Lightening the load
Reduce total cost of ownership with strategic sourcing and cost-optimized network design.

By Shally Bansal Stanley
Network World, 12/09/02

As IT executives finalize their 2003 budgets, few expect much growth. The new spending goals in these times of austerity are to reduce the total cost of ownership and demonstrate a return on investment.

Fixing cost inefficiencies in your infrastructure is nowhere near as much fun as issuing a request for proposal (RFP) for hot new technology, but the process is the one that produces the quick results that are required by today's businesses.

Before you can determine how to reduce costs, you need to have a solid handle on what you're paying. Identify your network costs, including hardware, software, services and labor. Then review the data to target opportunities for savings.

The next step is to realize these savings. There are two approaches to reducing costs: Paying less for the same service by strategic sourcing, and buying fewer services as a result of a cost-optimized network design.

Strategic sourcing
A comprehensive, strategic-sourcing effort can reduce costs by an average of 20%. Midsize organizations that spend $20 million per year on voice, data and wireless services can save millions of dollars in a short time. For larger companies, the savings can be even more substantial.

Your best bet is to enlist the help of professionals that have extensive experience in competitive procurement, such as an internal procurement group or outside consulting firm. The goal is to buy products and services at better-than-market rates while guaranteeing required levels of service. Here are the steps to follow:

1) Send a comprehensive RFP for each service, delineating your technical, business and legal requirements.

• Review current network design.
• Identify RFP requirements.
• Determine RFP recipients.
• Establish your evaluation criteria and weighting scheme.
• Write your RFP and send to vendors.

2) Conduct an analysis on costs and services to determine which vendors can meet your needs. Use a consistent and well-documented evaluation method so that key stakeholders within the organization can follow your analysis.

• Review and rate responses against established criteria.
• Determine "best" technology based on cost, design and service.
• Question customer references for the top-three providers.
• Re-evaluate responses and develop recommendation.

3) Negotiate the final agreement.

• Reduce cost.
• Review business terms and conditions.
• Negotiate service-level agreements and terms.
• Partner with legal team to conclude agreement.

Cost-optimized network design
Once you've reduced the cost of existing service, look at other ways to reduce total cost of ownership through a cost-optimized design initiative. This refers to a design that lets you maintain the level of service while reducing the cost of providing that service.

Cost-optimized designs typically yield another 20% of savings in the first year of implementation. The amount of savings often equals, or even surpasses, the savings attained through strategic-sourcing efforts.

Companies that can benefit most are large organizations with infrastructures that have grown over the past several years and have not been audited to see what services are necessary and what are not; those that have grown through acquisition; or distributed business units that lack standardized and globally available services.

It's not enough to tweak a good network strategy and look to reduce costs in places. Successful implementation requires the following planning:

• Understand the network infrastructure and application requirements.
• Understand business processes and objectives.
• Assemble an experienced business and technical team.
• Develop clear cost and service objectives.

Conducting a comprehensive infrastructure cost assessment is a must before a cost-optimized design effort. It's impossible to understand the financial effect of design changes without knowing the underlying costs of the infrastructure.

Next, complete a baseline of the critical applications associated with the current network. This lets you anticipate the effect of any changes to the design.

The most important metric in performance analysis is the end-user experience, measured by response time. However, you still need to monitor all aspects of the environment from the client to the back end.

Having the underlying cost and performance data lets you begin cost optimization. The key items to consider in your analysis:

1) Gather information about the current environment.

• Identify IT personnel who maintain the network.
• Identify business unit managers and other user groups.
• Identify key vendors and contractors who have supplied network equipment and services.
• Conduct interviews to assemble a thorough picture of the network.

2) Conduct an operational assessment.

• Review your organizational structure and overall IT staffing levels.
• Collect high-level data about your problem-resolution processes and escalation procedures.
• Document your office environment including layout, expansion plans and occupancy rates.
• Identify plans for organizational and physical consolidation of multiple operations.
• Determine existing staffing levels and evaluate gross numbers against industry best practices.
• Identify opportunities for improvement in efficiency.
• Identify existing and planned implementations for network, systems and application management consistent with environment-appropriate architecture.
• Identify duplication of product implementation and functionality.
• Determine scalability requirements.
• Identify opportunities for improvement and make actionable recommendations.

3) Begin implementation.

• Leverage as much of the existing infrastructure and tool sets as possible.
• Perform a gap analysis to determine what you need to build and buy to implement the recommended solution.
• Procure and build as required.

While this isn't a simple process, it can yield tremendous benefits in less than six months.

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