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Checklist: Adding Up the Return on IP Telephony Investments
Internet Protocol Telephony
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Calculating the TCO (total cost of ownership) of an IP telephony system can be complicated, but at least it's possible.
It's also necessary for those interested in knowing the ROI (return on investment) they can expect when buying
such a system. Even knowing the TCO, however, doesn't make it easy to figure out ROI. While the benefits of IP
PBXes are real, they're not always easy to quantify. Some, such as the savings on equipment or telecom costs, are
straightforward calculations. Others, such as making customers more comfortable in dealing with one's company, are
difficult if not impossible to translate into dollars. Whatever the case, here are 10 ways a new IP phone system can
repay the money a company spends on it, along with some hints about how to get at least a rough idea of the value
the investment will return.
1. Save on office telecom costs. Cutting corporate phone bills is the most easily measurable benefit of
moving to IP phone systems. The biggest savings come when there are a lot of calls between branches. Putting
those calls on the corporate IP data network cuts or eliminates interbranch long-distance charges. Larger
companies can reduce their telecom costs by thousands of dollars a month, according to Marty Parker, principal
at UniComm Consulting LLC . The reductions are greatest, though, when the branches are in different parts of
the world, he noted. That's because overseas calling rates are typically not as competitive as, for example, longdistance
charges within North America or Europe. Either way, measuring the savings requires little more than
looking at the monthly phone bill.
2. Reduce mobile and hotel phone bills. If a lot of its employees travel, a company's cellular and hotel
phone charges will likely be large. IP PBXes let business travelers make phone calls via their hotels' broadband
connections using their laptops, accessing the features and functions of the corporate system as if they were at
their desks. That boosts their ability to communicate efficiently even as it saves the company money. The savings
on total telephony costs per mobile employee can reach 30 percent, according to Tony Rybczynski, director
of strategic enterprise technologies at Nortel Networks . Here, too, the benefits are in black and white on the
cellphone and hotel bills.
3. Cut phone system costs. Because IP telephony systems typically run on standard servers rather than
specialized hardware, they can be cheaper for even a one-office company than a traditional phone system,
according to Parker of UniComm Consulting. And when the deployment spreads to multiple sites, the savings
multiply. For one thing, it's no longer necessary to have equipment in every site. Since phone traffic can travel via
the IP data network to one (or, for the sake of redundancy, several) sites, a handful of servers will do the trick.
That also cuts the need for system administrators in each site. Similarly, less hardware also means fewer maintenance
4. Cut desk phone costs with soft or SIP phones. The phones a company buys - or doesn't buy - can
also produce equipment savings. To start with, an IP system makes it possible to replace desk phones with
software. "If you want to convert a PC into a phone, all it takes is an eight-dollar headset," observed Digium Inc.
CEO Danny Windham. UniComm's Parker also noted that IP phones themselves are getting cheaper all the time,
particularly the SIP variety that use standardized protocol and components. "SIP phones are in the sub-100-
dollar range, less than the price of the old TDM phones, or in some cases they're the same price but with lots
more functionality," he said. "So in some cases you can buy them for as much as 50 percent off, or in other
cases pay the same price but get lots more."
5. Cut infrastructure costs. Because corporate IP telephony runs on the same infrastructure as data applications,
there's no need for additional wiring for phones. For companies that already have separate telephone
wiring installed, that won't make much difference. But for those that are moving into new buildings or retrofitting
old ones to bring them up to date, the savings of moving to IP can be considerable. Rybczynski of Nortel said
that wiring for converged IP telephony and data service costs an average of $204 per desktop, while individual
voice and data cables run $170 each, adding up to $340 or more per desktop.
6. Save on moves, adds and changes. With traditional phone systems, every time it's necessary to move, add or
change users, the company that sold the system, often called a VAR, or value-added reseller, has to come on
site to make the change. It requires specialized knowledge and can cost $90 to $131 each time, according to
Nortel's Rybczynski. With IP PBXes, the process is much simpler. In many cases, users can move themselves,
perhaps simply by sitting down at a different phone and entering their passcode. Once they do, calls to their
extension will ring that phone, and they'll have access to all of their features and privileges through it. If 20
percent of a company's employees move every year, the savings of such self-administration will be significant.
7. Eliminate a receptionist or two. The IVR (interactive voice response) and ACD (automatic call distribution)
features of IP phone systems can often handle calls as well as a person can. They let callers choose from
options including dial by name, and make sure calls get to the right employees. That means customers dial 0
for operator less often, and may even make it possible to do without a receptionist altogether. Digium CEO
Windham also notes that outbound call notification capabilities, integrated with small-business applications, can
let businesses such as medical offices remind patients of their appointments, or pharmacies inform customers
that their prescriptions are ready, without anyone having to pick up a phone.
8. Let (or make) employees work at home or part-time. The ability to access the full features of an IP
phone system from anywhere there's a broadband Internet connection lets employees easily work from home.
That is proving particularly useful for companies with call centers , since it means they don't have to bring all
their agents into a single physical facility. Some in fact have all their agents working from home. "That's a perk
for the employee and a cost saving for the company," noted Digium's Windham. It's not just companies with call
centers that can benefit, of course. Windham described a real estate firm in San Diego that set up an IP PBX,
then "sent all their employees home and canceled the lease on their office." Similarly, Robert Harris, president of
consulting firm Communications Advantage Inc., noted that companies "may have valuable inside sales people
who no longer want to work full time, or want to work from home." The work-from-anywhere capability lets
companies keep those valuable employees.
9. Route customer calls to mobile phones, not voice mail. It's hard to measure the benefit that results
when a customer call doesn't go to voice mail but is instead answered by a live person. IP PBXes' follow-me
features make it easy to have calls routed to employees' cell phones when they're not at their desks. Such ease
of contact may be just what it takes to keep potential buyers from going to a competitor. A related
issue is the ability for IP phone systems to distribute calls based on customer information in
corporate databases with which they interact. Such setups make it possible to route calls to agents with the
most appropriate skills, or to agents they've dealt with before. Either way, the result is better relationships with
customers. The most likely result of increased customer satisfaction will be increased revenue rather than
A more savings-oriented benefit of getting calls to the right person is that it increases the percentage of
problems agents can handle in one call. Rybczynski of Nortel pointed out that each call may cost $20, and
better call handling may mean saving that $20 on 5 percent of incoming calls. Similarly, he noted, IP-based
presence detection may make it possible to bring in the appropriate expert on the first call 90 percent instead
of 20 percent of the time, which will also increase first-call resolution rates. Though Rybczynski's numbers are
hypothetical, doing the math on such examples points to potentially impressive savings.
10. Save time with click-to-call. Clicking a button or name on the computer screen instead of pressing keys on
the desk phone may save only a few seconds per call. Multiplied by hundreds of calls, it could save quite a bit of
time. In fact, click-to-call and other personal productivity features can save individual employees 30 minutes per
week, according to Rybczynski. But there are less-tangible benefits as well. Some phone manufacturers have
found that simply having a more user-friendly system improves the attitude and morale of employees. Given the
stress workers are feeling due to the economic crisis, that alone could make a difference in productivity.
Measuring Intangible Benefits
While many of the above benefits of IP telephony systems don't produce easily measured returns on investment, that
doesn't mean there's no way to know their value. To start with, companies can hire consultants to analyze their specific
business processes to identify the cost savings or revenues that certain features and functions will likely produce. They
can also look for case studies or ask vendors for customer references. If the companies they look at have similar business
processes, it may be possible to estimate some financial benefits. And if a vendor is confident with its products, it should
be happy to provide such contacts.