous audio and video interaction with a live customer service representative. In this scenario, a mouse click on a hyperlink of the form Call Customer Service Representative enables the Web users to directly enter into a phone conversation with a customer service representative (CSR) who can supply them with the timely information necessary to correctly complete the required transaction(s). In order to address the issues of the lack of visual contact, many sites are now supporting a videoconferencing style of interaction so that the Web user can both hear and speak to the CSR. Examples of service user interfaces that support each style of interaction are provided in Figures 3 and 4.
Internet Audio-Enabled Call Center
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Figure 4
Internet Audio and Video-Enabled Call Center
Traditional call-center services have been in place for some
In addition, European analyst DataMonitor has
time. The interest in Internet-based call centers that support
predicted that the number of call centers in Europe will be
user interfaces such as those shown in Figures 3 and 4 has
17,900 by 2003, with 3400 (or nearly 20 percent) of those
been growing rapidly since 1996, driven by both increasing
expected to be Web integrated. Data Monitor also advises
customer service quality demands as well as the increasing
that ignoring the impact of the increase of online consumer’s
technical maturity of VoIP technology.
and new customer’s access channels will be potentially
The longer-term implications are indeed significant.
disastrous for companies that fail to implement the
While today’s worldwide revenue for traditional call-center
associated technology in a timely way. This warning is yet
services are estimated at approximately $20 billion, the
another example of the increasingly close coupling between
revenue figure for network-based call-center services is
successful customer service and ongoing innovation that is
expected to approach $2 billion within three years according
rapidly evolving and is a critical success factor for short- as
to market watchers Frost & Sullivan and Ovum, Inc.
well as long-term business success.
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Figure 5
Universal In-Box Interface Example
In addition to productivity, unified messaging also
Unified Messaging
Similar to call centers and call-center applications, unified
offers substantial message-access and transfer-flexibility
messaging is generally regarded as a key member of the core
advantages. As opposed to having only one class of
set of applications that will justify initial multiservice
access device per message type, unified messaging enables
telephony implementations. Unified messaging means having
traditional handsets, PCs, and fax machines to be the access
the ability to access and immediately respond to voice, fax,
device of choice depending upon the access requirement and
and e-mail messages from customers and coworkers,
location of the user. The productivity gains realized through
24 hours a day, from any phone or PC within the extended
usage applications—such as listening to e-mail messages on a
enterprise. A sample universal inbox is shown in Figure 5.
wireless phone while driving to the airport, re-directing a fax
The professional productivity advantages of a unified
from an e-mail account to a hotel fax machine, listening to
messaging system are significant. In contrast to today’s voice,
voice messages on a PC while dialed in to the company's
fax, and data-messaging systems in which message content
network, or forwarding a voice message to anyone in the
has to be manually copied, scanned or otherwise transcribed
world with an e-mail account—are quite meaningful to
in order to be passed between different system types, unified
most businesses.
messaging offers a substantial productivity advantage.
Unified messaging can also enhance customer service
Through its support of a universal inbox that can contain
and responsiveness because of the cycle-time reductions
varying amounts of all three types of messages, universal
associated with whatever means the customer uses to
messaging substantially reduces, if not eliminates, the need
communicate with the business. The customer contact issues
for message copying between different media types, in
that result from an increasing mobile workforce can be
addition to significantly reducing the probability of
reduced by increasing the utility of mobile communication
information errors that may result from manually
devices such as wireless phones and hand-held computers to
copying content.
support a richer degree of both business-to-business and business-to-customer communications.
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Recent market research also shows that unified
legacy messaging systems such as Microsoft Exchange or
messaging will enter the early-majority implementation
Outlook. This scenario gives many PC users access to new
phase by the latter half of the year 2000. Studies completed
services through a command interface with which they are
by Strategy Analytics show that the total number of unified
already familiar. In addition, given that unified messaging
messaging mailboxes for business and residential users will
services are generally server based, many unified messaging
total five million and jump to approximately ten million by
products can easily support the equivalent of traditional
the end of 2001. The total market projection for the next five
voice-mail services through the server-to-PBX computer
years is shown in Figure 6.
telephony integration (CTI) linkage, thus facilitating message access through another universal-message access mechanism:
Figure 6
Unified Messaging Mailbox Forecast
Interactive Collaboration
Enterprise Mobile Worker SOHO Residential
40 Millions of Mailboxes
the wired or wireless telephone.
35
“If you build it, they will come.” This time-proven statement applies to many situations. Here it applies to the
30
implementation of collaborative applications within a
25
multiservice telephony network. Collaborative applications
20
are those applications and utilities that combine voice and
15
video interaction with information sharing. Prominent
10
product examples include Microsoft NetMeeting, White Pine
5
Software’s CUSeeMe Pro, and Macromedia’s Shockwave
0 1997
1998
1999
2000
2001
2002
2003
Multiuser Server. One of the most promising areas that multiservice
Year
collaborative capabilities can improve upon is knowledge Source: Strategy Analytics, 1999
In addition, market-watcher Frost and Sullivan projects that market revenue from public and private unified messaging services are expected to combine for nearly $550 million in revenue in 1999 and top $1 billion by the end of the year 2000. A key assumption made in the formulation of these projections is that of the existence of one or more universal messaging platforms that are already in place on which unified-messaging services can be based. The good news is that most universal messaging products that are being
management. Knowledge management goes beyond managing the information typically generated by executing transactions and the data available in structured databases to encompass the skills, expertise, and ongoing insights about management processes that are critical in shaping judgments and actions. One of the key foundations for implementing effective knowledge management in many companies will be the ease of communication and information access simultaneously facilitated by multiservice collaborative applications whose operation is best supported by the telephony network.
announced and delivered today can be layered atop popular
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reduction: the result is improved worker productivity
Business Case Analysis
through the reduction of prior overhead. Both need to be
Introduction
Part of any credible business case involves understanding and quantifying the costs and investment associated with the initiative in question. Recall that in the cited survey of the key business initiatives for the top 100 IT spenders in Europe, cost reduction was sandwiched between improved customer service and competitive innovation in terms of its importance. Therefore, the key objectives in this business case are to ensure that the multiservice telephony network implementation constitutes an environment that improves the competitiveness and operations efficiency of the business, reduces voice and data network operations costs, and improves the ability to service existing as well as new customers. Up to this point in the business case, the main focus has been on the key drivers and industry trends that show the clear shift that is occurring between legacy and next-generation telephony services. In addition, more qualitative arguments have shown why beginning the implementation of the first phase of a multiservice telephony network during the course of the year 2000 may well result
quantified when both reduced cost and improved operational efficiency are key business-case objectives. One example of soft-cost reduction is illustrated by the use of a new time reporting system that reduces time reporting by one hour per week for each of 100 professionals. If the per-hour cost per professional is $45, then the total soft-cost benefit delivered by the new time reporting system is $45 x 100 professionals, or $4500 per week, an amount equal to 100 person-hours of improved productivity. The other risk of many cost-of-ownership analyses is that they can be performed with only a single year context in mind. Experience shows that numerous investments, particularly those that enhance the ability of the business to sustain competitive innovation, may have an associated business case that shows some form of operating loss in the first year of execution but significant operating gains in subsequent years. It is important, therefore, to assess the entire investment scope with a multiyear analysis in mind. In this business case, a three-year analysis timetable is used.
in the best mix of strong competitive advantage coupled with
Benefit Analysis Framework
the required level of technology and product maturity.
Of the three key objectives stated at the beginning of this
A complete business case analysis that supports the key
business case, two are directly benefit related: customer
objectives of competitive advantage, cost reduction, and
service improvement and the ability to sustain ongoing
improved operations efficiency follows.
product and service innovation. Often, the associated revenue impact may occur in many
Cost Analysis Framework
Before beginning, a few key points are worth noting. First, in using cost-of-ownership data as part of a larger business case, it is important to recognize that current cost allocations and associated cost-per-desktop results are important parts of the total business case, but they are only parts. Although cost reduction is one of the key business-case objectives, by no means is it the only one. In addition, there are two different kinds of costs: hard costs and soft costs.
distinct product or service areas as a result of a single initiative. Similarly, there may be multiple initiatives that are in process simultaneously, each of which has its own set of incremental revenue benefits. In order for a business case to be both accurate and comprehensive at the same time, it is necessary to ensure that all the possible benefits that could result from a given initiative investment are effectively quantified in some way.
Hard-cost reduction results directly in reduced cash flow. Soft-cost reduction is the same as opportunity-cost
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Figure 7
Reference Voice and Data Network
Desktop PCs
Department Printer
Department Switch
ACD Fax
Data Network PBX
PSTN
Backbone Switch
CSU/ DSU
Servers V Voice Mail System
Digital
Fax
Router Department Switch
Telephones Desktop PCs
Business Case Calculations
This section gives the actual calculations used to define the multiservice telephony network business case. Two reference networks are used for the business-case analysis because they represent the most likely design centers that will be used by early-majority implementers. The structure of the reference network is shown in Figure 7. This reference network illustrates the topological structure corresponding to separate voice and data networks for two configurations: a 100-user configuration and an 800-user company who has a three year growth plan to expand to 1000-users, opening up two branch locations. The 100-user configuration is similar to that of a small or mid-sized branch office while the 1000-user configuration would be more germane to a large corporate environment. Each configuration is analyzed separately in the following subsections.
Public Copyright © 1999 Cisco Systems, Inc. All Rights Reserved. 10 of 28
Department Printer
MultiSvc IP Tel_update.FM Page 11 Sunday, August 22, 1999 7:06 PM
An additional key assumption of this business case is
The 100-User Configuration
Additional data that will be used in the body of this business
that the incremental capital investment will consist largely of
case is the estimated industry-average per-desktop cost
the hardware and software capital required to pass telephony
distribution of capital, support staff, and facilities for both
traffic over the existing data network. In the initial stages of
voice and data networks, as well as the distribution of
implementation, these will operate in tandem with the
support time by major task for both data and voice support
existing telephony services infrastructure. A full transition of
personnel. This data is based upon primary research and
this infrastructure will be accomplished in the latter stages of
estimates supplied by Renaissance Worldwide and Gartner
the life cycle under analysis.
Group. The respective estimates for the data and voice networks are contained in Tables 2 and 3 respectively.
The required hardware and software capital consists of: • IP phones • A Windows NT server-based call-management server and
Table 2 Data-Network TCO Cost Distribution
license fee • Analog and digital trunk gateways linking to existing
Data Network 35% Capital
56% Staffing
9% Facilities
analog handsets, fax machines, modems, and existing 11% 2% 14% 8%
Network hardware and software Management software Desktop hardware and software Server hardware and software
13% Desktop application and server support (including remedial help desk) 7% Higher level desktop support (level 3) 36% Network infrastructure support 15% Help desk and level 1 and 2 support 21% Senior level technical resources 1% Desktop and server maintenance 1% Network maintenance (switch, router, hardware, and software maintenance) 7% Telecom lines, circuits, dial-up access
42% Facilities
There are many scenarios an organization faces in its voice-network infrastructure that drive the planning of an IP telephony network. Five such scenarios are identified as: • Building a new satellite office • End of life for PBX or support contract • Necessity for online e-commerce implementation • Outgrown current PBX capacity • Moving to a new location
mid-sized branch office. The PBX is nearing the end of its lifecycle and maintenance contracts. In order to most
Voice Network
34% Staffing
production-quality voice services.
This 100-user scenario is representative of a small-to
Table 3 Voice-Network TCO Cost Distribution
24% Capital
telephony networks, as well as established digital PBXs • Allocated distribution for switch and router upgrades for
5% PBX Hardware and Software 2% Digital Handsets 17% Applications and other (operator consoles, T1 Muxes, etc.) 14% Adds/Moves/Changes 20% Senior WAN designers, telecom designers, consultants and staff 36% Circuit costs 6% Mux, CSU, DSU, ACD voicemail software maintenance costs
accurately reflect the scenario that most organization’s network changes occur in gradual phases versus all at once, a set of three distinct transition phases will be defined: • Year 1—25 users will be converted to IP telephony using IP phones, while 75 users remain on the legacy circuit switched network. • Year 2—50 users will be converted to IP telephony. 25 users will use softphone utilities, and 25 users will use IP phones. • Year 3—The remaining 25 users will be converted to IP telephony with IP phones.
In the 100-user business case, we assume an annual voice-network budget of $800,000 and an annual data-network budget of $600,000. In order to ensure comparable budget allocations, the data-network budget includes both network transport and networked desktop support, whereas the voice-network budget includes support for the entire voice-network infrastructure including handsets.
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Figure 8
100-User Network—Year 1
Server with CallManager
Application Servers
ACD
IP
Ethernet Switches
PSTN
IP Phones (25 Users)
IP
PBX
Desktop PCs (25 Users)
V Data Network
Voice Mail System Digital Phone (75 users)
Router
CSU/DSU
Table 4 lists assumptions generic to all three year phases. Table 4 100-User Assumptions For All Three Year Implementations • The annual voice budget is $800,000, or $8,000 per user, based on a primary research compiled by Renaissance Worldwide, Inc. • The annual data budget is $600,000, or $6,000 per user, based on a primary research compiled by Renaissance Worldwide, Inc. • The burdened cost of the voice-over-data supporting capital is $300 per user. This consists of $100 for the distributed cost for the gateway trunk (1 DS0 on a voice port is $400, and it is assumed four people will share one DS0), $150 licensing fee for CallManager software, and $50 allocated for additional costs for router enhancements to support production-quality voice services. Existing analog phones, faxes, and modems communicate with the telephony network through the analog gateway. • The cost/user for the IP phones is $450 per user for the handset. One data support staff person can install five IP phones a day. • 20 percent of the long distance charges are intra-company calls (and faxes). The costs associated with these calls are eliminated by those users using VoIP services. • Annual multi-service telephony hardware and software maintenance charges are 8 percent of capital price, whereas annual PBX hardware and software maintenance charges are 6 percent of the capital price. • The average compensation cost per employee (salary and benefits) for this business case is estimated at $64,000 per year. • The effort associated with telecom moves, adds and changes is reduced by 75 percent for those users whose telephony services are transitioned over to the data network. • Voicemail and ACD will continue to be supported by the PBX until the third year. • The number of voice network support staff is two: – One PBX hardware technician – One designer/telecom support person • The number of data net support staff is four – Two help desk support staff—one prime shift, one secondary shift – One applications support person – One switch and router support person • The average cost per support person is $79,300 for the voice network and $91,500 for the data network. These numbers include both salary and benefit costs. • The support-task distribution profile for the voice- and data-network support staff is similar to that shown in Tables 2 and 3. • Telephony voice services are supported by a single T1 circuit to the regional LEC, that is priced at $1500 per month. • The Internet connection is via a 384 kbps Frame Relay connection priced at $1200 per month; this connection will require upgrading to a 512 kbps connection priced at $1270 per month. A one-time $500 upgrade charge is required by the provider. • Voice mail and ACD services will initially be supported by the PBX. All maintenance for the PBX, voice mail system, and ACD will be terminated by the end of the third year. • No additional analog phones or PBX modules will be purchased.
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Table 5 lists the assumptions for the first year of
Table 7 100-User Network Year-1 Cost Avoidance
implementation. Capital Savings
PBX Hardware and Phones
Table 5 100-User Year-1 Assumptions
$0 Total Capital Savings
• The existing voice and data networks operate in parallel. • 75 users’ digital phones remain in place. • 25 users’ phones are replaced by IP phones. • The IP phones can communicate with local digital phones and with the telephony network through the existing PBX via the digital trunk gateway. The need for this connectivity goes away at the end of the third year. • CallManager server is installed.
Given these assumptions, the estimated Year-1 costs are
Staff Savings
Cost Avoidance—Reduced Move, Add, and Change Costs [($800,000 capital budget) x (14% moves, adds, and changes) x (25% users changed to IP Telephony) x (75%)] Total Capital Savings Reduced Circuit Costs [($800,000 capital budget) x (36% circuit costs) x (20% calls now over IP) x (25% users implemented)]
$21,000
$14,400 $14,400 $35,400
Thus, the Year 1 ROI is 16 percent ($35,400–$30,510) ÷ ($30,510). This Year-1 capital investment will continue to be
Capital Costs
Burdened Hardware and Software Costs for 25 Users ($300 x 25 users) 25 IP Phones ($450 x 25 users) CallManager Server
more aggressively outpaced by the cost reduction, staff $7500 $11,250 $5000
Total Capital Costs
reduction, and productivity benefits accrued in the latter stages of the implementation life cycle. Table 8 lists the second year implementation assumptions.
$23,750
Table 8 Second Year Assumptions
Staff Costs
Support Cost to Install and Configure IP Phones (5 person days for 25 IP phones) [($91,500 salary) ÷ (260 work days/year)] x (5 days) Install and Configure CallManager Server [($91,500 salary) ÷ (260 work days/year)] x (5 days)
$1760 $1760
Total Staff Costs
$3520
Facilities Costs
Annual Hardware Maintenance Charges 8% of Capital Costs = ($23,750 x.08) Additional Monthly Bandwidth Increase ($500 installation) + [12 months x ($1270 – $1200)]
• 25 more users are switched to IP phones, and 25 users are converted to Softphone utilities. • The remaining 25 users will continue to use the digital phones connected through the PBX. • The PBX hardware technician position has been eliminated because the data support group assumes full responsibility for moves, adds, and changes. This scenario saves approximately $79,300 per year.
$1900 $1340
Total Facilities Costs Total
Total Facilities Savings Total
Table 6 100-User Network Year-1 Implementation Costs
$21,000
Facilities Savings
shown in Table 6 and the estimated savings are given in Table 7.
$0
$3240 $30,510
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Figure 9
100-User Network—Year 2
San Francisco Site Application Servers
Server with CallManager
IP Phones (50 Users)
IP ACD
IP
Ethernet Switches
PSTN
PBX
Desktop PCs (25 Softphone Utilities)
V Data Network
Voice Mail System
Router
Digital Phones (25 Users)
The network structure for Year 2 is shown in Figure 9.
CSU/DSU
Table 10 100-user Network Year-2 Cost Avoidance
The costs associated with Year 2 are shown in Table 9, while the associated benefits are shown in Table 9. Note that the savings attributable to the technician position elimination
Capital Savings
PBX Hardware and Phones Total Capital Savings
is estimated at $59,475 because of the assumption that the position is eliminated in the first quarter of the year ($59,475 is three fourths of $79,300). Table 9 100-user Network Year-2 Costs
Total Staff Savings
Burdened Hardware and Software Costs for 50 Users ($300 x 50 users) 25 Additional IP Phones ($450 x 25 users)
$15,000 $11,250
Total Capital Costs Support Cost to Install and Configure (5 person days for 25 IP phones) [($91,500 salary) ÷ (260 work days per year)] x (5 days) Total Staff Costs
$63,000 $59,475 $122,475
Facilities Savings
Reduced Facilities Circuit Costs [($800,000 capital budget) x (36% circuit costs) x (20% intracompany) x (75% users)]
$26,250
Staff Costs
$0
Staff Savings
Cost Avoidance—Reduced Move, Add, and Change Costs [($800,000 capital budget) x (14% moves, adds, and changes) x (75% users changed to IP Telephony) x (75%)] Position Elimination—Voice Hardware Technician ($79,300 annual salary amortized for 9 months)
Capital Costs
Total Facilities Savings Total
$43,200 $43,200 $165,675
$1760
The Year-2 ROI is an attractive 241 percent ($165,675 –
$1760
$48,590) ÷ ($48,590), boosting the overall investment return substantially.
Facilities Costs
Incremental Hardware and Software Maintenance 8% of capital costs ($26,250 x .08) Maintenance Costs from Year 1 Implementation Upgraded Circuit Costs 12 months x ($1270 – $1200) Redundant Frame Relay Circuit [$500 installation + (12 months x $1270)]
$2100 $1900
Finally, operating assumptions for Year 3 are shown in Table 11.
$840 $15,740
Total Facilities Costs Total
$0
$20,580 $48,590
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Table 11 100-User Year-3 Assumptions • The final 25 digital handset users are switched over to IP phones. • The entire legacy voice-network infrastructure has been phased out and all telephony services are now supported on the data network. • The senior voice staff person is now a member of the merged support team. • All PBX, ACD, and voice mail maintenance is terminated. • A second Frame Relay circuit at 512 kbps is set up to the service provider as a backup to the primary 512 kbps circuit and for load sharing. • A redundant CallManager Server is installed for $5000. • A unified messaging implementation would obviate the need for the existing voice-mail and fax systems. The price of the hardware and software upgrades for the server is $20,000, based upon current industry prices for computer telephony integration products for small sites. The annual cost avoidance benefit is estimated at $308,000, assuming two hours of reduced overhead per site person per week per year [($64,000 ÷ 2080 hours a year) x (100 hours per year) x (100 employees)]. • A call center implementation has an associated implementation probability of 35 percent. This implementation provides the basis for online ordering through the Internet while also giving customers the option to communicate with a real customer service representative at any time during the product browsing or ordering process. This system is estimated to increase product revenue by $120,000. This value is derived by an industry standard of annual revenue per employee is $120,000. We assume that the call center application will increase the revenue-per-employee by a very conservative 1 percent in the first year of implementation. The cost of the required hardware and software is $35,000, which would require 10 days to install and integrate and $100 per user license fee. • A desktop videoconferencing/interactive collaboration implementation has an associated implementation probability of 45 percent. This implementation has the potential of effectively complementing the unified messaging implementation by supporting direct instead of store and forward interaction. This system is estimated to improve communication efficiency by an average of two hours per week per site employee. No additional software is required, however, one-fourth day per user training is anticipated ($6,154). The annual cost-avoidance benefit is estimated at $110,000.
The network structure for Year 3 is shown in Figure 10. Figure 10
100-User Network—Year 3
Server with CallManager
Capital Costs
Application Servers
IP IP Phones (75 Users)
Ethernet Switches
Burdened Hardware and Software Costs for 25 Users ($300 x 25 users) 25 Additional IP Phones ($450 x 25 users) Unified Messaging Windows NT Server Unified Messaging Software License ($100 x 100 users) Redundant CallManager Server Total Capital Costs
Desktop PCs with Soft Phones (25 Users)
Data Network CSU/DSU
Total Staff Costs
$11,250 $20,000 $10,000 $5000 $53,750
$12,200
$5279 $17,479
Facilities Costs
Incremental Year 3 Hardware and Software Maintenance ($53,750 x 8%) Maintenance of Year 2 Implementation Maintenance of Year 1 Implementation Circuit Upgrade Charge [12 x ($1270 – $1200)] + (12 x $1270 for redundant frame relay 512Kbps circuit) Total Facilities Costs
The costs associated with the full phasing over of the voice network in Year 3 are shown in Table 12 and the associated
$7500
Staff Costs
Incremental salary increase from Senior Voice Staff Person now a Member of the Merged Support Team ($91,500 – $79,300) Support Cost to Install and Configure (5 staff days on phones, 10 staff days on servers) [($91,500 annual salary) ÷ (260 days/year)] x (15 days)
PSTN
Router
Table 12 100-User Network Year-3 Costs
Total
benefits are shown in Table 13.
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$4300 $2100 $1900
$16,080 $24,380 $95,609
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In summary, the investment costs, benefits, and
Table 13 100-User Network Year-3 Cost Avoidance
three-year life-cycle ROI are summarized in Table 14. As can Capital Costs
Cost Avoidance PBX Hardware and Handsets
$0
Total Capital Savings
$0
be seen, the life-cycle ROI is an attractive 169 percent. Table 14 100-User Network—Lifecycle ROI Results
Staff Costs
Cost Avoidance—Reduced Adds, Moves, and Changes ($800,000 x 14% x 100% of employees) x (75%) Position Elimination—from year 2 Implementation
$84,000 $79,300
Total Staff Savings
$163,300
Facilities Costs
Reduced PBX, ACD, Voicemail, and Handset Maintenance Costs ($800,000) x (6%) Reduced Long Distance Charges ($800,000 x 36% x 20%) Total Facilities Savings Total
Total Cost
Total Benefit
Investment ROI
Year 1
$30,510
$35,400
16%
Year 2
$48,590
$165,675
241%
Year 3
$95,609
$268,900
181%
$469,975
169%
Total = $174,709
$48,000 $57,600 $105,600 $268,900
Finally, in addition to the financial case, it is also important to assess the degree to which the transition methodology defined in this business case best meets the requirements of an early-majority implementer. The degree to which the
The Year-3 ROI is 181 percent ($268,900–$95,609) ÷
approach satisfies these criteria, in addition to the supporting
($95,609) making the overall investment even more
rationale, is shown in Table 15.
compelling. The impact of the unified messaging implementation is considered separately as part of the present value summary analysis.
Table 15 Early-Majority Assessment Results Criteria Satisfied by Business Case Approach?
Supporting Rationale
Want to purchase productivity improvement for existing operations
Yes
Support productivity improvement gained through elimination of separate network support and reduced Move/Add/Change requirements. Professional productivity improvement gained through both Universal Messaging and Shared Video and Whiteboard desktop applications.
Want to minimize discontinuity with previous approaches
Yes
Initial coexistence approach with phased over connectivity results in more of an evolutionary versus revolutionary phaseover.
Want technology evolution versus revolution
Yes
Initial coexistence approach with phased over connectivity results in more of an evolutionary versus revolutionary phaseover.
Want the associated product(s) to enhance, not overthrow, the established ways of doing business
Yes
Business Operations and Productivity can be improved through implementation of Call Center, Unified Messaging and Shared Video and Whiteboard applications.
Don’t want to debug someone else’s product
Vendor-Dependent
Consult “Strategic Vendor Considerations”
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Net Present Value and Internal Rate of Return
projected for this application, but two hours per employee is
Earlier in this document we cited the implementation of
required for training, equalling $6154. Once again, assuming
multiservice applications as a key factor in determining the
the 8 percent discount rate, the calculated NPV is $95,697.
total benefit attributable to the multiservice network. This
Unified messaging is implemented in Year 3 and
section uses an approach called the options model to capture
therefore is not a part of the options model formula.
the intangible or “soft” benefits with the implementation
Instead determine the probability of implementing at least
of applications. A full description and example of this
one (either call center or videoconferencing/interactive
model is attached in the Appendix. This model calculates
collaboration) of the multi-service applications. By
the intangible, incremental return attributable to the
assigning the probability of implementation of call center at
implementation of one or more of the multiservice
35 percent, and videoconferencing/interactive collaboration
applications described earlier.
at 45 percent, the combined probability of at least one of
First we determine the net present value (NPV) and internal rate of return (IRR) associated with the multi-service network prior to adding any applications by subtracting the
the applications being implemented is therefore 80 percent (35 percent + 45 percent). The minimum value of the respective application NPVs
costs of implementation at the beginning of the year from the
is the NPV associated with the call center implementation
benefit realized by the end of the previous year. Applying a
($62,592). Therefore, the incremental NPV that can be
three-year discount rate of 8 percent yields a baseline
attributed to the multiservice application implementation is
life-cycle NPV of $230,810 [(Year 0 = $-30,509, Year 1 =
0.80 x $62,592 = $50,074. This scenario then leads to a total
($35,400 – $48,590), Year 2 = ($165,675 – $95,609), Year 3
baseline plus application NPV of $534,469 ($230,810 +
= $268,900]. The IRR is 128 percent.
$253,585 + $50,074).
Now take a look at each of the multiservice applications. The unified messaging application is projected to be implemented at the beginning of Year 3 with a projected annual benefit is estimated at nearly $308,000. The implementation cost is relatively low at $20,000 for the server, $10,000 for the software licenses, and $1600 a year maintenance cost (assuming 8 percent annual software maintenance cost). For the third year alone, the benefit is $308,000. Using the discount rate of 8 percent, the calculated NPV for the implementation of unified messaging is $253,585. Call center implementation is projected for Year 3 with an associated probability of 35 percent. The total benefit is projected to be $120,000 with the cost of the associated hardware and software equaling $48,519 ($35,000 for the server, ten days for installation integration, and $100 license fee for 100-users). The NPV of this implementation
The 1000-User Configuration
The first business case, the 100-user site, was more representative of a small to midsized branch location within the Enterprise organization with no aggressive plans for growth in the near future. The 1000-user site consists of a corporate campus of 800 employees located in San Francisco, with growth plans to add 200 employees and build three buildings over the next three years. The locations of the buildings will be one in San Francisco, a sales office in New York, and a European Headquarters in London. For this case, assume the following three-year phased strategy: • Year 1 will add 50 users to San Francisco’s current site • Year 2 will add 50 more users in a new building in San Francisco and open the London office with 25 users • Year 3 will build a sales office in New York with 25 users and add 50 users to the London office This growth rate increases the company size from 800
is $62,592. Lastly, the Year 3 benefit for the videoconferencing/
employees to 1000 employees at the end of three years.
interactive collaboration application is estimated at $110,000. The probability of its implementation is 45 percent. No additional hardware or software costs are
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The topology of the data network infrastructure that supports the users in the San Francisco campus is shown in Figure 11. In this case, it is assumed that all intradepartmental connectivity is provided by a 10/100BaseT Ethernet connection to every desktop. An external router is connected to the Layer 3 switch that supports wide-area connections to the company wide area network as well as the Internet. Centralized application servers are directly connected to the Layer 3 switch.
Figure 11
Departmental Data Network Connectivity
Desktop PCs
Department Printer
Department Switch
Backbone Switch Internet
Servers
CSU/DSUs Corporate Wide Area Network Router Department Switch
Desktop PCs
Department Printer
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Voice-network connectivity is shown in Figure 12. Here it is
In order to ensure comparable budget allocations, the data
assumed that all local handset and fax connections are
network budget includes both network transport and
through a centralized PBX, which also supports a centralized
networked desktop support while the voice network budget
ACD and voice mail system and all the external trunks to the
includes support for the entire voice network infrastructure
telephony network.
including handsets. Cost distributions within these budgets are consistent with those contained in Tables 2 and 3 of the
Figure 12
Legacy Voice Network
100-user scenario. At the beginning of this case, the voice budget is $6 million ($7500 per user), and the data budget is $4 million ($5000 per user). These estimates are based upon the results of primary market research compiled by
ACD
Department Fax
Renaissance Worldwide Inc. Similar to the 100-user case, a key assumption is that the incremental capital investment will consist largely of the hardware and software capital required to pass telephony
Voice Network
Analog Trunk
traffic over the existing data network. The required hardware and software capital consists of: • IP phones
PBX
• A Windows NT server-based Call Management Server and license fee
V Voice Mail System
• Analog and digital trunk gateways to existing analog Department Fax
handsets, fax machines, modems, and existing telephony networks as well as established digital PBXs • Allocated distribution for switch and router upgrades for production-quality voice services Department Phones
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Generic assumptions to the three-year phased implementation are in Table 16. Table 16 1000-User Generic Assumptions to the Three-Year Implementation • 20 percent of the long distance charges are intra-company calls (and faxes). The costs associated with these calls are eliminated by those users using Voice over IP services. • The burdened cost of the voice over data supporting capital is $300 per user. This consists of $100 for the distributed cost for the gateway trunk (one DS0 on a voice port is $400, and it is assumed four people will share one DS0), $150 licensing fee for CallManager software, and $50 allocated for additional costs for router enhancements to support production-quality voice services. • The average cost of an IP phone is $450 per user, and one data support staff person can install five phones per day. • The average cost of PBX modules and handsets is $610 per user according to Gartner Group, 1998. • Annual multiservice telephony hardware and software maintenance charges are 8 percent of capital price, while annual maintenance charges on PBX telephony hardware and software is 6 percent. • Installation costs to install a new PBX is 10 percent of the list price. The average list price of a PBX that supports 25 users is $15,000, and for a PBX that can support 50 or 75 users is $35,000. Therefore, the estimated installation prices would be $1500 and $3500 respectively. • The average cost per site worker for this business case is estimated at $75,000 per year. • The effort associated with moves, adds, and changes will be reduced by 75 percent for each of the users that are successfully transitioned to IP telephony. • The existing data and voice networks operate in parallel. • The IP phones can communicate with existing digital handsets in other departments and with the telephony network through the existing PBX via the digital trunk card in the multiservice router. • It is assumed a multiservice router is in place (most data managers are implementing multiservice routers). • Voicemail and ACD will continue to be supported through the PBX for the initial 800 users not being converted to IP Telephony. • Local trunk connection in each country will not vary from a circuit-switched scenario or a packet-switched scenario. • The number of voice network support staff is 10: – Five hardware/wiring support technicians. – Three PBX, Voice Mail, ACD technical support staff. – Two Telecom Designer support staff. • The number of data net support staff is 12: – Four help desk support staff (three prime shift, one secondary shift). – Three applications Layer 2 and Layer 3 support staff. – Three network Layer 2 and Layer 3 support staff. – Two senior network designers or engineers • The average cost per support person is $79,300 for the voice network and $91,500 for the data network. These numbers include both salary and benefit costs.
Year 1 is characterized by the generic assumptions listed in Table 17. Table 17 1000-User Network Year-1 Assumptions • 50 users are added to the San Francisco campus and are assigned IP phones. • The CallManager functionality can be accommodated by a new CallManager Windows NT server at an average cost of $5000 for the hardware, and five data-support-staff days to install. • The data and voice budgets increase to remain at $7500 per user for voice, and $5000 per user for data.
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Figure 13
1000-User Network Year-1 Implementation
Server with CallManager
CallManager Server IP Phones (50 Users)
IP
ACD Ethernet Switches
PSTN
IP IP
PBX
Desktop PCs
V
Data Network Router
Voice Mail System
CSU/DSU
Digital Phone
Given these assumptions, the estimated Year-1
The estimated savings include the following amounts as
implementation costs are shown in Table 18.
shown in Table 19.
Table 18 1000-User Network Year 1 Implementation Costs
Table 19 1000-User Network Year-1 PBX Cost Avoidance
Capital Costs
Capital Savings
Burdened Hardware and Software Costs for 50 Users ($300 x 50) Additional IP Phones ($450 x 50) CallManager Windows NT Server
$15,000 $22,500 $5000
Total Capital Costs
$42,500
Staff Costs
Install CallManager and Voice Trunks on Router [($91,500 salary) ÷ (260 days per year)] x (5 days) Support Cost to Install and Configure 50 IP Phones [($91,500) ÷ (260 days/year)] x (10 days)
Cost Avoidance—PBX Hardware and Handsets ($610 x 50) Total Capital Savings
Total Staff Costs
$5279
Cost Avoidance—Reduced Move, Add, and Change Costs [($7500 voice budget per user) x (14%) x (50 users) x (75%)] Avoidance of Telecom Staff installing new PBX Total Staff Savings
Total Facilities Costs Total
$42,875
$22,500 Total Facilities Savings
$3400
$39,375 $3500
Facilities Savings
Maintenance Costs [($7500) x (6%) x (50 users)]
Facilities Costs
Annual Hardware and Software Maintenance Charges ($42,500) x (8%)
$30,500
Staff Savings
$1760 $3519
$30,500
Total
$22,500 $95,875
$3400 $51,179
Therefore, the Year-1 ROI is 87 percent ($95,875–$51,179) ÷ ($51,179), which is a reasonably attractive result that illustrates the beneficial impact of workforce consolidation and circuit reduction.
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Year 2 operating assumptions are shown in Table 20. Table 20 1000-User Network Year-2 Assumptions • 50 new employees are added to the San Francisco site. To accommodate this growth, a new building is built for 50 employees. This new building will have 50 new IP phones installed. • The London office is built, 25 new employees are hired, and 25 IP phones are installed. • A unified messaging server, costing $20,000, is installed in the London office with licensing fees of $100 per user and five data-support-staff days to install. • A CallManager server is installed in the London office at a cost of $5000, and five data-support-staff days to install. • One voice technical staff person moves to the data support staff to support the data network in London. • To increase bandwidth from 64 kbps to 128 kbps internationally, is $500 a month and $100 a month domestically, according to www.webtorials.com as noted in Business Communications Review, March 1999. Installation is a $500 one-time charge. • Redundant 128 kbps circuits are installed at the San Francisco site in the second building and the London office. • The datacom budget pays for multiservice router and Ethernet to each desktop in the new San Francisco and London buildings. This router would be installed in either an IP telephony or PBX scenario. • The data and voice budgets increase to remain at $5000 per user for data and $7500 per user for voice. • A unified messaging implementation would obviate the need for the existing voice mail and fax systems in the London office. The price of the required middleware is $20,000 based upon current industry prices, and the annual cost avoidance benefit is estimated as two hours of reduced overhead per site person per week.
The Network structure for Year 2 is shown in Figure 14. Figure 14
1000-User Network Year-2 Implementation
San Francisco Site
San Francisco Site #2 CallManager Server
IP Phones (50 Users)
IP
IP Phones (50 Users)
IP IP
IP
Router IP
ACD Ethernet Switches
IP PSTN Router
Digital Voice
PBX
Desktop PCs IP Phones (25 Users)
V
Data Network
Voice Mail System
Router Digital Phones London Site
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Call Manager and UM Servers
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The associated costs associated with Year 2 are shown in
The second year cost savings is shown in Table 22.
Table 21. Table 22 1000-User Network Year-2 PBX Cost Avoidance Table 21 1000-user Network Year-2 Implementation Costs Capital Savings
Cost Avoidance—PBX Hardware and Handsets ($610) x (75 users)
Capital Costs
Burdened Hardware and Software Costs for 75 Users ($300 x 75 users) 75 IP Phones ($450 x 75) CallManager Server in London Add Unified Messaging Windows NT Server to London Office Add Unified Messaging software to London Office ($100 x 25 users) Total Capital Costs
$22,500 $33,750 $5000 $20,000 $2500 $83,750
Staff Costs
Install and Configure IP Phones [($91,500 salary) ÷ (260 days per year)] x (15 days) Install and Configure Servers [($91,500 annual salary) ÷ (260 days per year)] x (10 days)
$3519 $8798
Facilities Costs
Total Facilities Costs Total
$6700 $3400
$45,750
Staff Savings
Cost Avoidance—Reduced Move, Add, Change Costs [($7500 per user) x (14% moves, adds, and changes) x (75 users) x (75%)] Avoidance of Installation of New PBX in San Francisco Avoidance of Installation of new PBX in London Position Elimination—Voice Hardware Technician ($73,900 annual salary amortized for 9 months) Total Staff Savings
$5279
Total Staff Costs Annual Hardware and Software Maintenance Charges Year 2 Implementation ($83,750) x (8%) Year 1 Implementation Frame Relay upgrade from 64K to 128K London [(12 months) x ($500 a month) + ($500 install)] x 2 San Francisco [(12 months) x ($100 a month) + ($500 install)] x 2
Total Capital Savings
$45,750
$59,063 $3500 $3500 $55,425 $121,488
Facilities Costs
Reduced Circuit Charges ($7500 per user) x (36% circuit costs) x (20% intra-company calls) x (25 users in London) ($7500 per user) x (36% circuit costs) x (20% intra-company calls) x (100 San Francisco Users) Maintenance Costs Year 2 Implementation ($7500) x (6%) x (75 users) Year 1 Implementation Total Facilities Savings
$13,000 Total
$13,500 $54,000 $33,750 $22,500 $123,750 $290,988
$3400 $26,500 $119,048
The Year-2 ROI is a fairly attractive 144 percent ($290,988 – $119,048) ÷ ($119,048). Similar to the 100-user case, the impact of the unified messaging implementation can be
Though the associated benefits are shown in Table 22, note
considered separately as part of our related NPV summary
that the savings attributable to the technician position
analysis.
elimination is estimated at $55,425 due to the assumption that the position is eliminated in the first quarter of the year;
Finally, the third year operating assumptions are summarized in Table 23.
$55,425 is three fourths of $73,900.
Table 23: 1000-User Network Year-3 Assumptions • 50 users are added to the London office, all with IP phones. • A New York sales office is built, 25 people are hired; all will use IP phones. • Datacom budget pays for multiservice router and Ethernet to each desktop in New York and London offices. • Increased bandwidth in New York office from 64 K to 128 K is $100 a month, and a redundant circuit is added. • Local trunk connectivity in each country will not vary from one scenario to the other. • As new employees are added to the organization, the data and voice budgets increase to remain at $5000 per user for data, and $7500 per user for voice. • A call center implementation has an associated implementation probability of 35 percent. This implementation provides the basis for online ordering through the Internet while also giving customers the option to communicate with a real customer service representative at any time during the product browsing or ordering process. This system is estimated to increase product revenue by $1,200,000. This value is derived from an industry standard of annual revenue per employee equaling $120,000. It is assumed that the call center application will increase the revenue per employee by a conservative 1 percent in the first year of implementation. The cost of the required hardware and software is $$43,519 ($35,000 for the hardware and software, $100 licensing fee for 50 telesales agents, and 10 days to install). • A desktop videoconferencing/interactive collaboration implementation has an associated implementation probability of 45 percent. This implementation has the potential of effectively complementing the unified messaging implementation by supporting direct instead of store and forward interaction. This system is estimated to improve communication efficiency by an average of two hours per week per site employee. No additional software is required, however, one-fourth day per user training is anticipated ($61,538). The annual cost-avoidance benefit is estimated at $1,200,000.
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Figure 15
1000-User Network Year-3 Implementation
San Francisco Site
San Francisco Site #2 CallManager Server
IP Phones (50 Users)
IP
IP Phones (50 Users) IP IP
IP
IP
Router
IP
ACD Ethernet Switches
PSTN Router Digital Voice
PBX
Desktop PCs
Call Manager and UM Servers
Data Network
V Router
Voice Mail
Digital Phones
IP
IP IP
PSTN
Router
IP IP
IP Phones (25 Original Users) IP Phones (25 Users)
IP IP
Unified Messaging Server
IP New York Site
London Site
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IP IP Phones (50 New Users)
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The associated costs associated with the full phasing over of
Table 25 1000-User Network Year-3 PBX Cost Avoidance
the voice network in Year 3 are shown in Table 24, while the Capital Savings
associated benefits are shown in Table 25.
Cost Avoidance—PBX Hardware and Handsets ($610) x (75 users)
Table 24 1000-User Network Year 3 Implementation Costs
$45,750
Total Capital Savings Staff Savings
Capital Costs
Burdened Hardware and Software Costs for 75 Users ($300) x (75 users) 75 IP Phones ($450) x (75 users) Redundant CallManager Server in London Redundant Call Manager Servers in New York Unified Messaging Server in New York Unified Messaging Licenses for New York and Additional Users in London ($100) x (75 users) Total Capital Costs
$22,500 $33,750 $5000 $10,000 $20,000
$7500 $98,750
Staff Costs
Support Cost to Install and Configure Servers [($91,500) ÷ (260 days)] x (15 days) Support Cost to Install IP Phones [($91,500) ÷ (260 days)] x (15 days) Increase in Salary as Voice Tech Moves to Data Support ($91,500 – $79,300) Total Staff Costs
$5279 $5279 $12,200
Cost Avoidance—Reduced Moves, Adds, and Changes ($7500) x (14%) x (75 users) x (75%) Avoidance of New PBX Installation in New York Elimination of voice tech position from Year 2
$59,063 $1500 $79,300
Total Staff Savings
$139,863
Facilities Costs
Reduced Circuit Charges London ($7500 per user) x (36% circuit costs) x (20% intra-company calls) x (75 users) Reduced Circuit Charges New York ($7500 per user) x (36% circuit costs) x (20% intra-company calls) x (25 users) Reduced Circuit Charges San Francisco ($7500 per user) x (36% circuit costs) x (20% intra-company calls) x (100 users) Maintenance Costs Year 3 Implementation ($7500) x (75 users) x (6%) Year 2 Implementation Year 1 Implementation
$22,758
Facilities Costs
$40,500
$13,500
$54,000 $33,750 $33,750 $22,500
Total Facilities Savings
$198,000
Total
Annual Hardware Software Maintenance Charges Year 3 Implementation ($93,750) x (8%) Year 2 Implementation Year 1 Implementation Circuit Costs New York [($100) x (12 months) + (500 install)] x 2 London [($500) x (12 months)] x 2 San Francisco [($100) x (12 months)] x 2
$7500 $6700 $3400
Total Facilities Costs Total
$45,750
$383,613
The Year-3 ROI is 144 percent ($383,613 – $156,908) ÷ ($156,908) which reflects the large capital, support, and
$3400 $12,000 $2400
facilities infrastructure changes that occur in the third year.
$35,400
lifecycle ROI is an attractive 136 percent.
In summary the investment costs, benefits and three year lifecycle ROI are summarized in Table 26. As can be seen the
$156,908
Table 26 1000-User Network—Lifecyle ROI Results Total Cost
Total Benefit
Investment ROI
Year 1
$51,179
$95,875
87%
Year 2
$119,048
$290,988
144%
Year 3
$156,908
$383,613
144%
Total = $327,135
$770,476
136%
Finally, in addition to the financial case, it is also important to assess the degree to which the transition methodology defined in this business case best meets the requirements of an early majority implementer. The degree to which the approach satisfies these criteria in addition to the supporting rationale is shown in Table 14. Early Majority adopter satisfaction criteria are similar to those shown for the 100-user business case.
Public Copyright © 1999 Cisco Systems, Inc. All Rights Reserved. 25 of 28
MultiSvc IP Tel_update.FM Page 26 Sunday, August 22, 1999 7:06 PM
Net Present Value & Internal Rate of Return Analysis
No additional hardware or software costs are projected for
Earlier in this document, the implementation of multiservice
this application. Once again, assuming the 8 percent discount
applications were cited as a key factor in determining the
rate, the calculated NPV is $899,840 (Year 0 = $0,
total benefit attributable to the multiservice network. In the
Year 1 = $0, Year 2 = -$61,538, Year 3 = $1,200,000) with
1000-user business case, the analysis of this implementation
an IRR of 1,850 percent.
becomes even more important in order to show significant
The probability of implementing at least one of the
value germane to the applications necessary for completing
multiservice applications is 80 percent (35 percent + 45
the full business case. As in the 100-user case, the Options
percent). The minimum value of the respective application
Model is used to calculate the incremental return attributable
NPVs is the NPV associated with the videoconferencing/
to the implementation of one or more of the multiservice
interactive collaboration (approximately $900,000).
applications described earlier.
Incorporating the options model formula (see Appendix), the
Begin by determining the NPV and IRR associated with
incremental NPV that can be attributed to the multiservice
the 1000-user network prior to adding any applications.
application implementation is .80 x $900,000 = $720,000.
Applying the cost savings less the costs of implementation,
This then leads to a total baseline plus application NPV of
and applying a three year discount rate of 8 percent yields a
$1,644,222 (baseline NPV of $346,841 + unified messaging
baseline lifecyle NPV of $346,841 (year 0 = $-51,179,
NPV of $577,381 + multiservice application implementation
Year 1 = $95,875—119,048, Year 2 = $290,988—$156,908,
of $720,000).
Year 3 = $383,613) and an IRR of 123 percent. Take a look at each of the multiservice applications. The unified messaging application is projected to be implemented at the beginning of Year 2 in London and the beginning of Year 3 in New York. The projected Year-2 benefit is estimated at $153,846, and the Year-3 benefit is estimated at $615,384 ($461,538 for London and $153,846 for New York.) The implementation cost is $23,360 for the server, installation, and maintenance in London in Year 2, and $23,360 for the server, installation, and maintenance in New York in Year 3, plus $1600 for maintenance capital for London. The total lifecycle benefit is $769,230. Using the same discount rate of 8 percent, the calculated NPV is $577,381 (Year 0 = $0, Year 1 = $-23,360, Year 2 = $153,846—$24,960, Year 3 = $615,384) with an IRR of 758 percent. In the case of the call center, implementation is projected for Year 3 with an associated probability of 35 percent. The total benefit is projected to be $1,200,000 in additional business revenue with the cost of the associated hardware and software equaling $43,519. Applying the same type of NPV calculation that was performed for the multiservice messaging application, a calculated NPV is $915,288 (Year 0 = $0, Year 1 = $0, Year 2 = $-43,519, Year 3 = $1,200,000), and an IRR of 2,657 percent. Lastly, the Year-3 benefit for the videoconferencing/ interactive collaboration application is estimated at $1,200,000. Its probability of implementation is 45 percent.
Strategic Vendor Considerations Earlier in this document, the business benefits attributable to being one of the early majority implementers were cited. These include the competitive advantage benefits of the early adopters combined with the technology stability provided to the majority users. It is this adoption phase that constitutes the implementation sweet spot for those companies that want to realize the optimum business benefits associated with a given technology. Given their implementation criteria, a key requirement for the early majority is that they do not want to be in the business of debugging someone else’s product or technology. This is easy enough to say. But what criteria should be used in product and vendor selection in order to ensure that the quantitative benefits defined in this business case are effectively realized? In the case of multiservice network telephony, a few key criteria come into play. First, it is important to assess a vendor’s product delivery track record. And not just in any product area, but rather products that support multiservice network telephony and VoIP services. Today, Cisco is a recognized leader in the delivery of VoIP services by virtue of its shipment of hundreds of thousands of VoIP products for the enterprise. This directly translates into direct development and support experience that ensures that multiservice telephony technology is sufficiently production ready for most users’ requirements.
Public Copyright © 1999 Cisco Systems, Inc. All Rights Reserved. 26 of 28
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However, it doesn’t stop there. Cisco is unique amongst the major vendors in implementing multiservice network telephony services for its own corporate usage. This
Appendix The Options Model
implementation directly supports the day to day
One approach that has been used effectively to capture the
communication and information needs of thousands of
bottom-line impact of alternative benefits is called the
professional knowledge workers like yours. The result is a
options model formula. The options model is a
large-scale user and vendor implementation of these services
complementary, forward-looking business approach that
that directly leads to technology maturity due to the scope
looks at the net present value (NPV) of capital equipment
and scale of the associated implementations. In addition,
investment; it is quantitatively expressed below.
rapid problem resolution is driven directly by the
Given a NPV for a network investment (referred to as NPVbase), the options model offers the potential for
requirements of demanding users. All these factors directly contribute to the fact that Cisco
increased NPV in a manner similar to a stock-options model.
is uniquely qualified to bring the benefits of multiservice
In a classic stock-options model, an individual is granted the
network telephony services much sooner and on a much
right to purchase a block of stock shares for a given price per
larger scale than any other vendor. Combining these services
share at a particular point in time. Individual probabilities of
with the excellent Cisco reputation for service and support
pa, pb, pc, . . . , pn are associated with the price of the stock
leads to an implementation rationale that is simply too
rising to certain levels and thereby increasing the option
compelling to ignore.
holder’s present value. Similarly, in this business case, probabilities of pa, pb, pc,
Summary and Conclusions In defining a business case to support the transition to a set of new technologies and products, users need to be careful to ensure that all relevant supporting factors are considered to ensure the highest probability of success. These factors include projected product lifecycles for existing approaches,
. . . , pn can be associated with the realization of either increased revenue or improved productivity (or both) through the enabling of new applications (and opportunities) a, b, c . . . n. The effective NPV of this investment is then conservatively forecast as:
projected adoption rate for the new technologies and
NPVinvestment = NPVbase + [(pa + pb + pc + …. + pn) x
products under considerations, direct business benefits, and
min (NPVa, NPVb, NPVc,…., NPVn)
the relationship and partnerships that should be established.
where NPVbase is the benefit from the base business case,
This business case has both raised and documented the supporting business case rationale in each of these categories for multiservice telephony networking. More important, it has established a compelling business case rationale and
NPVi is the NPV benefit associated with the ith opportunity option to which the target investment could be applied, and pi is the probability of the business opportunity that generates NPVi occurring. The probabilities are added based
financial analysis rationale for the early-adopter
upon the rules of elementary probability that come into play
implementation of a multiservice telephony network
when calculating the probability of the occurrence of one of
supported by Cisco products and services.
a set of mutually independent events. Taking the minimum of
Are you ready?
the NPVi s ensures a financially conservative approach to benefit estimate by producing the result of realizing the least of the target benefits with the highest probability.
Public Copyright © 1999 Cisco Systems, Inc. All Rights Reserved. 27 of 28
MultiSvc IP Tel_update.FM Page 28 Sunday, August 22, 1999 7:06 PM
Let’s illustrate the use of this approach with a
Now assume that the business NPV calculated for each
quantitative example.
of the independent investments is as follows:
Assume that a given multiservice telephony network capital investment produces the following NPV investment results. Assume that the NPVbase benefit is $25,000 and that the following probabilities are assigned to each of the new
NPVa = $30,000 NPVb = $20,000 NPVc = $75,000
distributed applications that are likely to be deployed on the
The probabilities are then multiplied by the lowest NPV of all
network:
the projects and added to the base of $25,000 as per the options model formula shown above, resulting in a NPV
pa = Branch-to-branch telephony services
25%
investment of $40,000:
pb = Branch-to-branch desktop videoconferencing
15%
$25,000 + (0.75 x $20,000) = $25,000 + $15,000 = $40,000
pc = Audio and video customer service call centers
35%
This discussion of the options model shows that the most effective investments may not always be those that deliver
Also assume that these events are independent of each other.
only one benefit (especially when that benefit is simply a
Adding all three probabilities together, the resulting
cost-reduction benefit), but rather those investments that
probability is 75 percent that at least one of them will occur.
result in the ability to use the resultant infrastructure for multiple applications.
Public Copyright © 1999 Cisco Systems, Inc. All Rights Reserved. 28 of 28
MultiSvc IP Tel_update.FM Page 30 Sunday, August 22, 1999 7:06 PM
Corporate Headquarters Cisco Systems, Inc. 170 West Tasman Drive San Jose, CA 95134-1706 USA http://www.cisco.com Tel: 408 526-4000 800 553-NETS (6387) Fax: 408 526-4100
European Headquarters Cisco Systems Europe s.a.r.l. Parc Evolic, Batiment L1/L2 16 Avenue du Quebec Villebon, BP 706 91961 Courtaboeuf Cedex France http://www-europe.cisco.com Tel: 33 1 69 18 61 00 Fax: 33 1 69 28 83 26
Americas Headquarters Cisco Systems, Inc. 170 West Tasman Drive San Jose, CA 95134-1706 USA http://www.cisco.com Tel: 408 526-7660 Fax: 408 527-0883
Asia Headquarters Nihon Cisco Systems K.K. Fuji Building, 9th Floor 3-2-3 Marunouchi Chiyoda-ku, Tokyo 100 Japan http://www.cisco.com Tel: 81 3 5219 6250 Fax: 81 3 5219 6001
Cisco Systems has more than 200 offices in the following countries. Addresses, phone numbers, and fax numbers are listed on the
Cisco Connection Online Web site at http://www.cisco.com/offices. Argentina • Australia • Austria • Belgium • Brazil • Canada • Chile • China • Colombia • Costa Rica • Croatia • Czech Republic • Denmark • Dubai, UAE Finland • France • Germany • Greece • Hong Kong • Hungary • India • Indonesia • Ireland • Israel • Italy • Japan • Korea • Luxembourg • Malaysia Mexico • The Netherlands • New Zealand • Norway • Peru • Philippines • Poland • Portugal • Puerto Rico • Romania • Russia • Saudi Arabia • Singapore Slovakia • Slovenia • South Africa • Spain • Sweden • Switzerland • Taiwan • Thailand • Turkey • Ukraine • United Kingdom • United States • Venezuela Copyright © 1999 Cisco Systems, Inc. All rights reserved. Printed in USA. Cisco Systems logos are registered trademarks of Cisco Systems, Inc. in the U.S. and certain other countries. All other trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any of its resellers. (9907R) Lit# 953430 8/99 LW
By Leo Jo Estercam
June 2002
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TCO & ROI
1.1.
Total Cost of Ownership & Return on Investment 1.1.1. Opzet
Inleiding
De bedoeling van dit document is een doorgedreven berekening te maken van het ‘Return on Investment’ van het project lopend over meerdere jaren. De gegevens zijn gebaseerd op • de reële investeringswaarden van de nieuwe infrastructuur voor LAN, MAN en Telefonie, en • een schatting van de huidige afbetalingen aan • een schatting van de nieuwe MAN kost van de Service Provider
Schattingen
Als geschatte warden komen volgende punten in aanmerking:
Onderdeel Telefonie kosten Access kosten & Leasing van de drie PABX’s Leasing van de switchen Totale geschatte exploitatie kost
Geschat Bedrag € 17,638.31 € 29,370.00 € 25,613.94 € 18,263.40 € 90,886.00
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Opbouw van deze ROI studie
Voor de financiële ROI studie komen volgende aspecten aan de orde: • Bestaande LAN infrastructuur kosten tot einde leasing • Bestaande PABX infrastructuur kosten tot einde leasing • Leasing van het nieuwe materiaal gebaseerd op 36 maanden steeds beginnende op 1 Januari. • Maandelijkse huurgelden bij de Service Provider van • de MAN verbindingen voor de residenties • de Internet toegang • de Telefonie verbindingen • Nieuwe inkomsten van de residentiële huurders gebaseerd op 100% bezetting van de residentiële kamers. • Vermindering van de kosten voor inter-office oproepen. • Facturatie van oproepen aan de studenten voor binnen de campus blijvende gesprekken Naast de financiële ROI studie mogen volgende aspecten aan de orde komen: Eenvormig te beheren netwerk Vereenvoudiging van de wijzigingen op de telefooncentrales Meerwaarde van de residentiële infrastructuur door Internet én telefonie in iedere kamer. Bijkomende inkomsten van verhuur der residenties tijdens de vakantieperioden. Open staan voor de uitbreiding van de toepassingen op de IP-Telefoons. Uitbreidbaarheid zonder implicaties van de telefooncapaciteit Hogere bandbreedte naar het internet
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Bestaande infrastructuu r
Als bestaande infrastructuur komen de switchen in aanmerking. De volgende schatting werd hiervoor gemaakt:
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Verder gaan wij er van uit dat er een SWAP-LEASE mogelijkheid is met wanneer het nieuwe materiaal wordt aangekocht na één jaar. Î gedurende één jaar zal er dus een dubbele lease prijs betaald worden.
Bestaande PABXen
Als bestaande PABXen komen volgende drie toestellen in aanmerking: • 4200 te A en B • Office-D te C • • De centrales zitten volledig vol en moeten dringend uitgebreid worden wat echter niet mogelijk is met de bestaande installatie.
Jaarlijkse huurgelden SP WAN
Op dit ogenblik heeft het < Bedrijf > een huurlijn van naar de POP van in Gent. Het betreft een E1 lijn met een CIR van 512Kb. Deze lijn is op dit ogenblik bijna steeds bezet boven haar CIR. Het contract verdaagt op 14 Januari 2003. External Access E1 lijn (CIR 256K) UUNET Internet access Totaal
7.952,04 € 21.417,96 € 29.370,00 €
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Jaarlijkse huurgelden SP Telefonie
De inventaris van de telefoonverbindingen van het < Bedrijf > geeft een beeld van de wijde verspreiding van de ingrespunten.
Maandelijkse Site Dijver Analoge lijn Analoge lijn + Tax + Geheim ISDN-2 DDI 10 nummers Geerolfstraat ISDN-2 DDI 10 nummers Gouden Hand (Torenbrug) Analoge lijn + T Analoge lijn + Tax + Geheim Maestro Classic TWIN
#
Prijs 3 1 14 10
40,1589 18,5007 406,0490 74,3680
Jaarlijkse Prijs € € € €
481,91 222,01 4.872,59 892,42
€ € € €
2 1
58,0070 € 7,4368 €
696,08 € 89,24 €
1 2 1 1
16,4850 37,0013 2,2310 29,9951
197,82 444,02 26,77 359,94
€ € € €
€ € € €
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Hoornstraat TWIN Sint Jorisstraat 49 Analoge lijn + T Oliebaan Analoge lijn Analoge lijn + T Garenmarkt 15 Analoge lijn ISDN-2 Biskajerplein Analoge lijn Oude Zak 26 Analoge lijn + T Oost Gistelhof Analoge lijn + T Ridderstraat 12 DDI 10 nummers ISDN-2 Totaal Belgacom Telefonie
1
29,9951 €
359,94 €
2
32,9700 €
395,64 €
2 1
26,7726 € 16,4850 €
321,27 € 197,82 €
13 2
174,0219 € 58,0070 €
2.088,26 € 696,08 €
5
66,9315 €
803,18 €
6
98,9100 €
1.186,92 €
3
49,4550 €
593,46 €
7 6
52,0576 € 174,0210 €
624,69 € 2.088,25 € € 17.638,31
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Nieuwe inkomsten
Met de introductie van IP-Telefonie en Internet aan alle residenties zal het < Bedrijf > nieuwe inkomsten kunnen realiseren. Deze inkomsten kunnen verdeeld worden in directe inkomsten en indirecte inkomsten.
Directe inkomsten. Aan iedere residentiële woning kan een meerprijs gevraagd worden voor zover dit net beneden de instapprijs is van aan privé telefoon en aDSL aansluiting. De volgende raming werd gemaakt: 280 bezette kamers gedurende 10 maanden vermeerderd met 100 kamers over twee weken gedurende Juli @ €40.00 per week.
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Oproepen
Per oproep welke binnen de campus blijft kan het < Bedrijf > een kostprijs factureren aan de student. Er van uitgaand dat elke student éénmaal per dag een oproep doet binnen de campus en dat het college dat factureert aan 50% van een uitgaande zonale oproep, dan levert dit het volgende op. Studenten Huidig telefoonverkeer Intercampus
?? 1 oproep per student per dag @ 0,06€ tarief € 6.030,00 per jaar
Naast de studenten doet de administratie ook een reeks oproepen binnen de campus Dijver-Ridderstraat-Geerolfstraat, plus de oproepen van de residentie verantwoordelijken naar de campus. Er van uitgaand dat 20% van de zonale oproepen binnen de campus zullen blijven en wetend dat de uitgaande oproepen 50%/50% Nationaal/Internationaal zijn en dat de maandelijkse factuur rond de €2,480.00 ligt, geeft dit het volgende: Administratie Huidig telefoonverkeer Nationaal Internationaal Intercampus voor Administratie
€ 29.747,22 50% 50% 20%
€ 2.974,72 per jaar
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Afbouw en opbouw van de leasing
Involgend schema wordt een voorbeeld gegeven van de gefaseerde overgang van de oude naar de nieuwe infrastructuur. De overgang zelf verloopt over twee jaar nl. 2002 en 2003. De leasing zelf steeds over 3 of 4 jaar zonder overlappende periode. 2001 LAN Infrastructure HP LAN Infrastructure Cisco MAN Infrastructure Belgacom MAN/WAN old Belgacom MAN/WAN New Belgacom Telefonie old Belgacom Telefonie New Telephony PBX Alcatel Telephony PBX Cisco Telephony Residenties Telephony Dijver
2002 Leasing
2003
2004
2005
Leasing Leasing
Leasing Leasing Leasing Leasing
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2006
Nieuwe componente n
Als nieuwe componenten hebben wij • de Residentiële infrastructuur voor LAN • de Residentiële infrastructuur voor IP-Telefonie • de nieuwe MAN • de nieuwe Telefonie toegang • de administratieve LAN infrastructuur voor HQ, A, B & C • de administratieve IP-Telefonie infrastructuur voor HQ, A, B & C
de Residentiële infrastructuur voor LAN & IP-Telefonie Rent per month Items
Investment
Leasing over 3 years
Rent per year
per user
Residenties Infrastructuur alleen Infrastructure only
$127.714
€ 138.485,24
€ 46.161,75
IP TEL Only
$104.890
€ 100.640,55
€ 33.546,85
€ 10,01
$232.604
€ 239.125,79
€ 79.708,60
€ 23,79
Both Internet & IPTEL
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€ 13,78
De nieuwe MAN
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De Nieuwe Telefonie Toegang Nieuwe situatie 1 2
DDI 1000 nummers PRI E1 2 * 30 kanalen Totaal Belgacom
123,9468 € 606,0000 €
1.487,36 € 7.272,00 € 8.759,36 €
De Administratieve LAN & IP-Telefonie Rent per month Items
Investment
Leasing over 3 years
Rent per year
per user
Dijver, Computerroom & Bibliotheek Infrastructure L3 and full Inline Power IP TEL Add on for 100
$53.960
€ 55.826,18
€ 18.608,73
€ 5,87
phones
$35.670
€ 30.304,16
€ 10.101,39
€ 7,94
Total Dijver
$89.630
€ 86.130,34
€ 28.710,11
€ 16,26
$17.576
€ 20.872,33
€ 6.957,44
€ 5,66
Geerolfstraat & Ridderstraat Infrastructure for 96 connections IP TEL Add on for 63 phones
$29.355
€ 24.914,20
€ 8.304,73
€ 10,99
Total G & R
$46.931
€ 45.786,53
€ 15.262,18
€ 16,65
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1.2.
TCO - ROI analyse
Inleiding
Deze analyse geeft een voorbeeld gebaseerd op de veronderstellingen uit vorig hoofdstuk. Het eerste deel geeft een overzicht van de algemene TCO (Total Cost of Ownership) gesplitst tussen infrastructuur en de netwerkkosten. Verder gaan we dieper in op de ROI van de twee componenten. Voor alle duidelijkheid geven we eerst een ROI voor het telefonie
gedeelte en dan een ROI voor de LAN Infrastructuur
of het globale
deel.
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1.3.
Total Cost of Ownership Analyze
Algemene TCO
De algemene TCO ziet er als volgt uit:
TCO per jaar (Globaal) Infrastructuur 37%
Service Provider 63%
De splitsing tussen Service Provider en Infrastructuur wordt voor meer dan 60% bepaald door de lopende kost van (casus IP-VPN).
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Wij kunnen dit opsplitsen in de verschillende onderdelen qua infrastructuur en Service Provider:
Total Cost of Ownership (per year) Telefonie Belgacom 3%
Infrastructuur Residenties 13%
Infrastructuur Dijver 6%
Infrastructuur Sattelieten 2%
Telefonie Residenties 10%
MAN Belgacom 60%
Telefonie Dijver 4% Telefonie Sattelieten 2%
Hieruit blijkt dat het MAN gedeelte van de doorslag gevende factor is.
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1.4.
Return on Investment Analyze TELEFONIE Wij gaan er van uit dat de investering in de residenties voor 100% afgerond wordt door de meerprijs welke aldaar gevraagd zal worden. Dit gedeelte vormt dan een zogenaamde nul-operatie daar, waar in realiteit, er een winst zal optreden ten eerste naar het verschil aDSL-Privé en ten tweede door de interne facturatie van de campus-oproepen.
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Met de invoering van IP-Telefonie in de residenties in 2002 zijn volgende breakeven situaties mogelijk:
Payback
DSL oplossing Æ na één jaar IP-VPN oplossing Æ na drie jaar Wordt dan verder in 2003 Dijver, Ridderstraat en Geerolfstraat verder in IPTelefonie gebracht dan loopt de ROI jaar na jaar verder op met als bottom-line in 2006, wanneer de leasing ten einde loopt, een totaal bedrag van resp. €113,721.00 en €78,760.00
IP-VPN
ROI Telefonie € 150.000 € 100.000 € 50.000 €0 -€ 50.000
2001
2002
2003
2004
2005
2006
-€ 100.000 -€ 150.000 -€ 200.000 Infrastructuur Residenties
IP-TEL Residenties & Backbone
PRI & DDI Belgacom
MAN Residenties Belgacom
Telefonie Dijver & Satellites
PayBack (Leasing, Campus Calls, ...)
Residenties Invoicing
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Consolidated ROI € 50.000 €0
Consolidated ROI 2006
2005
2004
2003
2002
-€ 100.000
2001
-€ 50.000
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DSL
ROI Telefonie € 100.000
€ 50.000
€0
-€ 50.000
2001
2002
2003
2004
2005
2006
-€ 100.000
-€ 150.000
-€ 200.000 Infrastructuur Residenties
IP-TEL Residenties & Backbone
PRI & DDI Belgacom
MAN Residenties Belgacom DSL
Telefonie Dijver & Satellites
PayBack (Leasing, Campus Calls, ...)
Residenties Invoicing
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Consolidated ROI € 50.000 €0
Consolidated ROI 2006
2005
2004
2003
2002
-€ 100.000 -€ 150.000
2001
-€ 50.000
LAN Infrastructuur Voor de ROI van de LAN infrastructuur bouwen we verder op het voorgaande en geven beide mogelijkheden uit Luik 1 respectievelijk weer. Wel gaan we er van uit dat de nieuwe Layer-3 Switch als een extra investering mag aanzien worden met een meerwaarde van €20.975 per jaar. Overzicht:
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Verklaring
Vertrekkend van 2001 met een exploitatiekost van €90,886.00 geeft deze tabel de globale exploitatie kost weer over 6 jaar. In 2002 worden de residenties geïmplementeerd en in 2003 het hoofdgebouw Dijver en vervolgens Ridderstraat en Geerolfstraat. Op einde 2003 is gans het < Bedrijf > op de nieuwe LAN en IP-Telefonie. De break-even wordt hierdoor bereikt in begin 2005 en tegen eind 2005 zal de exploitatiekost reeds teruglopen. Vanaf 2005 wordt deze zelfs negatief wat een netto winst betekent en dit komt door de introductie van IP-Telefonie zoals men kan zien uit de vorige analyse.
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ROI per rubriek
ROI Analysis (IP-VPN) € 400.000
€ 300.000
€ 200.000
€ 100.000
€0
-€ 100.000
2001
2002
2003
2004
2005
2006
-€ 200.000 LAN Infrastructure
MAN Infrastructure
Belgacom MAN/WAN IPVPN
Belgacom Telefonie
Telephony PBX
Inkomsten
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ROI Analysis (DSL) € 400.000
€ 300.000
€ 200.000
€ 100.000
€0
-€ 100.000
2001
2002
2003
2004
2005
2006
-€ 200.000 LAN Infrastructure
MAN Infrastructure
Belgacom MAN/WAN
Belgacom Telefonie
Telephony PBX
Inkomsten
Totale ROI van het project:
ROI Overzicht Totalen IP-VPN € 200.000
€ 183.709
€ 180.000
€ 146.595
€ 160.000
€ 146.595
€ 140.000 € 120.000 € 100.000
€ 90.886 € 66.887
€ 80.000 € 60.000 € 40.000
€ 22.915
€ 20.000 €0
2001
2002
2003
2004
2005
2006
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ROI Overzicht Totalen DSL € 148.747
€ 160.000 € 140.000
€ 111.634 € 111.634
€ 120.000 € 100.000
€ 90.886
€ 80.000 € 60.000
€ 31.925
€ 40.000 € 20.000 €0 -€ 20.000
2001
2002
2003
2004
2005
2006
-€ 12.047
-€ 40.000
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Spreiding per jaar
Return on Investment
€ 205.879
€ 205.879
€ 205.879
€ 205.879
€ 205.879
€ 300.000
2005
2006 -€ 35.194
2004
€ 8.759 €0 €0 €0 €0
€ 8.759 €0 € 26.899 €0 €0
€ 69.158
€ 76.622
2003
-€ 8.295
2002
€ 8.759 € 7.464 € 26.899 € 43.906 € 33.547
€ 116.292
2001
€ 8.759 €0 € 26.899 € 43.906 € 33.547
€0
€ 43.914 € 14.928 €0 € 43.906 € 33.547
€ 100.000
€ 29.370 € 35.155 € 14.928 €0 €0 €0 €0 € 79.453
€ 200.000
-€ 100.000
-€ 200.000 -€ 225.882 -€ 249.832
-€ 249.832
-€ 249.832
-€ 249.832
-€ 300.000 MAN & Internet Residenties Leasing Infrastructure
Totaal Telefonie abonnement Residenties Leasing IPTEL
Infrastructure Leasing HP Residenties Invoicing & PayBack
Infrastructure Leasing Cisco Consolidated ROI
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Return on Investment € 400.000
€ 33.547 € 300.000
€ 33.547
€ 43.906
€ 14.928 € 43.914
€ 100.000
€ 43.906
€ 26.899 € 7.464
€ 8.759
€ 200.000
€ 33.547
€ 43.906
€ 26.899 € 8.759
€ 8.759
€ 26.899
€ 8.759
€ 205.879
€ 205.879
€ 205.879
€ 205.879
€ 205.879
2002
2003
2004
2005
2006
€ 14.928 € 35.155
-€ 249.832
-€ 100.000
-€ 249.832
-€ 225.882
2001
-€ 249.832
€ 29.370
-€ 249.832
€0
-€ 200.000
-€ 300.000 MAN & Internet Residenties Leasing Infrastructure
Besluit
Totaal Telefonie abonnement Residenties Leasing IPTEL
Infrastructure Leasing HP Residenties Invoicing & PayBack
Infrastructure Leasing Cisco
De sleutel voor de TCO en ROI berekeningen rust bij de kost van de Service Provider.
Telefonie
De telefonie betaalt zichzelf terug voor gans het < Bedrijf > dank zij de meerwaarde dat dit oplevert, tezamen met de Internet toegang, voor de residenties. Dit is deels te wijten aan de te hoge kosten welke vandaag betaald worden aan en voor de telefoon infrastructuur en PSTN toegang en deels aan de vermindering voor interne kosten van gesprekken.
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Internet Toegang
Door doorwegende factor van dit onderdeel is de kost van de Service Provider voor de verbinding en de Internet toegang in het algemeen.
Maar ...
Men mag echter niet uit het oog verliezen dat de bestaande verbinding constant oververzadigd is en een opwaardering dringend nodig is; tevens moet men de extra toegang voor de residenties niet onderschatten. Het aanbod van is een 2MB lijn (G.703 IP-VPN) per residentie. Als men met 60 personen wil gebruik maken van het internet dan beschikt gemiddeld iedere kamer over 33.5Kbps wat niet overroepen is. Men kan hier bv. de toegang verkleinen naar 1Mbps wat de prijs zal drukken maar het nominaal debiet naar beneden trekken. Op gebied van telefonie heeft het internet geen invloed gezien de internet trafiek direct naar Skynet loopt en de telefonie via Dijver; vandaar dat de schaling van 2Mbps als ingang te Dijver voldoet.
Layer-3 en andere infrastructuur
De invoering van een Layer-3 switch geeft een algemene meerwaarde aan het LAN-netwerk te Dijver en zijn satellieten. Dit zou men moeten beschouwen ofwel buiten de ROI ofwel als een meerwaarde.
Conclusie
Als conclusie zou ik stellen dat de ROI uitwijst dat na drie jaar het break-even punt bereikt is met de bestaande exploitatiekost en deze dank zij enerzijds de besparingen en anderzijds door de opwaarderingen.
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1.5.
Post RFP analyse
Inleiding
Deze verdere analyse kwam tot stand tijdens de analyse van de verschillende RFP’s en houdt in diepgaan de zin rekening met de financiering en de extra noden van het < Bedrijf >.
Overzicht
In deze verdure studie wordt het project geglobaliseerd ttz. de externe factoren zijn ingebouwd zoals het Service Provider luik en de opsplitsing van de diensten.
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Geglobalisee De geglobaliseerde gegevens worden per inschrijver toegelicht. rde gegevens Integrator # 1
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Integrator # 2
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Integrator # 3
Hoe de TCO verdeeld was
TCO per jaar (Globaal)
Infrastructuur 48%
Service Provider 52%
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Total Cost of Ownership (per year) Telefonie Belgacom; € 8.759,36; 3%
Infrastructuur Residenties; € 41.766,93; 14%
Infrastructuur Dijver; € 20.226,23; 7%
Infrastructuur Sattelieten; € 6.957,44; 2%
MAN Belgacom; € 143.559,27; 50% Telefonie Residenties; € 44.285,70; 16%
Telefonie Dijver; € 15.526,85; 5% Telefonie Sattelieten; € 9.231,04; 3%
Analysis of the Service Providers
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ISP-1
ISP-2
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ISP-3
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ROI SP
ISP-3
ROI Overzicht Totalen IP-VPN € 200.000
€ 172.553
€ 180.000 € 160.000
€ 143.409 € 143.409
€ 140.000 € 120.000 € 100.000
€ 90.886
€ 80.000
€ 57.356
€ 60.000 € 40.000
€ 5.415
€ 20.000 €0
2001
2002
2003
2004
2005
2006
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ROI Overzicht Totalen DSL € 160.000
€ 137.592
€ 140.000
€ 108.447 € 108.447
€ 120.000 € 100.000
€ 90.886
€ 80.000 € 60.000 € 40.000
€ 22.395
€ 20.000 €0 -€ 20.000 -€ 40.000
2001
2002
2003
2004
2005
2006
-€ 29.547
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TCO analysis
The TCO analysis is based on depreciation over 4 years as the leasing period covers that same time frame. The first part simulates that the complete installation is done in the year 2002 and the second part simulates a phased installation over 2 years (2002 & 2003)
Rainbow TCO & ROI Study 400000 300000 200000 100000 0 -100000
2001
2002
2003
2004
2005
2006
-200000 0
Infrastructure HQ Leasing HP
Internet & Telephony costs
MAN & Internet (DSL) Service Provider
Cabling Residenties
Residenties Leasing Infrastructure
HQ Leasing Infrastructure
Satellites Leasing Infrastructure
Residenties Invoicing
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Consolidated ROI 200.000,00 € 150.000,00 € 100.000,00 € 50.000,00 € 0,00 € -50.000,00 €
PayBack
20 06
20 05
PayBack
20 04
20 03
Consolidated ROI
20 02
20 01
-100.000,00 €
Consolidated ROI
Part 2
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Rainbow TCO & ROI Study 400000 300000 200000 100000 0 -100000
2001
2002
2003
2004
2005
2006
-200000 0
Infrastructure HQ Leasing HP
Internet & Telephony costs
MAN & Internet (DSL) Service Provider
Cabling Residenties
Residenties Leasing Infrastructure
HQ Leasing Infrastructure
Satellites Leasing Infrastructure
Residenties Invoicing
Consolidated ROI 200.000,00 € 150.000,00 € 100.000,00 € 50.000,00 € 0,00 € -50.000,00 € -100.000,00 €
PayBack
20 06
20 05
20 04
20 03
20 02
20 01
Consolidated ROI PayBack
Consolidated ROI
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Final ROI
The final ROI balances the TCO over the different periods covered. Consolidated ROI 180.000,00 €
158.729,46 €
160.000,00 €
151.988,21 €
140.000,00 € 120.000,00 €
104.168,99 € 100.000,00 €
73.557,13 €
80.000,00 € 60.000,00 €
48.550,93 €
40.000,00 € 20.000,00 € 0,00 €
2001
2002
2003
2004
2005
Year by Year
With the today’s exploitation cost (pink) as base, we can now decide to select the right option so that our exploitation cost consolidated over 4 years will remain almost equal (up with €10,665.00 over 4 years) with the introduction of IP-Telephony on the complete plant and a full layer three switched infrastructure all based on Cisco Systems equipment.
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