Cost is perceived as a major driver in the desire to move towards a managed messaging solution and/or hosting of an email system. The reality is that in most organizations it is so difficult to ascertain the true cost of providing an email system that it is possible to make the figures say whatever is required. So the use of a Return on Investment or Total Cost of Ownership calculation tends to follow and justify a decision to either retain the in-house status quo or to implement change. However, the type of cost incurred can be a significant advantage to a company.

Type of Cost

In the current uncertain economic climate, there are not many companies seeking projects with substantial capital outlay if there is another option to spread revenue costs over a period of years. Therefore the major cost driver for many companies is not the actual cost savings that can be achieved through outsourcing their email, but the opportunity to avoid significant capital costs and in turn incur a known and fixed monthly fee for the period of a contract.

Furthermore, as an IT Manager or IT Director typically has a fixed budget per year from which to provide services, having a known cost for the year to provide email services to the organization is a major advantage. This fixed monthly cost can include many elements that have in the past been variable such as:

Staff costs: Recruitment; training; redundancy; sick leave and so on.

Incident costs: Any unexpected infrastructure costs; extra hard drives; new servers; business continuity testing; virus attack resolution.

Growth costs: Internet bandwidth; user administration staff.

Many costs that were previously variable can be fixed through entering into a management contract; however, as it was not always possible to know how big the variable costs were likely to be, it is not easy to determine whether the fixed cost route is “cost effective”!

Using Outsourcing to Avoid Capital Costs

If an organization is facing the prospect of moving to a new email system, or upgrading an existing system, there are a myriad of costs involved if the whole project is handled internally. Many of these costs are one-off capital items that most companies currently seek to avoid. Costs such as these may be mitigated through outsourcing:

 Purchase of new hardware and software.

 Staff retraining.

 Migration costs.

 Project management.

 Consultancy.

 Business continuity.

 Dealing with contingent issues (e.g. upgrade to Active Directory).

Contractual arrangements with the service provider specifically define a monthly per user price that is fixed for the term of the agreement. Most companies interviewed agree that this pricing predictability is of significant financial benefit.

Summary

Outsourcing can be used as a financial instrument to convert capital costs to operating costs and fix them at an agreed level. Costs can even be tied to a per user level such that individual departments within a company may be cross-charged based on the number of email users and the company simply pays a fixed fee per user per month to the service

Provider.

The real cost benefit of outsourcing is predictability of costs rather than overall cost reduction as the true cost of a messaging system is difficult to ascertain.

Downtime

It is estimated that the productivity loss caused by messaging downtime could result in annual per user costs of approximately $24 and $62 respectively. An additional $174 per user per year to cover revenue losses and has reported that downtime could constitute as much as 50% of the Total Cost of Ownership of a company’s messaging infrastructure. If true, these figures suggest that downtime costs could reach $900,000 per year for a company employing 4,000 staff.

While the actual value of downtime is difficult to quantify, moving from an internally managed to an outsourced messaging environment can significantly decrease downtime and its associated costs in three ways:

1. A solution provider typically includes some type of redundancy as a standard feature of its managed messaging service offerings, either through clustering, backup servers, redundant networks and power supplies, and/or on-site hardware parts and technicians. This is a significant improvement for most companies since only 58% currently have redundancy in their email server configurations.

2. Outsourced messaging environments are engineered carefully for availability and monitored proactively for potential problems. So, problems that do arise can be quickly detected and resolved with the help of both sophisticated tools and an experienced staff that is likely to have seen a similar problem previously.

3. Unlike an internal IT department, a service provider offers a guarantee of system availability, usually 99.9%.

Summary

Downtime is a major cause of lost productivity for an organization amounting to almost $15 per user per month. In many instances, this figure exceeds the total cost of providing a fully outsourced managed email solution. However, proving these costs in a real world setting is difficult leading to them being dismissed by many. What is beyond doubt is that having a specialist provider manage an email system renders it significantly more reliable and useable. It is up to individual companies to put a price on the reliability of one of their mission critical communications tools.