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ROI

One of the first and possibly most difficult questions that companies face when determining whether to invest in a new technology is whether there will be sufficient benefits and returns for the required investment and, if so, how much impact they will have. Like most companies, Cisco requires a positive business case or financial justification for funds to be approved for any major investment.

However, ROI calculations should be only one aspect of the measurement system. Other factors, such as business, operational, and adoption impact, must be taken into consideration as well. In addition, reporting only on metrics that directly relate to the initiative's success is critical. IT organizations sometimes measure projects in ways that do not directly assess the project's contribution to business goals, making it difficult for senior management to assess the value of the initiative and provide the necessary sponsorship for its success.

Cisco developed a simple ROI measurement system that enabled IT to assess the viability of the IP Telepohony implementation. The measurement system included the following factors:

  • Financial—Reduction of wide-area facility requirements; fewer devices to manage and maintain; simpler adds, moves, and changes; and lowered overhead cost associated with simplified and converged infrastructure

  • Operational metrics—Availability, performance, and error rates

  • Business metrics—Cost savings, satisfaction, cycle-time acceleration, transaction response times, availability, and error rates

  • Adoption metrics—Adoption rates and overall employee satisfaction with the new system

"An important part of any ROI objective is to weigh the risks of implementing the initiative versus not implementing it," said Lynnee Jimenez, Cisco IT finance manager. "We weighed the benefits—strategic and financial—and asked ourselves what the overall justifications were versus the alternatives we considered."

This necessary emphasis on frugality leads to renewed importance on the performance of ROI calculations. Chris Kozup, a senior research analyst for Meta Group, points out that in the generous economic environment of past years, executives would cite general ROI expectations for technology implementations. Now, says Kozup, executives are pressed to pinpoint more specific ROI targets, such as those for a 12-month or 24-month period, with a clearly stated "time to ROI" target.

In an effort to identify specific ROI factors, Cisco began by committing all new building openings to one set of wiring standards. All upcoming PBX leases were terminated when they came up for renewal, and all new employees were issued an IP phone right from the start.

Cisco addressed several variables during the IP Telepohony deployment to calculate ROI. Each variable was categorized by either hard or soft cost factors. Hard cost factors included areas where quantifiable "account balance" results could be identified and measured. Soft cost factors, although not as quantifiable in measurable dollars, still impact savings realized through efficiencies and increased productivity. Table 1-3 documents the hard and soft cost factors identified during and after the migration.

Table 1-3 Hard Cost Factors and Soft Cost Factors for IP Telephony Deployment

Hard Cost Factors

Soft Cost Factors

Drastically reduces cabling requirements for new site openings.

Increased proficiencies—Adds, moves, and changes are simple, quick, and efficient.

Incurs less cost and time to perform adds, moves, and changes, as well as fewer personnel to support.

New employee IP phone allocations are efficient and easy to manage, despite enormous growth.

Eliminates PBX maintenance cost.

Increased productivity—Employees use the technology to be more self-sufficient.

Eliminates leased equipment cost.

Increased mobility—Workplace sharing ratio enables employees to plug in and work wherever they happen to be—at home, in multiple offices, in conference rooms, and so on.

Eliminates PBX system cost (phones, line cards, trunk cards, system software, user licenses, and so on).

Leveraged resources—Both voice and data staff provide IP Telephony support.

Reduces toll-bypass and network carrier costs.

 

Eliminates costly hardware PBX expansion port cost to accompany fast growth.

 

Encourages virtual office space design because of maximum use of real estate space.

 


You can use the Cisco ROI calculator to calculate the ROI for your Cisco IPT solution. You can find the calculator at http://www.cisco.com/warp/public/779/video/iptv/roicalc/.

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