The Seamless Enterprise

Comprehensive news and discussion of enterprise communications and converged network solutions.

UC ROI: It's All About TCO

on April 30, 2012 by Greg Burton

Before you can make an informed decision about return on investment (ROI) for a Unified Communications implementation, it is essential to know the scope of that investment. Obviously, it is more than just the up-front cost of the equipment you buy for a premises-based solution, or the ongoing cost of a hosted solution.

Determining ROI is all about TCO, the total cost of ownership for either of these two approaches. ROI typically looks at the total capital cost of an investment and calculates the value returned by that investment over a given time period. Since a hosted solution represents more of an OPEX (operational investment) model as opposed to a CAPEX (capital investment) model, TCO is a better metric to gauge whether a hosted or premises-based solution is the better choice.

TCO encompasses all the costs associated with a solution: equipment purchases plus all the costs of operating and administering equipment, from personnel to software to maintenance to disaster preparedness and recovery.

Let’s look at five key elements in determining TCO:

•    CAPEX / OPEX: With a premises-based solution, the investment is front-loaded because of equipment costs. A hosted solution presents the costs over time, typically calculated as a cost per user per month. An enterprise with a limited capital budget may prefer the OPEX approach, as it removes a hurdle to immediate deployment of a UC solution.

•    Ongoing costs: These can range from personnel to energy. How many people will it take to maintain a premises-based solution? What software upgrade costs will the enterprise face over time? How much does it cost in energy to operate equipment on-site? What are the taxes on equipment or assets? What are the costs of real estate/space taken up by a premised-based solution?

•    Staffing: For a premises-based solution, will there be a need for any additional staff, and if so, how extensive are those staffing needs? For a hosted solution, what will it cost to maintain an on-site staff even though the solution has been outsourced? How much can be saved or what type of productivity gains can be achieved  through reassigning staff to more strategic projects?

•    Collaboration: How much can the enterprise reduce costs by improving employee productivity? Most savings may be soft, but hard savings can come from the elimination of travel connected with face-to-face meetings through collaborative online sessions. If this is being done through a premises-based solution, what additional equipment may be necessary to enable it? If it is done through a hosted solution, how much does this raise the cost per user?

•    Speed of deployment: If your business model assumes greater savings or revenue when the UC solution is deployed, a hosted solution may help you achieve that  benefit faster. Whereas, a premised-based solution can take months or years to deploy.

The perception is that an enterprise’s TCO will be lower with a hosted UC solution,and most of the time, that is true. An enterprise that has a number of branch offices will almost always find a hosted solution is the better choice. But an enterprise concentrated in one large location may find a premised-based solution makes more financial sense.

A hybrid approach, a blend of both a premise and hosted solution, may  also be appropriate for certain business environments. One example might be a hospital connected to several smaller clinics or mini hospitals. If most of the communications are focused within the hospital, without extensive needs for multi-site interaction, the premises-based approach may be more ideal. But if the hospital has branch clinics or mini-hospitals throughout its region and are growing in number, with significant site-to-site-to-headquarters communication, the hosted approach may be the better option.

The elements of TCO represent the measurable financial effects of a premises-based or hosted solution, but that’s only part of the story. Much of the calculation involves considerations that are all but impossible to assign costs or savings to. For example, UC yields greater productivity, improves collaboration, makes it possible to fully integrate mobility into the enterprise, and leads to better decision-making.

And with a hosted solution, there are considerations such as the agility of the solution itself, the ability to deploy quickly in new or relocated sites, centralization of management, and the opportunity to offload the whole BYOD – bring your own device – issue to a provider.

Elsewhere in this newsletter, you can read about how the director of network operations for Snelling Staffing and Intrepid USA Healthcare Services knows that Sprint Complete Collaboration, the hosted UC solution, is saving his companies money, but that’s only secondary to him. As he explains it, even if the hosted solution didn’t save him a dime, he would embrace it for the centralized management, flexibility, scalability, and the fact that it allows his very lean support staff to accomplish so much more than they could otherwise.

Sprint supports both managed premises-based and hosted UC solutions. The best solution for any given enterprise depends entirely on its distinct needs, as well as its financial situation and its corporate culture. But the first step for any enterprise is to fully understand what either of these approaches mean to them in terms of the TCO involved and how that will translate to ROI in the short and long terms.


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About the Author

As General Manager of Convergence Marketing for Sprint Business, Greg Burton oversees product marketing, marketing, and sales enablement functions for WAN, VoIP, Unified Communications, mobile integration, IT, security, and managed services. Greg has more than 18 years of experience in a diverse range of business functions, including marketing, strategy, product planning, channel management, finance, engineering, and team building. He has an MBA from Washington University in St. Louis, and a degree in industrial engineering from Purdue University.

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