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VoIP ROI is solid

Voice over IP (VoIP) can provide a great ROI for your business. Learn how in this tip.

IP will account for 72 percent of new telephony connectivity by 2008, according to IDC and other analyst firms. Companies are fueling this growth to drive business change and competitive advantage with pragmatic investments to replace aging PBX telephony solutions, save in support and telecommunications costs, and empower the business with new capabilities.

Many who have evaluated and implemented Voice over IP (VoIP) have achieved positive results and financial benefits including:

  1. Reduced calling costs by up to 60 percent via routing inter-office voice calls over data networks, and convergence.
  2. Reduced system and support costs by creating a consolidated network and shared management staff to handle voice and data, rather than separate infrastructures for each.
  3. Increased employee mobility and productivity through features such as unified messaging, automated personal assistants, Find-Me-Follow-Me, and IP voice and video teleconferencing.
  4. Business capability and agility including the ability to establish virtual call centers and implement new applications.

VoIP requires careful planning, however, as it can require a large up-front investment in equipment and network infrastructure and may not yield similar business benefits as those achieved by other companies.

Working with 3Com, a provider of enterprise-class VoIP solutions, Alinean independently developed an ROI analysis tool and survey, and analyzed the ROI of more than 40 sales opportunities and installations worldwide to determine the most significant characteristics for companies that are ripe for high-ROI VoIP success. Alinean then joined IDC to research SBC and BellSouth on managed and hosted VoIP solutions. The following environments or characteristics have consistently generated the largest cost savings or business benefits from VoIP:

Multi-location companies with high interoffice call volumes
In a company with low call volumes, according to Alinean case studies and research, each employee spends a conservative 120 minutes per month on the phone. At about $0.04 per minute for domestic calls and $0.08 per minute for long distance, a typical 1000-person company spends about $71,000 per year. In many companies surveyed, however, calling volumes were more than 600 minutes per month per employee, for an average of $355,000 per year.

One immediate VoIP cost saving is that calls between offices can be routed via the internal IP network, as opposed to through the service provider. In most organizations, interoffice calls can be anywhere from 20 – 85 percent of total call volume. A VoIP telephony solution avoids service provider charges, resulting in the most conservative of annual savings of $15,000 per year. With higher monthly calling volumes and more interoffice calls, the savings for company of 1000 employees could reach at least $60,000 annually, and for a 10,000 person company more than $800,000 each year.

The larger a company with more distributed offices and interoffice calling, including multiple country locations, the higher the savings. However, there are many good examples of small and mid-size organizations also benefiting, like local and state governments with large internal calling volumes, and community banks with many branches.

An additional savings comes through reducing costly cell phone minutes. Organizations can deploy VoIP to initially provide cordless service and then eventually integrate their WiFi network to the phone system using hybrid cell phones, eliminating employees using work cell phones while at their desks.

Transition from a legacy PBX system or Centrex contract
Many organizations' old phone systems require an upgrade, and it's often conveniently timed with an acquisition, operations consolidation or location change locations.

Often, upgrading the legacy systems, support contracts and Centrex service contracts is expensive. A typical Centrex contract is $18-$25 per user per month, while support and maintenance contracts on PBX equipment are in the $12-$18 per user per month range.

As many of these upgrades will involve adding users or repurchasing/reconfiguration, the costs are higher than these ongoing service, support and maintenance expenses. Centrex typically charges $143 to add a user, and for legacy PBX systems, it typically costs $800 per user for central system hardware and components, $100-$200 for phone sets, and $60 in labor.

The final tally: typical cost avoidance with VoIP for a 1,000 person company is more than $216,000 per year vs. PBX solutions, and even higher vs. Centrex.

By upgrading using VoIP, these costs can be avoided, though they are offset by the investment in the new VoIP solution. However, even including the cost of an early termination penalty for stepping out a Centrex contract or book-value write-down on prior PBX investments, the transition will give a good ROI in a short period of time. This normally holds true because the legacy PBX systems come with high maintenance and support contracts and large expansion costs, while Centrex service fees were originally calculated with the costs of legacy technology and are especially high where the fee includes the cost of maintenance and upgrades.

Remote offices without local support
With VoIP solutions, companies can converge voice and data networks and their support staffs. Also, VoIP has integrated remote support and management features, making it easier to perform and manage distributed systems.

A typical PBX solution to support a distributed group of 1,000 users across 30 sites would require more staff than a VoIP solution, as demonstrated in the table below. Support staff time is measured as full time equivalents (FTEs), equaling the amount of work a full-time employee performs in a year, or about 1880 person hours:

PBX Solution VoIP Solution
Voice management staff 4.20 0.63
Data network management staff 0.00 1.89
Messaging management staff 0.53 0.32
Help desk support staff 1.26 0.19
Reporting, auditing and accounting 0.53 0.32
Operator / attendant 1.43 0.38
Total FTEs 7.95 3.73

The VoIP solution results in a 4.22 FTE savings for a typical 1,000 person company, or $216,000 in burdened salary costs. Likely, this staff will be reallocated to more strategic business tasks from the current mundane support and management of telephony systems.

As an example of these savings, Brandon Regional Health Authority saved more than $300,000 dollars during the first year supporting its network servicing 2,300 staff, 125 doctors, and 336 beds.

Dynamic environments with high moves, adds and change volumes
The cost of moves, adds, and changes (MACs) diminish significantly because staff can easily change or configure the systems digitally, rather than manually performing hard changes to the equipment, and because users can do most of their own maintenance and personalization of the communication systems. With Web-based management platforms, many employees can easily perform tasks that required skilled staff in legacy environments.

In a typical PBX, two thirds of all MACs are hard, requiring an equipment reconfiguration or staff visit. These cost $60 each, while soft MACs are less than half of the cost. With a VoIP solution, less than one third of MACs will require an equipment reconfiguration; typical savings per year are $15,000 or more.

1.In many cases the adds, moves and changes are performed by contractors that charge by the hour with a minimum charge of two hours, so the average cost of a MAC can go over $100 dollars.

Read part 2 of VoIP=ROI.

About the authors
Tom Pisello, Founder, CEO, Alinean, has built his 15-year career with a single-minded vision: helping companies to get more business value from IT investments. Most recently, he's created the first metric and worldwide database that captures the ROI of company-wide IT investments in a single comparative figure, ROIT(TM), giving CIOs and CFOs a competitive tool for evaluating existing and new IT initiatives. Tom is also's cost analysis and ROI expert. Ask Tom your question today.

Juan Pablo Pazos, Founder, CEO, XmarteK, has been a leader in the telecom industry for more than 20 years. During the last two years he developed with Alinean, the IT Value Experts, a pioneering ROI tool that has been used in hundreds of case studies to analyze the opportunities, costs and benefits and risks of VoIP, mobility solutions, security and high speed networking in many enterprise markets. Juan will be joining the team of experts soon, answering questions on voice and data convergence. Check our experts page for Juan and send in your questions.

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