Advancements in IP telephony have exceeded PBX or Centrex phone systems in features, affordability, and reliability, but how do you know when it’s time for your organization to investigate this inevitable technology?

The driving forces behind the decision to migrate to IP telephony are the same things that have driven business decisions for years: savings, productivity, customer service, and competitive advantage.

IP telephony is not an all-or-nothing decision. Implementations can take place one step at a time--in a new facility, a remote office, or a centralized Contact Center--before jumping in completely. The answers to the following questions may signify that the move to IP telephony is coming sooner than you think:

• Are separate voice and data networks too costly to manage?
• Are you nearing the end of your PBX lease?
• Are moves, adds, and changes (MACs) time-consuming and costly?
• Is unified messaging important?
• Are mobility challenges limiting employee productivity?
• Are you considering the purchase of a new PBX?

Here are some quotes from industry analysts on IP telephony:

• "44% of enterprises have already begun to implement IP telephony." (Infotech)
• "IPT has lost its immature label and is now generally favored as the migration path for PBX systems." (Forrester Research)
• "29% of large, 16% of medium, and 4% of small enterprises in North America will have adopted VoIP by the end of this year." (Infonetics)
• "By 2006, traditional PBX sales will be relatively insignificant." (Gartner)
• "By 2009, close to 40% of business lines will be IP-based." (IDATE)

Considering the ROI

If you know it's time, then how do you cost-justify moving to IP telephony?

Decision-makers need good information. Good ROI information is vital for IT acquisition decisions, especially when capital is scarce. The importance of acquisition decisions to both the public and private sectors cannot be minimized. These decisions affect a corporation's ability to compete, a school's ability to teach, a government's ability to provide services. ROI-based IT decisions are focused on more than just the typical engineering and technical analysis; they require financial justification. A comprehensive financial justification typically employs a total cost of ownership (TCO) methodology and considers elements such as product roadmaps, windows of opportunity, manufacturer incentives, and a financial model that considers the useful life of the assets.

ROI-based decision criteria is becoming commonplace in most major IT decisions in companies, schools, and government agencies both large and small--with some reports showing up to 80% of companies requiring formal financial justification for projects under $100,000. With this level of demand, finance officers are specifically evaluating the integrity of the models used and how the ROI methodology is employed to ensure valid and useful results.

According to the Ernst & Young Fortune 1000 IT Buyer Survey, the question of trust becomes paramount. Only 2% of the respondents had "a high degree of trust in vendor supplied metrics." To help decision-makers and managers obtain financial justification services that will provide meaningful guidance in their decision making roles, consider these best practices:

• ROI Experience and Methodology--Choose a vendor that has a history of performing ROI analyses. ROI tools and methodologies need to be customized for almost every engagement. The judgment gained from years of ROI analyses will help to customize tools to your case while maintaining validity.
• ROI Experience and Methodology--Choose a vendor that has a history of performing ROI analyses. ROI tools and methodologies need to be customized for almost every engagement. The judgment gained from years of ROI analyses will help to customize tools to your case while maintaining validity.
• Staff Resources--Choose a vendor that has special resources to calculate and interpret the ROI results. Dedicated vendor staff will be an indicator of the commitment that the vendor places on financial justification. Although templates and tools are available to mechanically "run numbers," the experience, knowledge, and background of the staff will be essential in illustrating ROI results that have validity, show integrity, and provide insight to decision-makers.
• Blending Financial and Technical--Choose a vendor that not only has a financial analysis capability but also understands the proposed technology. Although the financial focus of the ROI analysis is essential, the proposed engineered solution must be properly designed and include a comprehensive TCO. Company references and manufacturer or industry certifications should also be required.
•  Multiple Models--Choose a vendor that uses multiple independently developed models. ROI models typically use a program that runs a baseline configuration: the legacy system and all its costs against a proposed solution and its costs over time. Tax effects are noted so pre- and post-tax results can be discerned. Comparing the results of multiple models on a common element, such as Internal Rate of Return (IRR), will validate that the results of the disparate models are accurate.
•  Documented Justification--Require the vendor to provide a written financial justification analysis. A summary of the proposed system as well as the legacy system should be provided. More detailed cost breakdowns of both solution sets should be included. All model assumptions should be stated. References to white papers should be properly cited. Key comparative metrics should be discussed and recommendations stated. The report should be written for and understood by financial managers and C-level staff.

Your Role: Providing Precise Documentation

In order to perform a customized ROI analysis, gathering specific information on your existing voice and data network is essential. Some of the information the ROI vendor will need on your current system includes the following:

• Complete copies of telephone bills covering at least two months
• Annual maintenance costs
• Monthly lease fees
• Lease termination dates, if any
• Any spare equipment that may be on site
• Dedicated support staff metrics
• The number of MACs you perform within a year
• Number of users and phone sets

If you don't have all of the information readily available, the vendor should be able to use industry estimates for your business type. However, the more exact the data, the better the analysis.

Your Deliverable: A Customized Report

Using your data, an ROI analysis should ultimately determine whether the IPT implementation can be cost-justified using several metrics, including IRR, payback period, NPV of cash flow, and ROI.

Here is what you should receive from your vendor:

• An executive summary explaining the results
• Description and cost of operations of your current environment
• Description and cost of operations of your proposed solution
• True costs of operations
• Project payback timeline
• The varying cost factors based on particular scenarios

A vendor that can produce a report like this, taking into account your expected growth and future requirements, should be considered a valuable partner, especially for IT personnel and SMB organizations that may not have the means or financial acumen to do the analysis on their own.

Your Final Actions

Documenting and justifying your solution from both a technical and financial viewpoint gives you something extremely valuable: empirical data, based on solid and explicit assumptions. Essentially, the financial justification for your project should be completed and fully documented so that your only next step is reviewing the assumptions and preparing for the presentation to the ultimate decision-makers.

It is important that you are comfortable presenting your findings to the decision-makers. If desired, the vendor that produced the report is typically open to accompanying you to elaborate.

David Kurtz is a Financial Solutions Consultant with Avnet Enterprise Solutions. For more information about Avnet Enterprise Solutions and its customized Convergence Impact Report (CIR), click here.

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