The Total Economic Impact Of Avaya Private Cloud Services

Transcription

1 A Forrester Total Economic Impact Study Commissioned By Avaya Project Director: Bob Cormier, Vice President and Principal Consultant June 2015 The Total Economic Impact Of Avaya Private Cloud Services Cost Savings And Business Benefits Enabled By Avaya Private Cloud Services

2 Table Of Contents Executive Summary... 3 Disclosures... 4 TEI Framework And Methodology... 5 Analysis... 6 Financial Summary About Avaya Private Cloud Services: Overview Appendix A: Composite Organization Description Appendix B: Total Economic Impact Overview Appendix C: Forrester And The Age Of The Customer Appendix D: Glossary ABOUT FORRESTER CONSULTING Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting. 2015, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to

3 3 Executive Summary Avaya commissioned Forrester Consulting to conduct a Total Economic Impact (TEI) study and examine the potential return on investment (ROI) enterprises may realize by deploying Avaya Private Cloud Services (APCS). The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of Avaya Private Cloud Services in their organizations and to leverage Avaya Team Engagement (Unified Communications) and Customer Engagement (Contact Center) technologies to win, serve, and retain customers. APCS is a set of applications and remote managed services delivered through the cloud in support of private/hybrid cloud and premises-based communications solutions. Avaya Private Cloud Services can help save capital expenses for data center and telephone device costs, improve contact center productivity, and simplify transformation to the new cloud technology. The costs and benefits for a composite Organization of 3,500 users, based on customer interviews, are (risk- and present value-adjusted): Investment costs: $6,082,800. Benefits and cost savings: $8,642,700. Net benefits: $2,559,900. To better understand the benefits, costs, and risks associated with Avaya Private Cloud Services, Forrester interviewed five customers with multiple years of experience using Avaya Private Cloud Services for UC and CC; see the section About Avaya Private Cloud Services: Overview for more information. Prior to Avaya Private Cloud Services, the interviewed companies had out-of-date legacy communications environments that included different and aging solutions, managed by disparate third parties providing inconsistent service experiences. Costs were increasing, and each customer wanted to reduce capital expenditures, as they looked to transform and evolve their communications environment for future needs. AVAYA PRIVATE CLOUD SERVICES REDUCES CAPITAL AND OPERATIONAL EXPENSES AND IMPROVES CALL CENTER PRODUCTIVITY The interviews with five existing customers and our subsequent financial analysis found that a composite Organization experienced the risk-adjusted ROI, benefits, and costs shown in Figure 1. See Appendix A for a description of the composite Organization. Our analysis points to risk- and present-value benefits of $8,642,700 over five years versus costs of $6,082,800 over five years, for a net present value (NPV) of $2,559,900. FIGURE 1 Financial Summary Showing Five-Year Risk-Adjusted Results ROI: PV of benefits: PV of costs: NPV: 42% $8,642,700 $6,082,800 $2,559,900

4 4 Benefits. The Organization experienced the following risk- and PV-adjusted benefits, which are similar to those experienced by the interviewed customers. The benefits total $8,642,700: Productivity savings from Avaya Aura Call Center Elite, Workforce Optimization (WFO) solutions, and the APCS support team $4,800,700. Reduced capital expenditures for telephone devices and software $377,000. Infrastructure cost avoidance savings $3,465,100. Costs. The Organization experienced the following risk- and PV-adjusted costs, which total $6,082,800: Manpower for initial planning and ongoing management of Avaya Private Cloud Services $1,057,200. Avaya fees for Avaya Private Cloud Services $5,025,700. Disclosures The reader should be aware of the following: The study is commissioned by Avaya and delivered by Forrester Consulting. It is not meant to be used as a competitive analysis. Forrester makes no assumptions as to the potential ROI that other organizations will receive. Forrester strongly advises that readers use their own estimates within the framework provided in the report to determine the appropriateness of an investment in Avaya Private Cloud Services. Avaya reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester's findings or obscure the meaning of the study. Avaya provided the customer names for the interviews but did not participate in the interviews.

5 5 TEI Framework And Methodology INTRODUCTION From the information provided in the interviews, Forrester has constructed a Total Economic Impact (TEI) framework for those organizations considering implementing Avaya Private Cloud Services. The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision, to help organizations understand how to take advantage of specific benefits, reduce costs, and improve the overall goals of winning, serving, and retaining customers. APPROACH AND METHODOLOGY Forrester took a multistep approach to evaluate the impact that Avaya Private Cloud Services can have on an organization (see Figure 2). Specifically, we: Interviewed Avaya marketing, sales, and product management executives, along with Forrester analysts, to gather data relative to Avaya Private Cloud Services and the marketplace for Avaya services. Interviewed five organizations currently using Avaya Private Cloud Services, including managed services, to obtain data with respect to costs, benefits, and risks. Designed a composite organization based on characteristics of the interviewed organizations (see Appendix A). Constructed a financial model representative of the interviews using the TEI methodology. The financial model is populated with the cost and benefit data obtained from the interviews as applied to the composite Organization. Risk-adjusted the financial model based on issues and concerns the five customers highlighted in interviews. Risk adjustment is a key part of the TEI methodology. While interviewed customers provided cost and benefit estimates, some categories included a broad range of responses or had a number of outside forces that might have affected the results. For that reason, some cost and benefit totals have been risk-adjusted and are detailed in each relevant section. Forrester employed four fundamental elements of TEI in modeling Avaya Private Cloud Services: benefits, costs, flexibility, and risks. Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester s TEI methodology serves to provide a complete picture of the total economic impact of purchase decisions. Please see Appendix B for additional information on the TEI methodology. FIGURE 2 TEI Approach Perform due diligence Conduct customer interviews Design composite organization Construct financial model using TEI framework Write case study

6 6 Analysis INTERVIEWED CUSTOMERS Forrester derived its conclusions in large part from information received in a series of in-depth interviews we conducted with executives and personnel at five organizations that had been using Avaya s services for a range of two to five years. The following is a brief description of the interviewed customers, all of which were promised anonymity: A global telecommunications company with operations in 20 countries. It deployed Avaya Aura Contact Center in an Avaya Private Cloud environment four years ago. Avaya holds the assets across its global operations. Forrester interviewed the head of call center technology operations and projects. A US-based medical and research organization that has been using Avaya Private Cloud managed services for its unified communications and contact center for over five years. It started with 1,500 users and grew to 4,000 users taking advantage of Avaya s services. Forrester interviewed the manager of unified communications, networks, and communication services. A UK-based insurance company that has been using Avaya Private Cloud Services for its multivendor contact center for over three years. It has over 10,000 users taking advantage of Avaya s services. Forrester interviewed the head of networks, communication, and collaboration. A US-based leading provider of electronic design automation and semiconductor solutions. It has been using Avaya Private Cloud Services for managing unified communications for about two years. There are about 6,500 endpoints in over 50 offices across the globe. Forrester interviewed the IT director responsible for global network solutions. A diversified technology company with operations in more than 150 countries. It has invested in Avaya Private Cloud Services for its unified communications and contact center operations. Avaya provides dedicated on-site support for this company s multivendor UC and CC environment. Forrester interviewed the vice president of information technology. APCS helped the transformation process move more quickly, using virtually no capital dollars, allowing us to deliver a better customer experience. ~ Head of networks, communication, and collaboration, UK-based insurance company

7 7 BENEFITS: QUANTIFIED The Organization experienced a number of quantified benefits in this case study: Productivity savings from Avaya Aura Call Center Elite and Workforce Optimization solutions. Reduced capital expenditures for telephone devices. Infrastructure cost avoidance savings. Productivity Savings From Avaya Aura Call Center Elite And Workforce Optimization Solutions The Avaya Aura Call Center Elite and Workforce Optimization solutions will enable the Organization to handle customer interactions more efficiently by helping to ensure that the right resources are readily available to customers. With APCS, it achieves these benefits faster and at less cost than premises-based solutions. The Organization now has a single pool of agents in various locations, assisting customers through their preferred contact channel. The Organization s previous contact center environment included disparate and disconnected systems, outdated business processes, and sub-optimum communications channels. Our interviewed customers reported several benefit areas using Avaya s new technologies that contribute to fewer headcount needed to manage and run the contact center. Our Organization had a reduction (attrition) of 25 customer service representatives in Year 1, and as the CC learning curve ramped up for the 500 customer service representatives, it was able to avoid hiring (or replacing) five more representatives each year (cumulative benefit), maintaining headcount at 500 across five years. See Table 3, row C4. These benefit areas include: Workforce optimization. This provides integration between the applications within the Avaya Customer Engagement portfolio. Through an interwoven, interoperable unified contact center and WFO solution, enterprise goals, contact center targets, and customer objectives can be aligned and linked together. The intelligent routing and resource selection features. These allow the system to be configured to determine if customers should be served by the least busy agent, the first available agent, or the agent with skills that best match the customer s needs. Chat and self-service. Internet-based text chat sessions with contact center agents improve agent productivity, as does self-service online customer service. The interviewed customers provided a broad range of productivity savings from Avaya Aura Call Center Elite and Workforce Optimization solutions. To compensate, this benefit was risk-adjusted and reduced by 10%. The riskadjusted labor cost avoidance savings over five years was $6,493,000, or about $12,987 per employee (500 employees). See the section on Risks for more detail.

8 8 TABLE 1 Productivity Savings From Avaya Aura Call Center Elite And Workforce Optimization Solutions (Dollars In Thousands) Ref. A1 A2 Metric Administrator moves, adds, changes, and reporting Administrator fully loaded annual cost Calculation Year 1 Year 2 Year 3 Year 4 Year 5 Total $120.0 $120.0 $120.0 $120.0 $120.0 A3 Administrator savings A1*A2 $120.0 $120.0 $120.0 $120.0 $120.0 A4 A5 A6 Contact center customer service representatives reduced headcount CSA fully loaded annual cost Contact center customer service representatives savings $37.8 $37.8 $37.8 $37.8 $37.8 A4*A5 $945.0 $1,134.0 $1,323.0 $1,512.0 $1,701.0 $6,615.0 At Productivity savings A3+A6 $1,065.0 $1,254.0 $1,443.0 $1,632.0 $1,821.0 $7,215.0 Risk adjustment 10% Atr Productivity savings (riskadjusted) $958.5 $1,128.6 $1,298.7 $1,468.8 $1,638.9 $6,493.5 Reduced Capital Expenditure For Telephone Devices With Avaya Private Cloud Services, pricing is on a utility model basis, for example, per user or per month. In most cases, this includes no upfront payments or capital expenditure purchases for the Organization. The interviewed customers indicated that the initial capital (hardware and software) investment for telephones was near zero, in favor of per user and per month fees, moving UC and CC expenditures from initial capex to longerterm opex. The Organization was able to upgrade its eight-plus-year-old legacy telephones all at once with Avaya Private Cloud Services, including a custom managed services solution that included new servers and applications owned by Avaya. Otherwise, the Organization would have spent immediate capital on new infrastructure and applications. These savings are based on hard phone/soft phone conversions and vary depending on the particular needs and applications organizations are looking to deliver. Table 2 outlines the device savings, assuming a Year 1 replacement of all legacy telephones. (Avaya per-user fees for telephones are calculated and included in the Costs section of this study). The interviewed customers provided a range of savings, since there are a variety of internal and external forces that might have an impact on this benefit. To compensate, this benefit was risk-adjusted and reduced by 5%. The risk-adjusted total capital savings in the first year was $414,700. See the section on Risks for more detail.

9 9 TABLE 2 Reduced Capital Expenditures For Telephone Devices (Dollars In Thousands) Ref. Metric Calculation Year 1 Year 2 Year 3 Year 4 Year 5 Total B1 Number of legacy desktop phones 3, ,000 B2 Average replacement cost (capital) $ B3 Capital cost avoidance desktop phones B1*B2 $ B4 Number of legacy call center phones B5 Average replacement cost (capital) $ B6 Capital cost avoidance agent phones B4*B5 $ Bt Capex savings B3+B6 $436.5 $0 $0 $0 $0 $436.5 Risk adjustment 5% Btr Capex savings (risk-adjusted) $414.7 $0 $0 $0 $0 $414.7 Infrastructure Cost Avoidance Savings The interviewed customers reported significant cost avoidance savings from not replacing UC and CC infrastructure, as Avaya assumed responsibility and ownership for these expenses in the private cloud. Previous to Avaya, the Organization had no competent, single source of responsibility that could oversee and manage its communications on a global basis so that it could achieve efficiencies of scale and standardization. With Avaya Private Cloud Services, savings categories included server and data networking hardware, software, and maintenance; network monitoring tools; primary rate interface (PRI) and analog trunk lines; interactive voice response (IVR) software and maintenance, contact center databases and maintenance; and associated power and cooling. Also included are the IT manpower savings associated with no longer managing the legacy multivendor, multi-location infrastructure, and allowing IT staff to focus on more strategic business initiatives. These savings are summarized in Table 3. The interviewed customers provided a broad range of infrastructure savings, since there are a variety of internal and external forces that might also influence the savings. To compensate, this benefit was risk-adjusted and reduced by 10%. The risk-adjusted total benefit resulting from infrastructure cost avoidance savings over the five years was $4.23 million, or about $1,208 per employee (3,500 employees). See the section on Risks for more detail.

10 10 TABLE 3 Infrastructure Cost Avoidance Savings (Dollars In Thousands) Ref. Metric Calculation Year 1 Year 2 Year 3 Year 4 Year 5 Total C1 Infrastructure savings hardware and software $2,000.0 $100.0 $100.0 $100.0 $100.0 $2,400.0 C2 Infrastructure savings maintenance $100.0 $100.0 $100.0 $100.0 $100.0 $500.0 C3 IT labor savings FTEs C4 C5 Ct Ctr IT administrator fully loaded annual cost Labor savings infrastructure management Infrastructure cost avoidance savings Risk adjustment 10% Infrastructure cost avoidance savings (riskadjusted) $120.0 $120.0 $120.0 $120.0 $ C3*C4 $360.0 $360.0 $360.0 $360.0 $ C1+C2+C5 $2,460.0 $560.0 $560.0 $560.0 $560.0 $4,700.0 $2,214.0 $504.0 $504.0 $504.0 $504.0 $4,230.0 Total Benefits Table 4 shows the total of all benefits listed above, as well as present values (PVs) discounted at 10%. Over five years, the Organization expects risk-adjusted total benefits to be a PV of $8,642,700. TABLE 4 Total Benefit Cash Flows (Risk-Adjusted) (Dollars In Thousands) Ref. Benefit Category Year 1 Year 2 Year 3 Year 4 Year 5 Total Present Value Atr Productivity savings $958.5 $1,128.6 $1,298.7 $1,468.8 $1,638.9 $6,493.5 $4,800.7 Btr Ctr Reduced capital expenditures for telephone devices Infrastructure cost avoidance savings Total benefits (risk-adjusted) $414.7 $0.0 $0.0 $0.0 $0.0 $414.7 $377.0 $2,214.0 $504.0 $504.0 $504.0 $504.0 $4,230.0 $3,465.1 $3,587.2 $1,632.6 $1,802.7 $1,972.8 $2,142.9 $11,138.2 $8,642.7

11 11 BENEFITS: UNQUANTIFIED The interviewed customers identified the following additional benefits of using Avaya Private Cloud Services but were not able to quantify the benefits at the present time: Avaya APCS is based on and aligned with the Information Technology Infrastructure Library (ITIL). These internationally recognized and industry-adopted elements are packaged in a set of enterprise communications services. Customers can start with a baseline level of service management and then add extra elements as needed. Interviewed customers saw increased utilization of legacy technology assets. Some of the Organization s assets that were affected by the migration to Avaya Private Cloud Services were re-used in other areas, avoiding the need to purchase new assets. Another important benefit mentioned by the interviewed customers was an increase in customer satisfaction scores. While customer satisfaction depends on a number of factors, some customers nevertheless regarded the opportunity to provide best-in-class customer service (contact center) as a strong driver for implementing the Avaya solution. Customer service representatives can work in the office or from a home office using the same agent desktop interface. With a home agent program, organizations can recruit the best agents from a larger external talent pool. Interviewed customers reported acceleration of business transformation and increased agility. Avaya Private Cloud Services allows interviewed customers to focus resources more on core business outcomes such as improving customers experience and employee productivity, rather than on day-to-day operational tasks. Interviewed customers reported the establishment of a global standardized support structure.

12 12 COSTS The composite Organization experienced the following costs associated with the Avaya Private Cloud Services solution. For more information about these products and services, see About Avaya Private Cloud Services: Overview on page 19. The costs include: Labor for initial planning and ongoing management of APCS. Avaya provides professional services in this planning and transformation process. Avaya service fees for unified communications. Avaya service fees for contact center, including Avaya products Aura Call Center Elite and Workforce Optimization. Ongoing operations to manage the relationships and communications with Avaya and carriers. Labor For Initial Planning And Ongoing Management Of Avaya Private Cloud Services The internal labor associated with planning and deploying the Avaya solution was significant but not unanticipated given the complexity of the transformation undertaken. Three FTEs, including network administrators and telecommunication administrators, spent 100% of their time over a nine-month period planning the implementation. During the implementation phase, the Organization worked with Avaya to: Analyze business, financial, and operating factors. Prepare detailed recommendations around the type of cloud communications solution and delivery model. Develop operational plans and detailed migration steps for the transformation. Evaluate security, privacy, and service levels. Integrate the cloud with existing systems and evaluate network readiness, performance, and reliability. Plan the operational steps necessary to migrate to cloud services. The fully loaded average cost per FTE is $140,000 ($11,667 monthly) for a total labor cost of $315,000 (three FTEs*nine months*$11,667) as an initial investment period expense. In addition, beginning in Year 1, the Organization requires one FTE to manage the relationships and communications with Avaya and carriers. The fully loaded average cost for one FTE is $140,000 annually ($11,667 monthly). This FTE may involve more than one individual totaling 40 hours per week. Pre-implementation and management costs varied widely from customer to customer, considering legacy environments, the number and geographic dispersion of users, and how many other vendors were retired. To compensate, this cost was riskadjusted up by 25%. The risk-adjusted labor cost associated with initial planning and ongoing management of Avaya Private Cloud Services is $1,268,800 over five years. See the section on Risks for more detail.

13 13 Ref. D1 D2 D3 Dtr TABLE 5 Labor For Initial Planning And Ongoing Management Of APCS (Dollars In Thousands) Metric Calculation Initial Year 1 Year 2 Year 3 Year 4 Year 5 Total Number of FTE months to plan initial migration and manage ongoing operations Fully loaded labor cost per month ($140,000 annually) $11.7 $11.7 $11.7 $11.7 $11.7 $ Labor for initial planning and ongoing D1*D2 management $315.0 $140.0 $140.0 $140.0 $140.0 $140.0 $1,015.0 Risk adjustment 25% Labor for initial planning and ongoing management (risk-adjusted) $393.8 $175.0 $175.0 $175.0 $175.0 $175.0 $1,268.8 Avaya Service Fees For Unified Communications The UC service fees include: 1) application software; 2) infrastructure servers and gateways; 3) port licensing and right to use; 4) onboarding and telephony programming; 5) and Avaya Cloud Transformation. Avaya UC consulting services helped the Organization develop an appropriate strategy for communications ownership and delivery. The strategy was designed to meet the Organization s needs, culture, and alignment with business goals and strategies. Avaya provides professional services in this planning and transformation process. The Avaya service fees for unified communications, on average, are about $635,800 per year, or $3,178,800 over five years. Avaya Service Fees For Contact Center These fees include: 1) applications software; 2) infrastructure including servers and gateways; 3) agent licensing and right to use; 4) agent softphone; 5) and onboarding and programing. Avaya products include Aura Call Center Elite and Workforce Optimization and Avaya Cloud Transformation Services. Avaya CC consulting services helped the Organization develop an appropriate strategy for communications ownership and delivery. The strategy was designed to meet the Organization s needs, culture, and alignment with business goals and strategies. Avaya provides professional services in this planning and transformation process. The Avaya service fees for the contact center, on average, are about $690,000 per year, or $3.45 million over five years. See Table 6 for a five-year Avaya fee schedule. Forrester did not risk-adjust Avaya s fees, as they were contracted quotes from Avaya.

14 14 TABLE 6 Avaya Fees UC And CC And Private Cloud Services (Dollars In Thousands) Ref. Metric Calculation Initial Year 1 Year 2 Year 3 Year 4 Year 5 Total E1 Avaya service fees for unified $0.0 $635.8 $635.8 $635.8 $635.8 $635.8 $3,178.8 communications E2 Avaya service fees for contact center $0.0 $690.0 $690.0 $690.0 $690.0 $690.0 $3,450.0 Et Total Avaya service fees E1+E2 $0.0 $1,325.8 $1,325.8 $1,325.8 $1,325.8 $1,325.8 $6,628.8 Etr Risk adjustment 0% Total Avaya service fees (riskadjusted) $0.0 $1,325.8 $1,325.8 $1,325.8 $1,325.8 $1,325.8 $6,628.8 Total Costs Table 7 shows the total of all costs as well as associated present values, discounted at 10%. Over five years, the composite Organization expects the PV of total costs to be $6,082,800. TABLE 7 Total Cost Cash Flows (Risk-Adjusted) (Dollars In Thousands) Ref. Cost Category Initial Year 1 Year 2 Year 3 Year 4 Year 5 Total Present Value Dtr Labor for initial planning and ongoing management of $393.8 $175.0 $175.0 $175.0 $175.0 $175.0 $1,268.8 $1,057.2 APCS Etr Avaya fees Private Cloud Services (dollars in thousands) $0.0 $1,325.8 $1,325.8 $1,325.8 $1,325.8 $1,325.8 $6,628.8 $5,025.7 Total costs (riskadjusted) $393.8 $1,500.8 $1,500.8 $1,500.8 $1,500.8 $1,500.8 $7,897.6 $6,082.8 FLEXIBILITY Flexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned into business benefit for some future additional investment. This provides an organization with the right or the ability to engage in future initiatives but not the obligation to do so. There are scenarios in which a customer might choose to implement Avaya Private Cloud Services and later realize additional uses, business opportunities, and benefits. Flexibility would also be quantified when evaluated as part of a specific project.

15 15 Customers using Avaya Team Engagement (UC) and Customer Engagement (CC) solutions in Avaya Private Cloud Services lay the groundwork for adding other IP-based Avaya unified communications services in the future, such as data networking and video. According to Avaya: Avaya Data Networking Managed Services supports the day-to-day activities to help ensure availability and meet predefined service-level agreements (SLAs) that optimize network performance. Avaya switching, routing, wireless LAN and network, bring your own device (BYOD), and guest access can all be leveraged in the Organization s existing private cloud. Avaya Video Managed Services is global in scope, letting the Organization bring together customers, suppliers, and key stakeholders under a common, secure business-to-business video community. This vendor- and carrier-agnostic service supports the majority of standards-based video endpoints. Several interviewed customers indicated the investment in Avaya Private Cloud Services provided it with the flexibility and agility to take advantage of Data Networking and Video Managed Services in the future. As none of the interviewed customers were currently using these services, this study will not attempt to quantify the benefits. However, we encourage readers to learn more about Avaya s managed services to determine the potential quantifiable benefits within their organizations. The value of flexibility is clearly unique to each organization, and the willingness to measure its value varies from organization to organization. For the purpose of this analysis, we have assumed that our Organization sees the future value of being able to add Data Networking and Video Managed Services to Avaya Private Cloud Services. The value of the option (when calculated) is based on the Black-Scholes option pricing formula. (For additional information regarding the flexibility calculation, please see Appendix B.) RISKS Forrester defines two types of risk associated with this analysis: implementation risk and impact risk. Implementation risk is the risk that a proposed investment in Avaya Private Cloud Services may deviate from the original or expected requirements, resulting in higher costs than anticipated. Impact risk refers to the risk that the business or technology needs of the Organization may not be met by the investment in Avaya Private Cloud Services, resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefit estimates.

16 16 TABLE 8 Benefit And Cost Risk Adjustments Benefits Productivity savings from Avaya Aura Call Center Elite and Workforce Optimization solutions Risk Adjustment 10% Reduced capital expenditures for telephone devices 5% Infrastructure cost avoidance savings 10% Costs Labor for initial planning and ongoing management of Avaya Private Cloud Services Risk Adjustment 25% Avaya fees UC and CC private cloud services 0% Quantitatively capturing implementation risk and impact risk by directly adjusting the financial estimates results provides more meaningful and accurate estimates and a more accurate projection of the ROI. In general, risks affect costs by raising the original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should be taken as realistic expectations since they represent the expected values considering risk. Forrester did not risk-adjust Avaya Private Cloud Services fees, as they were fixed quotes from Avaya. The following impact risks that affect benefits are identified as part of the analysis: Avaya s contract with the Organization is for five years. The risk is that some other vendor may develop better technology during the contract period; however, the Organization is committed to Avaya (and vice versa) for five years. The Organization s IT staff may not be comfortable with its lack of control over security and service capabilities with new (different) technology in a cloud environment. Avaya does give customers access to tools and a platform to help with the comfort level as well as an Avaya Customer Business manager support person. The following implementation risk that affects costs is identified as part of this analysis: Pre-implementation and ongoing management costs varied widely from interviewed customer to customer, considering legacy environments, number and geographic dispersion of users, and how many other vendors were retired. Readers might experience significantly different costs than those outlined in this study, which represent an average of the five interviewed customers. Table 8 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates for the Organization. Readers are urged to apply their own risk ranges based on their own degree of confidence in the cost and benefit estimates.

17 Cash flows 17 Financial Summary The financial results calculated in the Benefits and Costs sections can be used to determine the ROI, NPV, and payback period for the Organization s investment in Avaya Private Cloud Services. FIGURE 3 Cash Flow Chart (Risk-Adjusted) $4,000.0 Financial Analysis (risk-adjusted) $3,000.0 $2,000.0 $1,000.0 $0.0 -$1, $2,000.0 Initial Year 1 Year 2 Year 3 Total costs Total benefits Cumulative total Table 9 below shows the risk-adjusted ROI, NPV, and payback period values. These values are determined by applying the risk-adjustment values from Table 8 in the Risks section to the unadjusted results in each cost and benefit section.

18 18 TABLE 9 Cash Flow Analysis (Risk-Adjusted Estimates) Summary Initial Year 1 Year 2 Year 3 Year 4 Year 5 Total Present Value Total costs -$ $1, $1, $1, $1, $1, $7, $6,082.8 Total benefits $0.0 $3,587.2 $1,632.6 $1,802.7 $1,972.8 $2,142.9 $11,138.2 $8,642.7 Total -$393.8 $2,086.4 $131.8 $301.9 $472.0 $642.1 $3,240.6 $2,559.9 ROI 42% Payback period Seven months If risk-adjusted costs, benefits, and ROI still demonstrate a compelling business case, it raises confidence that the investment is likely to succeed because the risks that threaten the project have been taken into consideration and quantified. The risk-adjusted numbers should be taken as realistic expectations, as they represent the expected value considering risk. Assuming normal success at mitigating risk, the risk-adjusted numbers should more closely reflect the expected outcome of the investment.

19 19 About Avaya Private Cloud Services: Overview The following information is provided by Avaya. Forrester has not validated any claims and does not endorse Avaya or its offerings. AVAYA COMMUNICATIONS OUTSOURCING SOLUTIONS Outsourcing services manage and optimize existing infrastructure with ITIL-aligned service elements. Outsourcing services provide a migration plan for any stage of an environment s life cycle and show a clear path to improved business results. Build a customized managed services solution that meets specific corporate needs. Transition to new technology or optimize the current environment. The Avaya solution can include services and products supported in a global, multi-vendor, multiapplication environment and can include full private-cloud opex options. Supported applications include unified communications, contact center, video, and data networking. Forrester note: This case study focuses on UC and CC services. AVAYA UNIFIED COMMUNICATIONS MANAGED SERVICES Manage the communications infrastructure with a comprehensive set of globally aligned services and support. Find support for all unified communications needs from simple out-tasking to full outsourcing. These services are based on and aligned with ITIL. These internationally recognized and industry-adopted elements are packaged in a set of enterprise communications services start with a baseline level of service management and then add extra elements as needed. The managed UC services leverage the Avaya proven IPT/UC application suite known as Aura Communications Manager. AVAYA AURA COMMUNICATIONS MANAGER Delivers rich voice and video capabilities and provides for a resilient, distributed network of gateways and analog, digital and SIP/IP-based communication devices. In addition, Avaya Aura Communication Manager boasts robust PBX features, high reliability and scalability, and multi-protocol support. It includes advanced mobility features, built-in conference calling and contact center applications, and E911 capabilities. Communication Manager effectively scales from less than 100 users to as many as 36,000 users on a single system, and to more than one million users on a single network. AVAYA CONTACT CENTER MANAGED SERVICES Manage contact center operations using ITIL-aligned processes. Unlike conventional business process outsourcing arrangements, Avaya Contact Center Managed Services allows flexibility in the focus and responsibilities of each party involved. Knowledge and experience provide support to manage complex contact center technologies, including IVR, Workforce Optimization, voice, computer telephony integration, call recording, and advanced call routing. Align the right applications and management support assistance to augment internal capabilities and reduce resource consumption. These managed services leverage the Avaya proven CC applications suite which at its core utilizes the Avaya Call Center Elite and Workforce Optimization solutions. AVAYA AURA CALL CENTER ELITE Deliver a unified and highly personalized customer experience that builds brand and fosters long-term loyalty.

20 20 Handle all types of customer interactions more efficiently by helping to ensure that the right resources are readily available to customers. With intelligent routing and resource selection features, determine if customers should be served by the least busy agent, the first available agent, or the agent with skills that best match the customer s needs. With a single pool of agents, regardless of location, organizations can deliver the right customer experience every time by assisting customers and prospects through their preferred contact channel. Avaya Aura Call Center Elite has the following features and functionality: Add lower-cost customer service channels. Reduce call volume and improve contact center efficiency by moving interactions to lower-cost channels such as , chat, SMS, and social media. Improve contact center performance. Analyze historical and real-time reporting data to quickly adapt the contact center to changing business needs. Provide customers with a seamless experience across channels. Personalize customers experiences by sharing details such as customer history and screen pop data across contact channels. AVAYA AURA WORKFORCE OPTIMIZATION Avaya Aura Workforce Optimization helps businesses balance efficiency and effectiveness by using the contact center strategically rather than just as a function that fields calls. It unifies contact recording, quality monitoring, coaching, elearning, workforce management, scorecards, voice analytics, and customer feedback under one platform that provides a single user interface and centralized system administration and reporting. With Workforce Optimization, contact centers and back-office operations can capture, share, and act on information from across the enterprise.

21 21 Appendix A: Composite Organization Description For this TEI study, Forrester has created a composite Organization to illustrate the quantifiable benefits and costs of investing in Avaya Private Cloud Services. The Organization is intended to represent a global enterprise with 3,000 UC ports and an additional 500 contact center agents and is based on characteristics of the interviewed customers. Organizations of all types benefit from Avaya Private Cloud Services, including traditional businesses, government organizations, and nonprofits. Based on the interviews, Forrester constructed a TEI framework, a composite Organization, and an associated ROI analysis that illustrates the areas financially affected. The Organization that Forrester synthesized from these results is described below. After a comprehensive vendor selection process, the Organization chose Avaya s advanced communications applications, including UC, CC, SIP, video, mobility, BYOD, and cloud. The Organization and the interviewed customers shared the following goals and objectives for an investment in Avaya Private Cloud Services: Upgrade from its out-of-date legacy communications environment, which included different and aging solutions managed internally and by disparate third parties, providing inconsistent service experiences. The legacy environment was administratively complex and costs were increasing. Move away from its legacy communications platforms, which hindered its ability to differentiate itself from its competitors. Replace any aging time division multiplex (TDM) infrastructure, which did not meet the Organization s current needs. Move to a next-generation UC and CC platform migration path to support growth. With a limited capital budget, transform to a full opex model without owning or operating the equipment. Accelerate business transformation and increase agility. Focus resources more on core business outcomes such as improving clients experience and employee productivity rather than on day-to-day operational tasks. Establish a global standardized support structure. FRAMEWORK ASSUMPTIONS Table 10 provides the model assumptions that Forrester used in this analysis. The discount rate used in the PV and NPV calculations is 10%, and the time horizon used for the financial modeling is five years. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult with their respective company s finance department to determine the most appropriate discount rate to use within their own organizations.

22 22 TABLE 10 Model Assumptions Ref. Metric Calculation Value F1 Fully loaded cost of network administrators and telecommunication administrators (annual) $140,000 F2 Fully loaded cost of a customer service representatives (annual) $37,800 F3 Fully loaded cost of an administrator (moves, adds, and changes) $120,000 F4 Average cost of desktop telephone $ F5 Average cost of call center agent telephones $121.50

23 23 Appendix B: Total Economic Impact Overview Total Economic Impact is a methodology developed by Forrester Research that enhances a company s technology decisionmaking processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and other key business stakeholders. TEI assists technology vendors in winning, serving, and retaining customers. The TEI methodology consists of four components to evaluate investment value: benefits, costs, flexibility, and risks. BENEFITS Benefits represent the value delivered to the user organization IT and/or business units by the proposed product or project. Often, product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line. COSTS Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created. FLEXIBILITY Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the initial investment already made. For instance, an investment in an enterprisewide upgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated. The collaboration can only be used with additional investment in training at some future point. However, having the ability to capture that benefit has a PV that can be estimated. The flexibility component of TEI captures that value. RISKS Risks measure the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections and 2) the likelihood that the estimates will be measured and tracked over time. TEI risk factors are based on a probability density function known as triangular distribution to the values entered. At a minimum, three values are calculated to estimate the risk factor around each cost and benefit.

24 24 Appendix C: Forrester And The Age Of The Customer Cloud technologies such as APCS can play a key role in Forrester s Age of the Customer and the four-part blueprint depicted in the graphic below. Your technology-empowered customers now know more than you do about your products and services, pricing, and reputation. Your competitors can copy or undermine the moves you take to compete. The only way to win, serve, and retain customers is to become customer-obsessed. A customer-obsessed enterprise focuses its strategy, energy, and budget on processes that enhance knowledge of and engagement with customers and prioritizes these over maintaining traditional competitive barriers. CMOs and CIOs must work together to create this companywide transformation. Forrester has a four-part blueprint for strategy in the age of the customer, including the following imperatives to help establish new competitive advantages: Transform the customer experience to gain sustainable competitive advantage. Accelerate your digital business with new technology strategies that fuel business growth. Embrace the mobile mind shift by giving customers what they want, when they want it. Turn big data into business insights through innovative analytics.

25 25 Appendix D: Glossary Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Companies set their own discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their respective organizations to determine the most appropriate discount rate to use in their own environment. Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs. Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total NPV of cash flows. Payback period: The breakeven point for an investment. This is the point in time at which net benefits (benefits minus costs) equal initial investment or cost. Return on investment (ROI): A measure of a project s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs. A NOTE ON CASH FLOW TABLES The following is a note on the cash flow tables used in this study (see the example table below). The initial investment column contains costs incurred at time 0 or at the beginning of Year 1. Those costs are not discounted. All other cash flows in years 1 through 3 are discounted using the discount rate (shown in the Framework Assumptions section) at the end of the year. PV calculations are calculated for each total cost and benefit estimate. NPV calculations are not calculated until the summary tables are the sum of the initial investment and the discounted cash flows in each year. Sums and present value calculations of the Total Benefits, Total Costs, and Cash Flow tables may not exactly add up, as some rounding may occur. TABLE [EXAMPLE] Example Table Ref. Metric Calculation Year 1 Year 2 Year 3