The ROI of VoIP

It might have been slow to catch on but voice over Internet Protocol is at last grabbing the telecoms limelight, but a measure of planning and prethinking can create savings.

When it comes to VoIP, most network managers appear to be satisfied that the technology works. The challenge is developing cost analyses: what will the new technology cost to roll out and support, and what benefits can companies expect to reap?

There's no single, shrink-wrapped answer. But Nemertes Research interviewed 65 IT executives at leading-edge companies across a range of industries in the US and developed real-world guidelines for analyzing the costs and savings that can result from VoIP projects.

Step 1 Preplanning is key

In most projects, the first stage is preplanning in which companies assess the network, including present and future applications requirements and future business plans, such as new moves, company growth, and merger and acquisition possibilities.

It's at this stage that companies answer the fundamental question: is it worth moving to a converged infrastructure, and if so, at what pace?

Once companies decide the technology is worth further exploration, they enter the official "planning" stage, during which they should perform several tasks, including assigning a project leader, evaluating management and security options, and working to raise end user excitement in the project.

Most importantly, they're developing a detailed ROI to validate the project financially.

Step 2 Determine start-up costs

Start-up costs fall into two general categories: operational and capital.

For operational costs, companies provided the staff hours or actual dollars devoted to the baseline network assessment, project planning, installation of the IP PABX(s) and accompanying handsets, and troubleshooting. Companies that installed a unified messaging system or audio-video bridge with their initial implementation also included the time it took to handle those tasks.

Capital costs are defined as the IP PABX, phones and network equipment explicitly installed for the initial VoIP rollout.

Part of the planning phase includes a baseline-network assessment, or a network readiness study. Typically, a vendor, systems integrator, value-added reseller, carrier or internal IT staff evaluates the organization's network, running simulated voice traffic over it to determine what upgrades are necessary.

The baseline network assessment has become a crucial part of any VoIP implementation. Although some companies abide by the finger-to-the-wind test, a growing number of IT executives strongly suggest conducting such an assessment, despite the cost.

"VoIP is so new to us. We'd be concerned with what it does to our data traffic. We can't take it casually," says Irving Tyler, CIO of Quaker Chemical Company.

Operational start-up costs vary considerably based on the company size and state of deployment. For example, companies with 100 to 499 users spend the most per user, and costs drop as the number of users on the VoIP system increases. This is primarily because companies are able to leverage the costs involved with planning, installation and troubleshooting among a greater number of end users.

Organizations with fewer than 100 users spend less than those with 100 to 499 users. Often, companies with fewer than 100 users are running small trials and haven't invested in a baseline network assessment yet, so their cost per user appears lower.

Also, organizations with small rollouts usually keep their implementations straightforward, eliminating some of the time-consuming complexities of larger rollouts, such as integrating the gear into current TDM PABXs or voice mail systems. This keeps the fewer-than-100-user rollouts lower than the next level up.

The trends were similar with capital costs. The highest cost per unit is among companies with 100 to 499 users. The lowest cost per unit is among companies with more than 1000 units.

In cases where the average phone cost is high, it's usually organizations that have added audio or video equipment to their hardware costs, or those that have invested heavily in equipment and still are running trials so they don't have as many phones in use as the equipment supports.

For example, one large global manufacturer has spent $2 million on equipment, housed in five US and two European locations. But it has only 350 users on the system now, as it runs trials and starts a slow rollout. Once fully deployed, the switches will support thousands of users, lowering the cost per unit, even though the company will buy more handsets.

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