roiForIpCommunications

Cisco’s ROI Methodology

6426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved.

1

Cisco’s ROI Methodology

Secondary Data Sources

• Time Motion studies

• Industry Averages

• Meta/Gartner/Giga Research

Customers

• Over 2200 unique analysis

• Customizable inputs

• ROI snapshots facilitate the data gathering process

• Multiple deployment scenarios

Converged Network

Investment

Calculator(CNIC)

Cisco Primary Research

• Focus Groups

• Customer Surveys

6426_10_2002_c1_Kisch

Analyst Input

• Demos to major analyst firms to get their buy-in regarding soundness of methodology

• Incorporated feedback

© 2002, Cisco Systems, Inc. All rights reserved.

Building a Credible Financial Model

• Cisco’s focus is on quantifying the hard benefits of IP

Communications

Models have the ability to calculate and discount the value of soft business benefits

• All Cisco financial models are designed to be customized to a customers specific situation

Defaults are used where appropriate, but can be overridden

• Financial models needs to be boardroom credible

Built on a solid financial foundation

Conservative assumptions with a transparent methodology


Calculating the Hard Benefits

\

Cisco Network Investment Calculator

(CNIC)

• Web-based software application designed to help customers understand the specific financial implications of deploying Cisco solutions

• Available to Cisco salespeople and specialized partners

• Includes modules for IPT,

Unified Messaging, CTI, ICM,

ICD, Audio Conferencing,

Storage Networking


Benefits of IP Communications


5

Hard Cost Savings - Equipment

• Reduction in cabling costs for new facilities

• Reduction in infrastructure cost at remote sites via centralized call processing

• Increased utilization of core networking assets

• Reduction in PBX expansion and upgrade costs

• Consolidation of message store/back-up systems

• Reduction in PBX upgrade/expansion costs


Hard Cost Savings - Network Administration

• Improved productivity of network support staff

Elimination of certain PBX related tasks

Consolidation of skill sets

Centralized application and network management

• Reduction in the costs of Moves, Adds and

Changes (MAC’s)

• Reduction in remote site management costs

• Reduction in ongoing maintenance costs


Hard Cost Savings

Integrated Access/Toll Bypass

• Toll-Bypass savings for intra-company traffic

Domestic: Material if call volume is substantial to offset declining toll rates in neighborhood of 2-5 cents or if organization lacks size to negotiate prime rates with carriers

International: Still significant with average toll-rates of 12-15cents

• Consolidation of voice and data access

-Reduction in number of dedicated voice lines

-More efficient use of existing bandwidth


Examples of Business Benefits

• Real Estate Savings

Better utilization of real estate by leveraging extension mobility to increase worker to workspace ratio from 1to1 to X to 1

Significant savings in high-rent areas like NY, London, etc.

• Platform for New Applications

Unified Messaging – Improved productivity per user by 25-40 minutes per day

Audio Conferencing – Ability to offload SP provided minutes (8-12 cents/minute) for smaller conference calls to internal service offering

• Ability to standardize infrastructure and extend corporate capabilities to branch offices


The ROI for IP Communications


10

Summary of Customer Engagements

• 2200+ Customer Analysis to date

• Across all major verticals

• Financial Services – 228 analysis

• Retail – 250 analysis

• Education – 110 analysis

• Government – 140 analysis

• All types of deployment scenarios (greenfield, centrex, centralized call processing, replacement of new/old PBX, lease/buy)

• A mix of different technologies (IPT, Contact Center, Unified Messaging,

Audio Conferencing, Integrated WAN)

• Different size deployments ranging from a 100 phones to 45,000 phones

• Flash cuts to 5 year migrations

• Global focus including U.S./ Europe/Asia/Latin America


Key Drivers of Positive ROI

• A compelling event is driving the decision

New facility

End of useful life of PBX/Expiration of lease

Planned upgrade of data infrastructure

• Phased approach to deployment starting with the most financially viable sites

• Ability to leverage centralized call processing

Deployment has number of remote sites that can leverage

CCP

• Dynamic organization with substantial employee movement


Key Drivers of Negative ROI

• In some cases, a significant data network upgrade is necessary to provide the foundation for reliable voice

• Difficult to justify on hard cost savings alone the replacement of a relatively new PBX at a single site

• Delays in the deployment of the technology delay the realization of benefits

• Failure to take advantage of key value producing features of the technology

• Aggressive pricing from traditional PBX vendors


Summary of ROI Findings

• Positive Net Present Value 68% of the time

• Average payback of 16-18 months

• Average annual savings per user of $334

• Average # of phones in analysis = 600 phones

• Average hurdle rate of 10-11%

• Primary Areas of Cost Reduction

• Network Administration – 48% of savings

• Equipment – 28% of savings

• Integrated Access/Toll-Bypass – 24% of savings


Source: Converged Network Investment Calculator 7/02

Summary of ROI Findings -

Deployment Scenarios

• Paybacks vary based upon deployment scenario, with green fields producing the most rapid payback

(Months)

24

18

14

9

6

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0

Green

Field

TDM Centrex

Replacement

Multi-site

CCP

Older PBX

Replacement

Newer PBX

Replacement



ROI Findings for the

Financial Services

Vertical


16

ROI Findings – By Vertical

Payback in Months

(Months)

28

18

18

14

6

6

13

14

28

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0

Retail Education Government Financial

Services


Healthcare


ROI Benchmarks –

Financial Services

(Avg. 421 phones)

Immediate

(N=15)

Year 1

Payback/Breakeven Distribution

Year 2 Year 3 Year 4 Year 5

Net Present Value Distribution

$(100K)

(N=15)

$0K

$500K


$1M

$2M


$5M

Financial Services Case Study

• Securities firm needed to replace older PBX that was nearing end of useful life

• Needed to identify a way to reduce the costs of a constantly moving workforce

• Needed to simplify management of the network and improve the productivity of the network support team

• Deployed 1500 Cisco IP Phones

• Deployed conference connection to offload smaller conference calls

• Gave the user the ability to move their phone in an effort to save

MAC charges

• Leveraged extension mobility to improve utilization of real estate space

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• Payback of 20 Months

• Net Present Value of $1.5M

• Achieved an annual savings of $308/per user



Retail

Vertical


20

ROI Findings – By Vertical


(Months)

28

18

18

14

6

6

13

14

28

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0


Services


Healthcare


ROI Benchmarks – Retail

(Avg. 1255 phones)


Immediate

(N=10)

Year 1 Year 2 Year 3 Year 4 Year 5


$(100K)

(N=10)

$0K

$500K


$1M

$2M $5M


Retail Case Study

• National restaurant chain needed to provide a more cost effective voice service to remote sites

• Solution consists of 2500 Cisco

IP Phones leveraging centralized call processing

• Wanted a standard solution that would lower remote site management costs and provide a consistent level of service

• Updated WAN to facilitate integrated access where available

• Able to increase productivity of network support staff via centralizing call processing

• Wanted to greater leverage planned data network upgrade


• Net Present Value of $2.7M

• Achieved an annual savings of $361/per user



Government

Vertical


24

ROI Findings – Government Vertical


(Months)

28

28

18

18

14

6

6

13

14

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0


Services


Healthcare



Government

(Avg. 3000 phones)


Immediate

(N=10)



$(100K)

(N=10)

$0K

$500K


$1M

$2M $5M


Government Vertical Case Study

• Medium size east coast city was evaluating their future voice strategy

• Had a mix of PBX, key systems and Centrex

• Centrex contracts were coming due for renewal

• Decided to deploy IP Telephony in place of Centrex service to 500 users across several city facilities as first step towards converging their network

• Decided to lease instead of purchase new IP Telephony equipment

• Annual lease costs for IPT were less then annual Centrex costs

6426_10_2002_c1_Kisch

• Immediate Payback

• Net Present Value of $117K

• Annual savings per user of $335



Education

Vertical


28

ROI Findings – Education


(Months)

28

18

18

14

6

6

13

14

28

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0


Services


Healthcare



Education

(Avg. 283 phones)


Immediate

(N=10)



$(100K)

(N=10)

$0K

$500K


$1M

$2M $5M


Education Vertical Case Study

• Extension campus of large state university needed to replace existing end of life

PBX

•

Needed to be able to continue to leverage a percentage of existing handsets

• Was faced with an imminent upgrade cost to voicemail system and PBX

• Reused 1500 analog phones, while deploying 700 IP phones of various models

• Deployed (4) Call Managers and Unity voicemail

• Upgraded data infrastructure

6426_10_2002_c1_Kisch


• Net Present Value of $253K


Final Thoughts

• As the technology matures, so does the

Business Case for IP Communications

• A carefully prepared ROI analysis will assist you in your efforts to internally sell IP

Communications

• The keys to building the ROI analysis are to understand the primary value propositions of

IP Communications and to set an appropriate scope for the analysis

• Cisco has a set of tools and best practices that can facilitate the ROI analysis process


Backup Slides


33

Cisco’s ROI for IP Telephony


34

IP Telephony at Cisco

IP Telephony

Global Deployment

Brussels, Marcel Thiry

Brussels, (Antares, Pegasus) *

Anchorage, AK

Stockley Park *

London City

Oslo, Göteborg

Boise, ID

San Jose, CA

Co Springs, CO

Chicago, IL

Bloomington, MN

Amsterdam *

Helsinki

Copenhagen

Carmel, IN

Toronto

Paris

Barcelona

Berlin, Mannheim,

Munich, Stuttgart,

Madrid

New York, NY

Howell, NY

Glen Allen, VA

Lisbon

RTP, NC

Jacksonville, FL

Montgomery, AL

Gland

Athens

Luxembourg

Istanbul

Tulsa, OK

Rogers, OK

Dallas Metro

Dallas Sales

Riyadh

New Delhi

Metairie, LA

Baton Rouge, LA

Bangkok

Singapore *

Status: 39,120+ IP Phones

153 Sites in Production

27 to go!

Hong Kong

Beijing *

Tokyo (*)

Akasaka,

Fukuoka,

Nagoya

Brisbane

Bryanston

Auckland

Tech Trial *

Production

Asia Pac

Americas

1,725 IP Phones

6,120 IP Phones

Corporate 20,658 IP Phones

EMEA 3,047 IP Phones

Adelaide

Melbourne

Perth

Wellington

Sydney (CM 3.0)

(North Sydney, Chatswood)


Actual ROI Results for Cisco EMEA:

FY2000 - FY2005

• ROI = 126%

• Payback Month = 10

• NPV

(@12 %)

= $60 million

Deployment of

Converged E-Business

Applications:

IP & Web Foundation

Expanded to Include Voice

2000

$2.6 m

=$340/emp

.

2001

$9.4m

=$1230/emp

.

2002

$12.4m

=$1625/emp

.

2003

$33m

=$4320/emp

.

2000

6426_10_2002_c1_Kisch

2001


2002 2003

2004

$33m

=$4320/emp

.

2005

Year

2004 2005

Breaking Down the Benefits:

Large Office Example

The Single Network

Notes:

• Cabling benefit is a one-time benefit and is only generally applicable during the year of a building move (Cisco’s “Large Office” moved in 2001 and thus realised this benefit)

• Costs for Moves, Adds and Changes (MAC’s) are based on the average cost of an outsourced PBX MAC, versus that of a Cisco

IPT MAC

$450k

$60k

Total

Recurring

$630k

$120k

(!) = Annual Recurring Benefit

(+) = One-Time Benefit

Cabling

(+) $500k

Total

One-Time

$500k


Breaking Down the Benefits:


Notes:

•

The ROI project team made a judgement call that, even though the productivity of Cisco employees is undeniably increased through the use of Cisco’s Unified Messaging

(UM) and Personal Assistant (PA) applications, the benefits modelling process would be unacceptably vague because the associated business processes and policies are not yet defined (e.g. incurring a GSM call to have PA speak e-mail over the phone)

•

This situation will change once the new business processes surrounding UM and PA are defined.

•

Productivity benefits of CTI applications are substantial because they emulate those of agents at large, CTI-enabled call centres yet can be implemented at a fraction of the cost

• Benefits of XML applications are actually small for Cisco because almost all Cisco employees have laptops and ubiquitous access to the Web. Organisations that are not in this same situation will most likely benefit more than

Cisco due to not having to provide a PC to all employees

Employee

Productivity

$24k

$12k

$1k

$475k

Total

Recurring

$1.1+ m

(!) = Annual Recurring Benefit

(+) = One-Time Benefit

$590k

$???k


Breaking Down the Costs:


Costs

Total

Opex

$320k

$20 k

$300 k

Total

Capex

$2.6 m

$1.5 m

$0

$1.1 m


Notes:

• In line with the highly conservative, non-greenfield approach, the ROI analysis assumes that TDMbased infrastructure (PBX, voice mail system, multiplexors, etc.) was already in place, before migration to Cisco IP Telephony

• Hence TDM-based infrastructure capex costs are

$0 – i.e. all capex costs used in the analysis are representative of Cisco IP Telephony equipment only

Benefit Differences of the Large,

Medium, Small Offices

• Large Office Results:

Cisco EMEA Headquarters, Bedfont Lakes/London, UK: 1147 Employees

ROI = 130%

Payback Month = 9

NPV = $12.3 m

• Medium Office Results:

Cisco Eschborn/Frankfurt, Germany: 171 Employees

ROI = 120%


NPV = $1.8 m

• Small Office Results:

Cisco Sophia Antipolis, France: 35 Employees

ROI = 111%


NPV = $330 k


Key Customer Drivers for IP

Communications

• Lower Cost of “Network”

Ownership

– Cost savings are the primary short-term reason to converge voice, data and video onto a single IP network

– This reflects the impact of the slowing economy on IT investment

• Enhanced Business

Communications

– Creating new revenue streams and deploying new applications that can increase productivity or enhance customer care are seen as significant, but longer term benefits of convergence

Aggregate View on Drivers

60%

40%

20%

0%

1st — 428 2nd — 397 3rd — 344

To drive cost savings (easier infrastructure mgmt.)

To drive revenues

To enable additional application capabilities

Other

Source: The META Group Multi-Client Study 2000/01


Real Benefits of Cisco IP Telephony

Hard-dollar cost savings

Single Network

•

Maintenance, Cabling, Administration, Support, Power,

Moves/Adds/Changes (MAC’s), Staff

• Voice Business Continuity

• Integral component to an effective voice business continuity plan

• Can be compared against other less effective plans

• Voice message backup/restore

• Real Estate

• Space Utilisation, Reduced Operational Costs, Flexibility

• Reduced Call Costs

• Reduced mobile phone usage

• Extension Portability Campus Roaming, Home Office, Other Location

• Outbound Call Management

• Unified Messaging

• Audio Conferencing

• Small Branch Office

• Centralised Call Processing

• Elimination of voice trunks

• IP Toll Bypass

• No on-site PBX

Reporting, Billing, Cost Management

• Cross-Enterprise telecom reporting

• Cross-Enterprise call cost management

• Predictability of telecom bills

• Reduced PC Costs

• IP phone can replace a web-enabled PC or laptop in certain environments


Productivity increases that can be safely quantified

Employee

Productivity

• End User Applications

• Audio Conferencing

• Unified Messaging

• Personal Assistant

• Web Access

• Computer Telephony

Integration

•

IT Operations

•

Facilities Mgmt Ops

Benefits that are very real, but difficult to quantify

Cultural

Enhancement

• Customer Satisfaction

•

Employee Retention

• Geographic Flexibility

• Competitive Positioning

•

Faster Application

Deployment

•

Voice Business

Continuity

• Difficult-to-Quantify

Productivity via

Converged Applications

roiForIpCommunications

Cisco’s ROI Methodology

Cisco’s ROI Methodology

Building a Credible Financial Model

\

Cisco Network Investment Calculator

(CNIC)

Benefits of IP Communications

Hard Cost Savings - Equipment

Hard Cost Savings - Network Administration

Hard Cost Savings

Integrated Access/Toll Bypass

Examples of Business Benefits

The ROI for IP Communications

Summary of Customer Engagements

Key Drivers of Positive ROI

Key Drivers of Negative ROI

Summary of ROI Findings

Summary of ROI Findings -

Deployment Scenarios

ROI Findings for the

Financial Services

Vertical

ROI Findings – By Vertical

ROI Benchmarks –

Financial Services

Financial Services Case Study

ROI Findings for the

Retail

Vertical

ROI Findings – By Vertical

ROI Benchmarks – Retail

Retail Case Study

ROI Findings for the

Government

Vertical

ROI Findings – Government Vertical

ROI Benchmarks –

Government

Government Vertical Case Study

ROI Findings for the

Education

Vertical

ROI Findings – Education

ROI Benchmarks –

Education

Education Vertical Case Study

Final Thoughts

Backup Slides

Cisco’s ROI for IP Telephony

Actual ROI Results for Cisco EMEA:

FY2000 - FY2005

Breaking Down the Benefits:

Large Office Example

The Single Network

Breaking Down the Benefits:

Large Office Example

Breaking Down the Costs:

Large Office Example

Costs

Benefit Differences of the Large,

Medium, Small Offices

Key Customer Drivers for IP

Communications

Real Benefits of Cisco IP Telephony

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