Looking after the bottom line

For many firms like yours, there is a perceptible lack of understanding of the on-going total cost of ownership of IP technology....

For many firms like yours, there is a perceptible lack of understanding of the on-going total cost of ownership of IP technology. Gary Flood rises above the marketing jargon and lays it on the (bottom) line, assessing how you can get a good

Companies of all sizes - especially smaller businesses like yours - can benefit financially from switching to communications strategies based on the widespread IP (internet protocol) standard. The problem is, you might not know it once you do.

Welcome to the missing link in too many organisations' IT strategies - understanding the real ongoing cost of technology, the concept of total cost of ownership (TCO).

TCO refers to the lifetime costs related to your technology purchase: the amount of cash you'll spend not just on the basic hardware or license fees, but the plethora of direct (support, upgrade) and indirect (training, business lost through downtime) costs that too many organisations are failing to factor in to their IT budget process.

Beyond the obvious

Calculating TCO means thinking beyond the obvious costs. As Chris Evans, MD of IP managed solutions provider hSo, says, this should include taking into account areas such as software upgrades, maintenance fees, the office floor space taken up by the server and "even the costs of air conditioning to keep the server from overheating".

"Most companies in the middle market just don't know enough about TCO," says Richard Bainbridge, General Manager for Commercial Management in BT's Global Services arm. Not only could this gap be stopping you from making the most of your existing technology, it might prevent you taking advantage of new ways of working around an integrated technology like IP.

Market watchers see this as a way of enabling users to work from their desktops with tools like instant messaging, video conferencing, offering better and more secure collaboration with documents, and facilitating better remote and mobile-based working practices.

That's just the tech-speak, of course. But what's the bottom line pay-off for your firm going to be, once you've decided to make the shift to an IP network way of working?

According to Mark Blowers, Senior Research Analyst at UK IT industry researchers Butler Group, it's purely and simply about what all business people look for - better management of resources.

"By centralising the management of networks onto an IP configuration you will immediately get a better handle on what's happening, and will get away from the ad hoc, disorganised way of handling your network that you may be experiencing," he says.

"This could take the form of simplifying that task to the point where it's the responsibility of just one person, instead of a number with different responsibilities for voice or data. Yes, there are lots of TLAs (three letter acronyms) and jargon around IP, but that's the essence of it - better management now and a platform for applications you may feel are appropriate for your business in the future."

Saving money

For 'appropriate' you may prefer to read 'saving money'. Mitel Networks is a global IP telephony company that partners with major telecoms companies and European Head of Strategic Marketing, Campbell Williams, estimates that an organisation switching from leased line to IP could at a stroke reduce monthly wide area network (WAN) charges by "tens of thousands".

"But there are other benefits. With a leased line you're really just getting lots of 'narrow' pipes, say 30 64k circuits, whereas with broadband you'd be getting a true 'fat' pipe with 2 Mbyte capacity," he says.

But without getting a handle on your TCO, you could be making easily avoidable mistakes. Say you decide that moving to IP is too risky for your organisation. That's fine, so long as you have built into your budget the need for paying for moving staff telephones as an ongoing cost.

Sounds trivial? Analyst firm Frost & Sullivan estimates that a medium-sized company moves 15% of its staff around every year, which in terms of admin and PABX reprogramming could add up to £75 per moved employee at a time. This cost is avoided in the IP world, as numbers are assigned and controlled on a central basis.

But there is no point trying to avoid such costs if they are not a major headache. It seems we're back to the issue of getting that full picture of the technology cost today and what it could be if the picture changes. A further complication: do you want to go IP, or fully internet?

Steve Carter is also an executive for BT Global Services, where he is Manager for IP VPNs. "SMEs we work with are very demanding, know what they want to do with their business, but don't want to know too much about technology - they're looking for tools that are easy to use," he says. He adds that you need to be clear about whether you want to go IP on the open internet, or take advantage of IP through a managed service, like his team's equIP offering.

"The choice is about whether you need a network to communicate between more than one company site by more than just the phone or whether you also want to centralise servers and applications that are currently dotted around. The next issue is whether you want to keep this all on the public internet, which has many advantages but could open you up to hacker and denial of service attacks, or on a private, secure network. Another cost you need to factor in the cost of cleaning your network of viruses and what happens if you lose it for days at a time."

Modelling package

The good news for those firms that want to get a better handle on their TCO situation and start exploring some of the benefits of IP is that there are tools available that you can use to assess your TCO status.

Working with consultancy Deloitte, Bainbridge's team has built a TCO-aware modelling package based on state-of-the-art metrics from organisations like Gartner that can enable you to benchmark your performance. "You can compare yourself to other firms of your size, who would be expected to have x number of people doing application development work, so many doing tech support, this number on admin and policy. You can also use it to work out what you are spending on support, service management, programming and your helpdesk functions. And it can also give you what-if capabilities, to see what it might cost if you adjusted any of those parameters," he says.

The chances seem very high that without careful analysis, too many costs won't get noticed and planned for. "Just because some parts of communications technology are getting cheaper doesn't mean you can treat it as a commodity," says Bainbridge. "Don't go to the IP network shop and get the cheapest one they have. Think about what it's going to be like to use it, and how your people costs may change as a result."

In other words, you won't get an acceptable ROI (return on investment) until you've sorted out your TCO - not only for IP networks but for all your tech spending.

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