In its 2005 State-of-the-Market Report, Webtorials found that 70% of companies have already installed a business grade WLAN, or are installing one this year. But just 11% had calculated a hard return on investment (ROI).
In a tight economy, few network infrastructure investments can be made without cost justification. If your company hasn't yet jumped on the Wi-Fi band-wagon, or seems to be stuck at the pilot stage, projecting ROI may help you turn the crank on broader wireless deployment. Doing so may also highlight financial differences between WLAN design alternatives, helping you make more cost-effective choices.
Estimating soft benefits
Soft benefits can be intangible and difficult to express in monetary terms. Soft benefits can also be quantifiable, but eliminated from ROI calculations because they do not contribute directly to bottom-line savings. Either way, it makes good sense to start your analysis by considering soft benefits.
For example, nearly half of those surveyed by Webtorials reported that their top WLAN deployment driver was "improved knowledge/worker productivity through mobility." This is a great example of a soft benefit. Convenient access to business data can speed decision-making -- clearly valuable, but can you put a concrete price-tag on that benefit?
On the other hand, many studies have shown that mobile access causes workers to stay connected to company networks 1 to 2 extra hours per day. Based on an 8 hour day, this translates into a 12 to 24% increase in worker productivity. Multiply this by staff cost and you can estimate potential productivity impact in dollars and cents. While this number may be quite impressive, it may or may not be tangible enough to win a business case argument.
Calculating hard ROI
Once you've finished examining soft benefits, it's time to pull out the hard ROI numbers. Depending upon your line of business, there may be several ways to measure hard ROI. For example, perhaps wireless can help you track warehouse contents more closely, trimming days from your "just in time" inventory replacement process.
Although such benefits vary, one that applies to most companies is a direct total cost of operation (TCO) comparison between wired Ethernet and wireless Wi-Fi networking. Suppose that you are outfitting a new branch office, or expanding floorspace in your current location. Would it be less expensive to complete this network extension with Ethernet or Wi-Fi? Per-user costs involved in a wired network deployment include Ethernet Switch ports, Ethernet cards, Cat5 cabling and jacks, and cable installation. Per-user costs involved in wireless network deployment include Access Point "ports" and wireless cards. In both cases, there is also the cost of station configuration. For example, consider this quick comparison:
|Cost per Station||Ethernet LAN||Wi-Fi LAN|
|Ethernet Switch Port||$50||-|
|Access Point "Port"||-||$40|
Even if you decide that Ethernet adapters are "free" (already included in purchased PCs), and Ethernet configuration are nominal, wireless installation costs are clearly lower. Furthermore, most hard ROI calculations include the on-going cost of "moves and changes." Assuming that APs have capacity, changing where a wireless user works involves no incremental cost. However, relocating a wired user may require a new cable drop and Ethernet port re-configuration. This on-going cost can be added directly to the ROI bottom line.
Note that TCO and ROI are not equivalent metrics. TCO comparison may be sufficient when choosing between two "green field" install options. ROI comes into play when evaluating a network upgrade. In other words, replacing perfectly good Ethernet with Wi-Fi is not likely to save you money from the get-go. In fact, it will cost you money up-front. But, over time, the financial benefit of avoiding Ethernet "moves and changes" will begin to add up, generating ROI.
Comparing wireless LAN alternatives
This simple Ethernet vs. Wi-Fi calculation makes a significant simplifying assumption: it includes equipment cost associated with a traditional (autonomous) business-grade AP -- in this case, a $400 AP supporting 10 stations. But AP prices and sizes vary considerably, as do wireless LAN architectures.
For example, suppose you are considering two alternative WLAN architectures: one that combines traditional APs with a third-party wireless gateway, vs. another that uses a wireless switch with "thin" APs from that vendor. Comparing capital equipment outlay may be relatively simple, but comparing true TCO is not as clear-cut.
For a more accurate comparison, you'd need to dig deeper into operating expenses, including the cost of WLAN planning, AP provisioning, radio spectrum management, and AP maintenance. Most WLAN "switches" provide centralized AP planning, provisioning, and monitoring. Many also provide automated RF management, dynamically adjusting power output and channel assignments. These features tend to reduce TCO over time, as compared to traditional autonomous APs.
On the other hand, if you've already made a significant investment in traditional APs and Ethernet switches, your ROI calculation should reflect this. Perhaps you can accomplish some of these same operating benefits by upgrading existing AP/Switch firmware and adding a WLAN management system that provides central management and monitoring.
Clearly, WLAN ROI calculation can become quite complex. In many cases, calculations can be simplified by eliminating factors that are the same for every alternative under consideration, or that do not contribute substantially to the bottom line. For example, every WLAN rollout requires administrator and end user training. In a large workforce, end user training may require major effort, but will not vary across WLAN architectures. Administrators may require less training with a centrally-managed WLAN, but this may pale in comparison other operational costs. While you cannot eliminate training costs from your budget, you might decide to drop them from your ROI comparison.
To learn more about WLAN ROI
Whether soft or hard, calculating ROI can be a bit of a black art. No published ROI or TCO calculation should be viewed as a "one size fits all" absolute. But much can be learned from examining how others have addressed this problem. To learn more about how to calculate WLAN ROI, consult these papers:
- WLAN TCO: Comparing Centralized and Distributed Architectures, Farpoint Group
- Justifying The Wireless Enterprise, Madge Limited
- Wireless LANs -- Total Cost of Ownership, Cisco Systems
- Wireless LANs: Improving Productivity and Quality of Life, Sage Research
- Calculating Wireless LAN ROI: The Five Step Model, Intel
- Business Case for Wireless LANs, MobileInfo.com
- WLAN Benefits Calculator, Wi-Fi Alliance
- Rapid Payback: Managing Wireless LAN for Maximum ROI, Summit Strategies
About the author Lisa Phifer is vice president of Core Competence Inc., a consulting
firm specializing in network security and management technology. Phifer has been involved in the
design, implementation, and evaluation of data communications, internetworking, security, and
network management products for nearly 20 years. She teaches about wireless LANs and virtual
private networking at industry conferences and has written extensively about network infrastructure
and security technologies for numerous publications. She is also a site expert to
SearchMobileComputing.com and SearchNetworking.com.
This was first published in October 2005