The Lippis Report

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In Part 1 we discussed developing a network architecture for you converged network. This is a six to nine month process. With architecture in hand the financial modeling can now take place. The financials will influence architecture choices so be prepared for some give and take during this process. Every budget has assumptions.

Here are the Lippis Top Ten Convergence Budget Assumptions. I´ve developed these assumptions by working with clients over the past several years while assisting them in building and selling their plans/budgets to executive management. Note that assumptions change from client to client based upon constraints, but these assumptions tend to be employed most often.

First, use Cisco pricing for equipment. The reason? Cisco is the most expensive provider of IP telephony, switches and routers, and the goal of the CIO and network architect is to always, and I mean always, come in under budget during review periods. Use Cisco list pricing, and you can reduce the hardware budget by approximately 40% and still be in the ballpark after a competitive
bid, which I always strongly suggest.

Second, I add 18% on top of list capital cost to cover annual maintenance. This is a number that has very little negotiation room with the equipment suppliers. Many vendors will reduce the acquisition cost but will not budge on maintenance cost and for good reason. You want the vendor to be able to support you when problems arise, and you know problems will always arise.

Third, I add 15% of projected list hardware cost for installation. Again, this is a number with little wiggle room. You want your new network installed and installed correctly.

Fourth, keep network security spend separate. Companies that say that IP telephony does not cost justify simply do not know how to count. Many add network security such as IDS/IPS, NBAD, distributed firewalls, virus/worm scanning etc. to the convergence budget, which eats into the cost savings rapidly. Network security spend is important but it should be treated for
what it is, an insurance policy against virus, worms and attacks.

Fifth, assume a multi-year cut over from the old voice network to the converged network, independent of how you decide to provide VoIP services either transported over an MPLS network, hosted IP services or some combination of both. For example, if 50% of your toll traffic will go away and be transported over the converged network, then assume that 50% will take place over a 3-year period. Don´t front load the cost savings.

Sixth, depending on the size of the corporate network, either model every site with equipment, staff, services, number of employees, etc. or create a site taxonomy of large, medium and small sites plus mobile professionals. This will allow for anomalies such as a PBX lease that does not expire for a few years, specific equipment change outs, staffing requirements, etc. to be accounted for.

Seventh, work with your existing service provider to obtain pricing on MPLS and hosted IP services. These numbers will be high, but don´t worry, just use them. If you are moving from a frame relay network and PSTN to MPLS, you will show significant savings with reduced access and long distance cost. The cost will come down further after a competitive bid or a reverse auction which some of my clients have successfully used.

Eighth, work with accounting early to obtain their assumptions, such as IRR, depreciation cycles for software and hardware, etc. In short you want to have accounting engaged in the process early on so when the CFO sell starts, the project is not a surprise to him/her.

Ninth, don´t forget staff cost. Most corporations do not have the staff skills to implement and operate a converged network. In particular there is a shortage of skilled IP telephony personnel. Make sure your budget accounts for new hires, downsizing and/or staff rotation.

Tenth, include mobile operator expense. While many companies do not know this cost, the first step to understanding it is to engage in an annual corporate wide contract with a mobile operator. You may be surprised to find that your corporation spends as much on cellular as it does on service providers for corporate voice calls. I usually assume an increase of as much as 50% over
the next two years for mobile cost and a decrease in toll usage. This will vary from company to company but a decrease of 20% a year is not unreasonable. The good news is that the cost/minute for mobile services is lower than toll in most cases. With architecture and budget in hand it´s time for the real work — getting your converged network funded. Before you develop an RFP and go out to competitive bid, get funding approval first.

This is a huge leverage in negotiating price with service providers and equipment suppliers. Remember, a budget is a commitment to executive management that you will spend x dollars and derive y services that will either drive revenue and/or profit or both. In short you are putting your professional reputation on the line and you will be held accountable if you´re over budget or fall
short on delivering on the services and improvements you promise. Be realistic and start socializing the plan with conservative assumptions. No surprises!

In the next and final Part 3 of the ?¬¢‚Äö√ᬮ?√¨Up selling your IP Telephony budget to your CFO?¬¢‚Äö√ᬮ¬¨√π series we´ll review the three most important concepts to address in your IP telephony plan when seeking BoD authorization of project funding. In short, we´ll discuss what needs to be in the BoD presentation to maintain your credibility and increase the chances of securing funding.