Understanding TCO: Can You Afford Not To?

As market shifts drive continued changes in business requirements, and as technological capabilities evolve even more rapidly, companies are turning to more robust evaluation methods to validate the investment in new IP unified communications (UC) capabilities, particularly when it comes to understanding costs.

Existing legacy time division multiplex (TDM) solutions have come under increased scrutiny in recent years as their maintenance costs increase, and as they increasingly fail to deliver the productivity benefits of modern IP-based UC solutions. Recent economic uncertainty has forced a greater level of focus on these existing costs, and lead to a renewed urgency and attention on technology to drive out these inefficiencies.

Total Cost of Ownership (TCO) has become an important metric for assessing and tracking the risks, costs and benefits of UC solutions under evaluation. TCO enables organizations to compare competing solutions on an equal footing—like for like—and align those solutions with business needs, while understanding the effects of future requirements and functionalities.

This is because TCO calculations include costs that may not turn up in initial budgets or initial statements of work, but that may still have a significant impact on future business operations—for example, recurring labor costs. As a result, systems with the lowest purchase price ultimately may not have the lowest total cost of ownership.

"A comprehensive TCO analysis must draw on third-party data and full competitive coverage to compute UC system costs based on each organization's specific configuration data," advised Mark Arman, vice president of business development at ShoreTel. "This should include annual recurring costs such as support, system management, call charges, energy consumption and upgrade costs, as well as up-front capital and implementation costs."

To help prospective customers understand the business and financial impact of UC systems, ShoreTel has developed the ShoreTel TCO Tool. Once configured for a specific customer's circumstances, the tool enables a customer to calculate and compare the TCO of alternative UC systems over multiple years—information that is key to understanding the costs, risks and benefits associated with a UC system purchase. Organizations are rapidly turning to this tool as a powerful guide in the purchasing decision-making process.

As an example, the result of a 10-year TCO analysis for a large enterprise configuration (1,500 users across 3 sites) is shown below.

This is the VoiceCon standard "Large Enterprise" configuration, and assumes 1,250 users at a headquarters site, 200 users at a remote office, and 50 users at a satellite office. Site survivability was also an important requirement for all sites.

Based on cash flow projections for each solution, the tool assesses key financial ratios such as Payback Period, Return on Investment (ROI), Internal Rate of Return (IRR) and Net Present Value (NPV), important for assessing the long term financial merits of each UC solution.

"ShoreTel has a deep, competitive and sustainable TCO advantage," Arman said. "The ShoreTel TCO Tool has now been deployed and demonstrated in hundreds of case examples, and in each case, ShoreTel has been able to consistently demonstrate TCO between 20 percent and 45 percent lower—and an energy footprint up to 62 percent less—than competing vendor solutions."

This fundamental advantage, Arman added, is driven by ShoreTel's unique single-image, distributed software and embedded switch-based call routing architecture. "ShoreTel's distributed architecture results structurally lower product capital cost, network upgrade cost, implementation and training cost, maintenance, MAC, system management, long distance charges and energy consumption," he said.

Comprehensive TCO assessment also provides valuable insight into the underlying product complexity and long term financial viability of each UC vendor. Unnecessarily complex ecosystems lead to higher total costs of ownership, lower levels of customer satisfaction, and result in lower margins throughout the value chain. In recent times, such complexity has lead to and exposed critical weakness in the financial sustainability and viability of certain "older technology" UC vendors.

Arman concludes, "When it comes to reducing costs on a highly reliable and scalable platform that has been architected for business growth, many organizations are finding that they simply can't afford not to choose ShoreTel."

Organizations interested in using the ShoreTel TCO Tool should contact a local ShoreTel Partner.