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On-Premise versus Hosted Contact Center Solutions

What You Don’t Know...Can Hurt

By Noelle MacQueen, Director of Marketing, Primary Matters, Inc.

Introduction

We’ve all heard the cliché: “What you don’t know can’t hurt you”. This may be true in some circumstances; such as the fact that the golf clubs you paid top price for 2 weeks ago are now on special and selling for 40% less. Information like that is probably better off unknown. However, this cliché is extremely misleading when considering which technology solutions to invest your budget and your trust into to receive the most positive return for your investment.

For example, when choosing between setting up an on-premise technology infrastructure and opting for a hosted solution, what you don’t know can hurt you - by jeopardizing the continuity of your contact center. And so begins the great debate.

Weighing the Options

Whether outsourced or internal, 5000-seat or 100-seat, multi-site or consolidated, no customer contact center can operate efficiently without certain technology solutions. ACD, IVR, CTI, CRM… and the list continues. As your center grows, there is little choice as to whether or not you will implement some productivity technology. The choice begins when analyzing the option of hosted vs. on-premise solutions. In using hosted solutions, there is the obvious advantage of a considerably reduced upfront investment. Says the provider of hosted solutions, “Why buy the cow when you can get just the right amount of milk for a fraction of the cost?” On the other hand, in steps the provider of on-premise infrastructure with the rebuttal, “If you buy the cow, you don’t have to pay for the milk on an ongoing basis.”

Just the Facts

Let’s sort through the hype and get to the facts. The benefits offered by a hosted solution go beyond reduction in upfront capital expenditure and include:

No ongoing maintenance fees,
No deployments to tie up your IT staff for extended periods,
No need to integrate new technology into your existing environment,
No need for IT personnel to operate and maintain the systems; and
No future investment to upgrade obsolete technology.

Seems like an obvious choice, right? Not so fast.

Also to be carefully considered, especially for large contact centers with high growth projections, are the benefits of acquiring an on-premise infrastructure, including:

Owning the technology after the amortization period is complete with very little cost to maintain and operate,
Available tax breaks for depreciation, and
Controlling the reliability of on-site technology vs. depending on the reliability of a hosted server for solutions accessed over the Internet.

Feeling conflicted? Relax. This is not a test and there is no universal “right answer”.

Activity-based Analysis to the Rescue

Your right answer does not lie in the generic benefits of either solution, but within your specific contact center environment. While the total cost of ownership may be unjustifiably high for you to acquire on-premise solutions, this may not be the case for your competition. So how do you know which choice will have the best impact on your resource requirements?

Activity-based business impact analysis takes the guesswork out of this very fundamental decision. It replaces the need to spend weeks or months pouring over custom spreadsheets to reach a verdict that makes the most sense from a cost and productivity perspective. It replaces the need to pay consultants to spend weeks or months pouring over custom spreadsheets to make a recommendation. It gives you a clear picture of what your organization will look like, projected monthly over your planning horizon, after implementing either solution.

Using activity-based analysis as the basis for your decision gives you the ability to:

See how your headcount, budget, and system requirements will be impacted by either choice,
Show when/if break-even will occur,
Build detailed ROI/TCO reports to support funding approval; and
Monitor metrics to ensure that you meet your project goals.

How it Works

The Primary Matters Guide® is an activity-based planning, budgeting and business impact analysis tool. The Guide™ provides data entry fields that enable you to enter all required informations to build a detailed, complete baseline in about one day.

To use an activity-based approach in analyzing proposed changes to your current environment, you begin by building a baseline of what your contact center looks like today. Through simple data entry, facts describing your personnel (productivity and cost), and system requirements (capacity and cost) are defined. By also defining the work process steps involved in completing your contact center objective, and the number of times each process is performed per month, you are able to uncover the personnel and systems required to perform the work defined. You are also able to uncover your costs at a granular level, including labor costs, total cost of ownership per system, and cost per process step.

Scenario Analysis

Now that you have a baseline describing what your contact center looks like today, as well as projections for the future if your technology remains the same, you are ready to analyze your options for implementing on-premise or hosted technology solutions. This is called “scenario analysis.” To run a scenario, you simply make changes to your baseline by entering information about the proposed change. To analyze these options, you will enter data on the upfront investment, implementation and support costs, maintenance fees, upgrade fees, and any other immediate or future costs attributed to the proposed systems.

The Guide™ comes complete with System Templates pre-populated with all pertinent details for most technology solutions available. The Guide allows you to simply “turn on” a system to reveal its impact, instead of entering this information manually.

The result? After only minutes of data entry, the projected impact of implementing the considered solution becomes apparent. Reports are created showing the return on investment and total cost of ownership for each option. You can see which month break-even will occur. The impact on your personnel and system requirements is revealed.

You are able to clearly define the option that will have the most positive impact on your contact center as a whole.

Create a Baseline and Run Scenarios

Figure 1

(Figure 1 describes the activity-based analysis involved in determining whether on-premise or hosted contact center technology solutions are right for your contact center.)

An Activity-based Example

To show the advantage of using activity-based analysis to examine your options, we began by building a baseline for 2 contact centers which reflected their current technology and operations environment. One center has 100 seats, the other has 1000 seats, and both centers have a 20% annual growth rate. We then made changes to the baseline by adding information pertinent to the implementations of each option, and were able to analyze the impact of implementing on-premise and hosted solutions for both centers.

The table below indicates the granularity of the analysis performed. It compares the baseline (what the center looks like currently) and scenario (what the center will look like after the proposed solution is implemented) over a three year period and reveals:

The quarterly headcount comparison,
The quarterly budget comparison,
The annual cash flow savings due to initiative,
Total cost of ownership of the system; and
The return on investment

Return on Investment

Figure 2

(Figure 2 shows the analysis results of implementing the on-premise solution in the contact center with 1000 seats)

The Result

Let’s begin with the results from the smaller center. On the chart below, notice how the initial cash outlay for the on-premise solution is significantly higher than that of obtaining the same technology from the provider of hosted solutions. Also notice that the ongoing cost is similar for both, so for this center, they may never fully recover from the on-premise investment.

Figure 3

(Figure 3 shows the quarterly system cash budget comparison for the smaller center. Analysis for all charts was provided by The Primary Matters Guide®)

Next, we examine the ROI results. The following chart provides overwhelming evidence that the obvious winner for this center is the provider of hosted solutions.

Figure 4 (Figure 4 shows the yearly ROI analysis for the smaller center. Final ROI is 138% for hosted and 43% for on-premise)

But don’t rule out on-premise infrastructure just yet...

Now we move on to the results for the larger center. As the following chart reveals, although the initial cash outlay for the on-premise purchase is higher, the cost is eventually overpowered by the ongoing cost of maintaining a hosted environment.

Figure 5

(Figure 5 shows the quarterly system cash budget for the larger center)

Finally, we examine the ROI results. In this case, the winner for the larger center, while by a smaller margin, is the on-premise solution.

Figure 6

(Figure 6 shows the yearly ROI analysis for the larger center. Final ROI is 146% for hosted and 156% for on-premise)

Conclusion

You may have been hoping that reading this paper would tell you which solution is the best choice for your center. Even if you are running a contact center with 100 or 1000 seats, the analysis displayed does not necessarily apply to your situation. The conclusion for each center in this example was arrived at by using information pertinent specifically to that center. Determining factors such as the number of fixed and variable personnel, the current technology environment, as well as the costs associated with these factors, may be similar within contact centers of the same size but differ enough to make a drastic variation in the analysis results.

When preformed using information specific to your contact center environment, activity-based analysis is an exceptionally accurate method of highlighting the option that will provide you with the highest return in both profit and efficiency; ensuring the continuity of your contact center.

For More Information

Contact Primary Matters, Inc. at (902) 794-7095 or visit our website at www.primarymatters.com . Primary Matters provides software products and services that enable activity-based budgeting, planning and business impact analyses. The company’s solution improves budgeting processes and planning decisions. Its flagship product, The Primary Matters Guide® is activity-based, content rich software that uncovers underlying costs in contact centers. With The Guide™ , business goals are linked to the resource requirements needed to meet these goals.