16426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. Return On Investment (ROI) for IP Communications Mike Kisch CNIC Business Manager Cisco Systems

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Agenda General ROI Trends Changes in the Capital Budgeting Process Building the Business Case for New Technologies Feedback from the CIO 5 Simple Steps to ROI The ROI for IP Communications The Benefits of IP Communications Profile of Customer Engagements Factors that Drive a Positive/Negative ROI Overall Findings Vertical Industry Benchmarks and Case Studies Interactive Q&A CIPTUG Attendees ROI

36426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. General ROI Trends

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Business Trends Driving the Focus on ROI Failures of previous IT investments to produce expected returns Focus on Cost Containment/Reduction Greater involvement of business managers in technology decisions IT now accounts for 46% of all capital expenditures Continued struggles of the global economy keep IT spending tight Re-introduction of back to basics methodologies for capital investments

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Importance of ROI 80% of IT professionals believe that measuring the value of IT investments has increased over the past year!* 86% of IT professionals believe that measuring the value of IT is important** Only 30% have a formal ROI methodology/process*** Remained the Same Decreased Increased 80% 17% 3% *Source:Information Week Research **Source: CIO Magazine ***Darwin Magazine

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch The Changing Use of ROI Traditional A structured financial process to “MEASURE” the relevant costs and benefits in an effort to determine the financial impact of an investment Evolving Organizations are beginning to use ROI to compare the relative business contribution of multiple capital investments in an effort to “MAXIMIZE” the value of the complete portfolio

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Feedback from the CIO Infrastructure investments need to payback in months Strategic business benefits are still important, but priority is given to projects that reduce costs If business case is built on soft business benefits, CIO will heavily discount their impact (50-60%) Analysis needs to be based upon our internal data, not industry averages or other companies numbers Keep in mind that I’m competing with other business managers for scarce resources Need to identify ways to get more from less, by leveraging existing technology investments

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch 5 Simple Steps to an ROI Analysis 1.Clearly understand the value proposition of the solution and focus on the primary cost/benefit drivers 2. Validate these benefits through 3 rd -party sources and client case studies 3.Break the analysis into manageable pieces, don’t try to do it all at once (ex. site segmentation) 4.Use a financial model that properly allocates the costs/benefits over the term of the analysis and applies fundamental financial principles 5.Run multiple what-if scenarios to determine range of potential outcomes (sensitivity analysis)

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Obstacles to a Simple and Successful ROI Analysis Inadequate documentation of costs Difficulty determining value of tangible/intangible benefits Failure to set the appropriate scope Getting buy-in across the organization Too much reliance on one financial metric (TCO/Payback/NPV) and one potential outcome Lack of formal ROI process/methodology Internal politics

106426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. Cisco’s ROI Methodology

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Converged Network Investment Calculator(CNIC) Converged Network Investment Calculator(CNIC) Analyst Input Demos to major analyst firms to get their buy-in regarding soundness of methodology Incorporated feedback Secondary Data Sources Time Motion studies Industry Averages Meta/Gartner/Giga Research Customers Over 2200 unique analysis Customizable inputs ROI snapshots facilitate the data gathering process Multiple deployment scenarios Cisco Primary Research Focus Groups Customer Surveys Cisco’s ROI Methodology

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Building a Credible Financial Model Cisco’s focus is on quantifying the hard benefits of IP Communications Models have the ability to calculate and discount the value of soft business benefits All Cisco financial models are designed to be customized to a customers specific situation Defaults are used where appropriate, but can be overridden Financial models needs to be boardroom credible Built on a solid financial foundation Conservative assumptions with a transparent methodology Calculating the Hard Benefits Cost/benefit and payback analysis For $$ spent: - Savings realized - Profits generated

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch \ Cisco Network Investment Calculator (CNIC) Web-based software application designed to help customers understand the specific financial implications of deploying Cisco solutions Available to Cisco salespeople and specialized partners Includes modules for IPT, Unified Messaging, CTI, ICM, ICD, Audio Conferencing, Storage Networking

146426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. Benefits of IP Communications

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Hard Cost Savings - Equipment Reduction in cabling costs for new facilities Reduction in infrastructure cost at remote sites via centralized call processing Increased utilization of core networking assets Reduction in PBX expansion and upgrade costs Consolidation of message store/back-up systems Reduction in PBX upgrade/expansion costs

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Hard Cost Savings - Network Administration Improved productivity of network support staff Elimination of certain PBX related tasks Consolidation of skill sets Centralized application and network management Reduction in the costs of Moves, Adds and Changes (MAC’s) Reduction in remote site management costs Reduction in ongoing maintenance costs

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Hard Cost Savings Integrated Access/Toll Bypass Toll-Bypass savings for intra-company traffic Domestic: Material if call volume is substantial to offset declining toll rates in neighborhood of 2-5 cents or if organization lacks size to negotiate prime rates with carriers International: Still significant with average toll-rates of 12-15cents Consolidation of voice and data access -Reduction in number of dedicated voice lines -More efficient use of existing bandwidth

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Examples of Business Benefits Real Estate Savings Better utilization of real estate by leveraging extension mobility to increase worker to workspace ratio from 1to1 to X to 1 Significant savings in high-rent areas like NY, London, etc. Platform for New Applications Unified Messaging – Improved productivity per user by minutes per day Audio Conferencing – Ability to offload SP provided minutes (8-12 cents/minute) for smaller conference calls to internal service offering Ability to standardize infrastructure and extend corporate capabilities to branch offices

196426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. The ROI for IP Communications

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Summary of Customer Engagements Customer Analysis to date Across all major verticals Financial Services – 228 analysis Retail – 250 analysis Education – 110 analysis Government – 140 analysis All types of deployment scenarios (greenfield, centrex, centralized call processing, replacement of new/old PBX, lease/buy) A mix of different technologies (IPT, Contact Center, Unified Messaging, Audio Conferencing, Integrated WAN) Different size deployments ranging from a 100 phones to 45,000 phones Flash cuts to 5 year migrations Global focus including U.S./ Europe/Asia/Latin America

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Key Drivers of Positive ROI A compelling event is driving the decision New facility End of useful life of PBX/Expiration of lease Planned upgrade of data infrastructure Phased approach to deployment starting with the most financially viable sites Ability to leverage centralized call processing Deployment has number of remote sites that can leverage CCP Dynamic organization with substantial employee movement

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Key Drivers of Negative ROI In some cases, a significant data network upgrade is necessary to provide the foundation for reliable voice Difficult to justify on hard cost savings alone the replacement of a relatively new PBX at a single site Delays in the deployment of the technology delay the realization of benefits Failure to take advantage of key value producing features of the technology Aggressive pricing from traditional PBX vendors

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Summary of ROI Findings Source: Converged Network Investment Calculator 7/02 Positive Net Present Value 68% of the time Average payback of months Average annual savings per user of $334 Average # of phones in analysis = 600 phones Average hurdle rate of 10-11% Primary Areas of Cost Reduction Network Administration – 48% of savings Equipment – 28% of savings Integrated Access/Toll-Bypass – 24% of savings

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Summary of ROI Findings - Deployment Scenarios Green Field TDM Centrex Replacement Multi-site CCP Older PBX Replacement Newer PBX Replacement (Months) Paybacks vary based upon deployment scenario, with green fields producing the most rapid payback Source: Converged Network Investment Calculator 7/02

256426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. ROI Findings for the Financial Services Vertical

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch ROI Findings – By Vertical RetailEducation Government Financial Services Healthcare (Months) Source: Converged Network Investment Calculator 8/02 Payback in Months

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch ROI Benchmarks – Financial Services (Avg. 421 phones) Source: Converged Network Investment Calculator 8/02 Immediate Year 5Year 1Year 2Year 3Year 4 Payback/Breakeven Distribution (N=15) $(100K)$5M$0K $500K $1M $2M Net Present Value Distribution (N=15)

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Securities firm needed to replace older PBX that was nearing end of useful life Needed to identify a way to reduce the costs of a constantly moving workforce Needed to simplify management of the network and improve the productivity of the network support team Securities firm needed to replace older PBX that was nearing end of useful life Needed to identify a way to reduce the costs of a constantly moving workforce Needed to simplify management of the network and improve the productivity of the network support team Payback of 20 Months Net Present Value of $1.5M Achieved an annual savings of $308/per user Payback of 20 Months Net Present Value of $1.5M Achieved an annual savings of $308/per user Deployed 1500 Cisco IP Phones Deployed conference connection to offload smaller conference calls Gave the user the ability to move their phone in an effort to save MAC charges Leveraged extension mobility to improve utilization of real estate space Deployed 1500 Cisco IP Phones Deployed conference connection to offload smaller conference calls Gave the user the ability to move their phone in an effort to save MAC charges Leveraged extension mobility to improve utilization of real estate space Financial Services Case Study

296426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. ROI Findings for the Retail Vertical

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch ROI Findings – By Vertical RetailEducation Government Financial Services Healthcare (Months) Source: Converged Network Investment Calculator 8/02 Payback in Months

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch ROI Benchmarks – Retail (Avg phones) Source: Converged Network Investment Calculator 8/02 Immediate Year 5Year 1Year 2Year 3Year 4 Payback/Breakeven Distribution (N=10) $(100K)$5M$0K $500K $1M $2M Net Present Value Distribution (N=10)

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch National restaurant chain needed to provide a more cost effective voice service to remote sites Wanted a standard solution that would lower remote site management costs and provide a consistent level of service Wanted to greater leverage planned data network upgrade National restaurant chain needed to provide a more cost effective voice service to remote sites Wanted a standard solution that would lower remote site management costs and provide a consistent level of service Wanted to greater leverage planned data network upgrade Payback of 18 Months Net Present Value of $2.7M Achieved an annual savings of $361/per user Payback of 18 Months Net Present Value of $2.7M Achieved an annual savings of $361/per user Solution consists of 2500 Cisco IP Phones leveraging centralized call processing Updated WAN to facilitate integrated access where available Able to increase productivity of network support staff via centralizing call processing Solution consists of 2500 Cisco IP Phones leveraging centralized call processing Updated WAN to facilitate integrated access where available Able to increase productivity of network support staff via centralizing call processing Retail Case Study

336426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. ROI Findings for the Government Vertical

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch ROI Findings – Government Vertical RetailEducation Government Financial Services Healthcare (Months) Source: Converged Network Investment Calculator 8/02 Payback in Months

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch ROI Benchmarks – Government (Avg phones) Source: Converged Network Investment Calculator 8/02 Immediate Year 5Year 1Year 2Year 3Year 4 Payback/Breakeven Distribution (N=10) $(100K)$5M$0K $500K $1M $2M Net Present Value Distribution (N=10)

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Medium size east coast city was evaluating their future voice strategy Had a mix of PBX, key systems and Centrex Centrex contracts were coming due for renewal Medium size east coast city was evaluating their future voice strategy Had a mix of PBX, key systems and Centrex Centrex contracts were coming due for renewal Immediate Payback Net Present Value of $117K Annual savings per user of $335 Immediate Payback Net Present Value of $117K Annual savings per user of $335 Decided to deploy IP Telephony in place of Centrex service to 500 users across several city facilities as first step towards converging their network Decided to lease instead of purchase new IP Telephony equipment Annual lease costs for IPT were less then annual Centrex costs Decided to deploy IP Telephony in place of Centrex service to 500 users across several city facilities as first step towards converging their network Decided to lease instead of purchase new IP Telephony equipment Annual lease costs for IPT were less then annual Centrex costs Government Vertical Case Study

376426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. ROI Findings for the Education Vertical

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch ROI Findings – Education RetailEducation Government Financial Services Healthcare (Months) Source: Converged Network Investment Calculator 8/02 Payback in Months

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch ROI Benchmarks – Education (Avg. 283 phones) Source: Converged Network Investment Calculator 8/02 Immediate Year 5Year 1Year 2Year 3Year 4 Payback/Breakeven Distribution (N=10) $(100K)$5M$0K $500K $1M $2M Net Present Value Distribution (N=10)

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Extension campus of large state university needed to replace existing end of life PBX Needed to be able to continue to leverage a percentage of existing handsets Was faced with an imminent upgrade cost to voic system and PBX Extension campus of large state university needed to replace existing end of life PBX Needed to be able to continue to leverage a percentage of existing handsets Was faced with an imminent upgrade cost to voic system and PBX Payback of 11 Months Net Present Value of $253K Payback of 11 Months Net Present Value of $253K Reused 1500 analog phones, while deploying 700 IP phones of various models Deployed (4) Call Managers and Unity voic Upgraded data infrastructure Reused 1500 analog phones, while deploying 700 IP phones of various models Deployed (4) Call Managers and Unity voic Upgraded data infrastructure Education Vertical Case Study

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Final Thoughts As the technology matures, so does the Business Case for IP Communications A carefully prepared ROI analysis will assist you in your efforts to internally sell IP Communications The keys to building the ROI analysis are to understand the primary value propositions of IP Communications and to set an appropriate scope for the analysis Cisco has a set of tools and best practices that can facilitate the ROI analysis process

426426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. Backup Slides

436426_10_2002_c1_Kisch © 2002, Cisco Systems, Inc. All rights reserved. Cisco’s ROI for IP Telephony

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch IP Telephony Global Deployment Sydney (CM 3.0) San Jose, CA Amsterdam * Beijing * Tokyo (*) Adelaide New Delhi Bryanston Lisbon Gland London City Stockley Park * Luxembourg Singapore * Auckland Wellington Tech Trial * Barcelona Athens Riyadh Istanbul Berlin, Mannheim, Munich, Stuttgart, (North Sydney, Chatswood) Melbourne Perth Paris Toronto New York, NY Howell, NY RTP, NC Brisbane Hong Kong Dallas Metro Dallas Sales Production Montgomery, AL Carmel, IN Brussels, Marcel Thiry Brussels, (Antares, Pegasus) * Tulsa, OK Rogers, OK Boise, ID Metairie, LA Baton Rouge, LA Akasaka, Fukuoka, Nagoya Madrid Anchorage, AK Co Springs, CO Chicago, IL Bloomington, MN Glen Allen, VA Jacksonville, FL Copenhagen Oslo, Göteborg Helsinki Bangkok Asia Pac1,725 IP Phones Americas6,120 IP Phones Corporate20,658 IP Phones EMEA3,047 IP Phones Status: 39,120+ IP Phones 153 Sites in Production 27 to go! IP Telephony at Cisco

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Actual ROI Results for Cisco EMEA: FY FY Business Benefit of Cisco IP Telephony (Relative Scale) 2005 IP & Web Foundation Expanded to Include Voice Deployment of Converged E-Business Applications: Year Net Benefit (US$) $2.6 m =$340/emp. $12.4m =$1625/emp. $33m =$4320/emp. $9.4m =$1230/emp. $33m =$4320/emp. ROI = 126% Payback Month = 10 NPV %) = $60 million

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Breaking Down the Benefits: Large Office Example The Single Network Cabling (+) Staff (!) (!)= Annual Recurring Benefit (+)= One-Time Benefit Maintenance (!) Moves, Adds & Changes (MAC’s) (!) $500k $120k $60k $450k Notes: Cabling benefit is a one-time benefit and is only generally applicable during the year of a building move (Cisco’s “Large Office” moved in 2001 and thus realised this benefit) Costs for Moves, Adds and Changes (MAC’s) are based on the average cost of an outsourced PBX MAC, versus that of a Cisco IPT MAC Total Recurring $630k Total One-Time $500k

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Breaking Down the Benefits: Large Office Example Employee Productivity CTI Screen Dial Application (!) XML Facilities Services Application (!) (!)= Annual Recurring Benefit (+)= One-Time Benefit $590k $475k $1k $12k $24k CTI Screen Pop Application (!) XML Taxi Services Application (!) XML TRC Case Application (!) Notes: The ROI project team made a judgement call that, even though the productivity of Cisco employees is undeniably increased through the use of Cisco’s Unified Messaging (UM) and Personal Assistant (PA) applications, the benefits modelling process would be unacceptably vague because the associated business processes and policies are not yet defined (e.g. incurring a GSM call to have PA speak over the phone) This situation will change once the new business processes surrounding UM and PA are defined. Productivity benefits of CTI applications are substantial because they emulate those of agents at large, CTI-enabled call centres yet can be implemented at a fraction of the cost Benefits of XML applications are actually small for Cisco because almost all Cisco employees have laptops and ubiquitous access to the Web. Organisations that are not in this same situation will most likely benefit more than Cisco due to not having to provide a PC to all employees Unified Messaging & Personal Assistant (!) $???k Total Recurring $1.1+ m

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Breaking Down the Costs: Large Office Example IPT Common Capex Costs (+) $1.1 m TDM Infrastructure Capex Costs (+) IPT Bucket Specific Ongoing Costs (!) IPT Common Ongoing Costs (!) IPT Bucket Specific Capex Costs (+) $0 $1.5 m Total Capex $2.6 m $300 k $20 k Total Opex $320k Notes: In line with the highly conservative, non-greenfield approach, the ROI analysis assumes that TDM- based infrastructure (PBX, voice mail system, multiplexors, etc.) was already in place, before migration to Cisco IP Telephony Hence TDM-based infrastructure capex costs are $0 – i.e. all capex costs used in the analysis are representative of Cisco IP Telephony equipment only Costs

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Benefit Differences of the Large, Medium, Small Offices Large Office Results: Cisco EMEA Headquarters, Bedfont Lakes/London, UK: 1147 Employees ROI = 130% Payback Month = 9 NPV = $12.3 m Medium Office Results: Cisco Eschborn/Frankfurt, Germany: 171 Employees ROI = 120% Payback Month = 10 NPV = $1.8 m Small Office Results: Cisco Sophia Antipolis, France: 35 Employees ROI = 111% Payback Month = 11 NPV = $330 k

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Key Customer Drivers for IP Communications Lower Cost of “Network” Ownership –Cost savings are the primary short-term reason to converge voice, data and video onto a single IP network –This reflects the impact of the slowing economy on IT investment Enhanced Business Communications –Creating new revenue streams and deploying new applications that can increase productivity or enhance customer care are seen as significant, but longer term benefits of convergence Aggregate View on Drivers 0% 20% 40% 60% 1st — 4282nd — 3973rd — 344 To drive cost savings (easier infrastructure mgmt.) To drive revenues To enable additional application capabilities Other Source: The META Group Multi-Client Study 2000/01

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Lower Cost of “Network” Ownership Almost 70% of survey respondents believe they will realize substantial to moderate infrastructure savings when converging their network 50% expect substantial to moderate administrative cost savings 75% expect to achieve substantial to moderate voice/data circuit savings Anticipated Cost Savings 0% 10% 20% 30% 40% 50% SubstantialModerateLimitedNone Administrative Streamlining Infrastructure (Cabling, Hardware) Circuit Costs (T1s, T3s) Toll Bypass Other Source: The META Group Multi-Client Study 2000/01

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Lower Cost of “Network” Ownership Almost 70% of survey respondents believe they will realize substantial to moderate infrastructure savings when converging their network 50% expect substantial to moderate administrative cost savings 75% expect to achieve substantial to moderate voice/data circuit savings Anticipated Cost Savings 0% 10% 20% 30% 40% 50% SubstantialModerateLimitedNone Administrative Streamlining Infrastructure (Cabling, Hardware) Circuit Costs (T1s, T3s) Toll Bypass Other Source: The META Group Multi-Client Study 2000/01

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch IPT Delivering Cost Savings Benefits IPT deployment met or exceeded cost savings expectations 63% IPT deployment met or exceeded cost savings expectations 63% Didn't meet expectations 37% Didn't meet expectations 37% Majority of customers expectations are being met or exceeded!!!

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch IT is Feeling the Heat Q: Does your company have a formal ROI measurement system or informal payback scenarios? N=240 Yet, Companies Lack Formal Metrics Source: Darwin Magazine 42% 83% % of customers that require ROI Documentation 33% 65%

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Strategic Business Benefits Productivity -XML apps on the phone -Foundation for end-user applications -Conference Connection -Personal Assistant -Unified Messaging -Hoot ‘n’ Holler -CTI Mobility -Enhanced space utilization via enablement of hoteling environment -Phone number portability -Device identity -Mobility applications -Unified Messaging -Personal Assistant -Softphone Business Resilience -Distributed nature of IP can improve voice network continuity -Faster application deployment -Faster set-up of new facilities

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Hard Cost Savings Equipment Related Equipment and Maintenance -Reduction in cabling costs for new facilities -Reduction in infrastructure cost using centralized call processing -Increased productivity of core networking assets -Reduction in PBX expansion and upgrade costs -Reduction in annual maintenance costs Network Administration -Improved productivity of network support staff -Reduction in the costs of Moves, Adds and Changes (MAC’s) -Reduction in the cost of outsourced services Toll-Bypass -Toll-Bypass savings for on-net traffic -Consolidation in voice and data access -Elimination of voice trunks

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Real Benefits of Cisco IP Telephony Single Network Maintenance, Cabling, Administration, Support, Power, Moves/Adds/Changes (MAC’s), Staff Voice Business Continuity Integral component to an effective voice business continuity plan Can be compared against other less effective plans Voice message backup/restore Real Estate Space Utilisation, Reduced Operational Costs, Flexibility Reduced Call Costs Reduced mobile phone usage Extension Portability Campus Roaming, Home Office, Other Location Outbound Call Management Unified Messaging Audio Conferencing Small Branch Office Centralised Call Processing Elimination of voice trunks IP Toll Bypass No on-site PBX Reporting, Billing, Cost Management Cross-Enterprise telecom reporting Cross-Enterprise call cost management Predictability of telecom bills Reduced PC Costs IP phone can replace a web-enabled PC or laptop in certain environments Hard-dollar cost savings Employee Productivity End User Applications Audio Conferencing Unified Messaging Personal Assistant Web Access Computer Telephony Integration IT Operations Facilities Mgmt Ops Productivity increases that can be safely quantified Benefits that are very real, but difficult to quantify Cultural Enhancement Customer Satisfaction Employee Retention Geographic Flexibility Competitive Positioning Faster Application Deployment Voice Business Continuity Difficult-to-Quantify Productivity via Converged Applications

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch ROI Case Study Government Vertical Customer# of Benefiting Users Payback Period (months) NPV (US$ over 5-year Time Horizon) Ongoing Net Benefit (†) (US$/Year) Capital Expenditure (US$) Primary Benefit Sources Leading Technology Firm 6506 $783K$35OK $538/Employee $1.4M Improved productivity of support staff by 33% Reduced cabling expense Large City Government 23,00021 $24.2M$7.5M $326/Employee $ 15M Consolidated voice/data access Reduction in annual upgrade and maintenance costs Restaurant Chain $2.773M$922K $461/Employee $1.02M Multiple employee/location support, Network Admin savings Industrial Manufacturer $748K$160K $130/Employee $550K Lower infrastructure costs via single, converged network Lower Annual Maintenance Costs Financial Services Firm $1.573M$462K $308/Employee $700K Reduced costs of MAC’s Improvement in productivity of support staff

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Education Vertical in CNIC CNIC database contains 110+ Education ROI analysis –Includes College and Universities, High School and Elementary School districts, Administrative facilities/School Boards –Deployments range from phones –US only –Representation of Campus Administration, County School Districts and remote classrooms Common characteristics across customers –Multi-site and Larger Central Site environments –Dynamic operations Multiple student/administrator/location support, –Single vendor environments with longevity, Strong Budget Consideration-”Cost Conscious” –Legacy equipment,some Centrex services/out-sourcing

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch ROI Snapshot Financial Services CNIC database contains 228 financial services ROI analysis –Includes retail brokerage, insurance, banking –Deployments range from 100-6,000 phones –Mostly U.S. and European enterprises Common characteristics across customers –Multi-site environments –Dynamic operations Lots of people moving –Multi-Vendor environments As a result of acquisition or because of decentralized control of networking resources –Branch offices have lesser network/application capabilities than HQ

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Retail Vertical in CNIC CNIC database contains 250+ Retail/Mfg ROI analysis –Includes Restaurant Chains, New Retail Franchise locations, Automotive Dealerships/Plants –Deployments range from phones –Both U.S and International –Representation of new store/fast food locations, Manufacturers HQ and Assembly facilities Common characteristics across customers –-New Branch and campus environments –Dynamic operations Nation-wide or Regional growth patterns for new facilities –Rapid Deployment, Productivity of Support Staff, Reduced Cabling –Greenfield and Older PBX conversion sites

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch CNIC Vertical Snapshot Government CNIC database contains 140+ Government ROI analysis –Includes State, Local & Federal Government –Deployments range from ,000 phones –Mostly U.S, some International –Representation of Federal Agencies, State Governments, Cities/Municipalities/County Common characteristics across customers –Multi-site and Larger Central Site environments –Dynamic operations Consolidation of Real Estate/Office Space and people(“Down- sizing of government”) –Large, Single Vendor environments due RFP/Low Cost purchasing parameters –Lots of Legacy equipment and Centrex services

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Areas of Hard Cost Savings By Deployment Scenario Green Field TDM Centrex Replacement Multi-site CCP Older PBX Replacement Newer PBX Replacement Reduced Cabling Costs Reduced Infrastructure Costs Moves, Adds, Changes Toll-Bypass Voice Circuit Consolidation Increased Productivity of Support Staff Reduced Expansion/Upgrade Areas of Return Reduction in Outsourced Costs

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch What the Analysts Are Saying About CNIC End-users have told us again and again that identifying the bottom-line benefit when evaluating new technologies is a priority given today’s soft economic climate. Effective ROI tools can serve as a key element to the sales process because the offer the means for customers to measure the actual long-term value of new technologies like IP Communications. Cisco’s Converged Network Investment Calculator (CNIC) is an elegant response that can play a very meaningful role in persuading customer to invest in a new Cisco technology.” Ken Presti IDC “The most common complaints customers have about ROI calculators are that they are too Optimistic. Cisco Converged Network Investment Calculator (CNIC) addresses the potential for overly Optimistic ROI calculations by letting users enter in their own assumptions –from productivity gains to wiring drop Cost estimates. Building useful ROI tools is difficult. They have to be detailed enough to yield meaningful results that are tailored To each customers unique situation, yet simple enough to make it usable. CNIC is a comprehensive calculator that considers very detailed Aspects of the real-world costs of IP Telephony.” Kathryn Korostoff President Sage Research

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Holistic Approach to ROI Best Practices Training User Support CNIC A single ROI calculator for multiple Cisco solutions A central support resource that Cisco sales, partners, and customers can depend on for fast answers E-learning and instructor led training on ROI Standardized approach to building ROI models and engaging with customers

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Key Drivers of Positive ROI – Retail/Manufacturing Vertical Situational/Strategic Drivers –A compelling event is driving the decision Ex. new facility, end of useful life of PBX, planned upgrade of data infrastructure –Ability to leverage IP Convergence and centralized call processing Deployments have sites that are new construction/facilities Allows enterprises to more effectively utilize support staff Reduces costs to manage remote sites Specific Hard Cost Savings –Reduced infrastructure costs via Centralized Call Processing –Reduction in Moves, Adds, and Changes (MAC’s) –-Toll-Bypass cost savings of 15-20% –Voice/Data access consolidation

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Key Drivers of Positive ROI – Education Vertical Situational/Strategic Drivers –A compelling event is driving the decision Ex. new facility, end of useful life of PBX, planned upgrade of data infrastructure –Ability to leverage centralized call processing Deployment has remote sites that can leverage CCP Reduces costs to manage remote sites, staff & support productivity improvement –Creating new revenue generating services (broadband, advanced voice services) Specific Hard Cost Savings –Reduced infrastructure costs via Centralized Call Processing –Reduction in Upgrade and Expansion Costs –Voice/Data access consolidation –Reduced Out-Sourcing Costs

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Key Drivers of Positive ROI – Government Vertical Situational/Strategic Drivers –A compelling event is driving the decision Ex. new facility, end of useful life of PBX, planned upgrade of data infrastructure –Ability to leverage centralized call processing Deployment has lots of remote sites that can leverage CCP Allows enterprises to more effectively utilize fewer assets Reduces costs to manage remote sites Specific Hard Cost Savings –Reduced infrastructure costs via Centralized Call Processing –Reduction in Moves, Adds, and Changes (MAC’s) –Reduction in annual upgrade/expansion costs –-Toll-Bypass cost savings of 15-20% –Voice/Data access consolidation –Reduced Out-Sourcing Costs (CENTREX)

© 2002, Cisco Systems, Inc. All rights reserved _10_2002_c1_Kisch Key Drivers of Positive ROI – Financial Services Vertical Situational/Strategic Drivers –A compelling event is driving the decision Ex. new facility, end of useful life of PBX, planned upgrade of data infrastructure –Ability to leverage centralized call processing Specific Hard Cost Savings –Reduction in equipment costs via Centralized Call Processing –Reduction in Moves, Adds, and Changes (MAC’s) –Improvements in the productivity of network support staff –Reduced remote site management costs –-Toll-Bypass cost savings of 15-20% –Voice/Data access consolidation