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Assessing Total Cost of Ownership

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When enterprises first started deploying wireless LANs, cost justifying them seemed straightforward enough – once prices came down to a certain level.You still paid a premium for wireless LAN hardware and software, of course, but that was offset by the wired LAN cabling and installation costs you avoided. And then there were all the soft-dollar W-LAN benefits associated with the convenience of being able to move around in a facility and stay connected.

But calculating real costs and real benefits is a notoriously tricky business. Does a wireless LAN truly end up being cheaper than a wired LAN? It’s something prospective users rightly want to know.

To find out, we turned to an acknowledged master of this kind of analysis, Boston-based Gartner Inc. Gartner pioneered the notion of a total cost of ownership (TCO) for technology. TCO takes into account all kinds of costs besides the equipment or software vendor’s price. As Gartner has shown over and over, capital costs are often only a small part of the total.

Phillip Redman, research director in Gartner’s mobile and wireless communications group, has been doing some intensive work on W-LANs recently. His conclusion: in some scenarios, even in horizontal applications, W-LANs definitely have a lower TCO than wired LANs.That doesn’t necessarily translate into a clear return on investment (ROI), Redman cautions. Where a W-LAN is used instead of, or to replace a wired LAN, you have to take into account possible loss of productivity due to slower network speeds on the W-LAN.

“But for a small office using a wireless LAN for e-mail, printer sharing, light Internet browsing, and database access we believe there is a very good opportunity for a good ROI,” Redman says. “The reliability of wireless is very high. In small offices especially, and especially in a temporary office environment there is lot of room to succeed.”

This kind of reassurance about W-LAN TCO and ROI coming from a vendor is one thing. Coming from Gartner, it means a good deal more.

For his analysis, Redman developed two TCO scenarios. In one, a company deploys a W-LAN in a large office as an extension to a wired LAN to allow about 100 users to stay connected as they move around the facility. In the other scenario, the company deploys a W-LAN instead of, or to replace a wired LAN in a small office of 45 users.

The Gartner TCO model takes into account four broad categories of cost: capital, IT operations, administrative, and user operational. The operations category factors in, among other things, the cost of integrating hardware and software, customizing applications, and providing technical support to end-users. Admin costs include impacts on budget, purchasing, procurement, and training. User operational costs, perhaps the most difficult to accurately calculate, include lost productivity when the technology malfunctions or the user can’t figure out how to do what he needs to do – and even lost productivity when a workmate stops what he’s doing to help out.

Gartner gathered raw data on costs from equipment vendors, systems integrators, and clients who have actual experience implementing W-LANs.

In the small-office, wired LAN replacement scenario, Redman calculates the total cost of ownership per user for the first year at $4,732. It declines slightly each year over the three-year amortization period.Capital costs represent only 11 percent of the total. End-user operational costs are the biggest chunk at 47 percent. Admin costs represents 16 percent and IT operations 26 percent.Most important, the TCO for a W-LAN in this scenario is 15 percent less than the TCO for a wired LAN.

In the LAN extension scenario, TCO for the W-LAN is $3,052. This reflects assumptions about how the wireless connections are used – only 20 percent of the time – and the fact that the rest of the time, users are on an established wired LAN.Calculating an ROI in the LAN extension scenario is more difficult, Redman says.

“It’s soft dollars – being able to be available for messages wherever you are, carrying on with collaborative work when you move around, the fact that you could continue processing when you go into meetings. There are ways to monitor these uses. But it’s very difficult to quantify.”

Gartner has done little detailed work on ROI on W-LANs, but Redman says the best ROI cases are in vertical applications such as retail, warehousing, transportation, and healthcare. For example, one Gartner client was able to reduce warehousing staff by 20 percent by deploying wireless barcode readers that relayed information directly back to a database application over a Wi-Fi network. And a hospital showed that connecting intensive care patients to wireless monitoring devices and letting them get out of bed and move around sooner ultimately saved money. It has long been observed that patients recover more quickly if they can get out of bed sooner. The faster they recovered, the faster expensive intensive care beds were freed up.

Redman cautions that Gartner’s TCO calculations cannot be applied where the scenario is markedly different from the one Gartner used – more or fewer users, for example. Nor will the calculations remain accurate forever. As technologies and corporate practices change, so will TCOs. “This is one snapshot in time,” Redman says of the current W-LAN calculations.

Still, even without doing a custom calculation, it’s useful to have some quasi-scientific and disinterested testimony to back up claims that wireless LANs can cost less than wired LANs and provide a good return on investment.

This article first appeared on 802.11-Planet, an site.

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