Lab Scenario 1

Date of Issue: 06-01-2001 Lab Scenario 1 by Annlee Hines The Scenario Proposal 1 Proposal 2 Proposal 3 Analysis Current Cost Structure -- 256 Kbps leased line, data only Proposal 1

Date of Issue: 06-01-2001

Lab Scenario 1

by Annlee Hines

The Scenario

Proposal 1

Proposal 2

Proposal 3

Analysis

Current Cost Structure 256 Kbps leased line, data only

Proposal 1 512 Kbps leased line, data only

Proposal 2 512 Kbps Frame Relay, data only

Proposal 3 1,544 Kbps ATM, voice and data

Solution

Note for the Financially Astute

The Scenario

You are the Network Administrator for FUD Services, Inc., a medium-sized firm providing market research to the pharmaceutical industry Your product consists of written research reports, usually accompanied by a number of graphics files You deliver these on a subscription basis via password-protected download from your web site You also use the web site as a marketing tool, showcasing past research reports and offering an opportunity to begin the dialogue toward developing special (custom) reports on demand Such dialogue usually continues via email, with the final contractual arrangements made via hard copy exchange Inputs for your reports come from a variety of sources, often accessed or confirmed via the Internet

Last year, the company recognized the growing power of the European biological research corridor from Switzerland down the Rhine into Germany and France, so it began preparations to open an office in Strasbourg If the project goes well, in two more years FUD will open an office somewhere in East Asia (probably Singapore) as well

Your current WAN access is a fractional T-1 line (256 Kbps) leased from BBOS Data Services, Inc (Baby Bell On Steroids, you know: the one that swallowed two of its siblings), which also serves as your ISP and provides web hosting services For the combined set of services, you pay $2000/month The Network Administrator in the new Strasbourg office will contract for his own Internet access, but you are concerned that the file transfers between the two offices will overwhelm the existing fractional T-1 While this wouldn't cripple the rollout of the new European focus,

it would severely hamper it You asked the Sales Engineer from BBOS for recommendations; she returned in a week with three Proposals

Proposal 1

BBOS will double the bandwidth on your fractional T-1 to 512 Kbps, and will continue serving as your ISP and web host for $3600/month The contracted price will be good for two years

Proposal 2

BBOS will offer you the same 512 Kbps as Proposal 1 but as a Frame Relay service, ISP, and web host for

$3000/month You will be required to add a Frame Relay-capable router at the demarc; BBOS will provide

configuration specifications for the DLCI BBOS can provide the router on a lease, for $180/month, or for sale, at

$3200 These prices will also be good for two years

Proposal 3

BBOS will offer FUD a full T-1, carrying ATM, again on a two-year contract This will also carry FUD's voice traffic on a PVC (your telco is, conveniently, BBOS) and replace the separate voice service contract currently costing

$1800/month You will need to install a new PBX system at a one-time cost of $12,000, and an ATM-capable switch

On an arrangement similar to that for Frame Relay, BBOS will provide the switch on a leased basis ($265/month) or for purchase ($4200) The total package (1.544 Mbps of ATM, one contract for voice and data, ISP, web hosting) will cost $4300/month

Which Proposal should FUD accept, and why?

Analysis

Before we even look at the price quotes, examine what services FUD needs on this circuit what problem is FUD trying to solve? The problem, as described, includes only data transfers, which are typically bursty and

delay-insensitive Since both the leased line (which has been doing fine up to now) and Frame Relay work well for data traffic, both of those Proposals would work The sales engineer has offered to include voice traffic, removing one recurring cost, but that would require FUD to purchase a great deal more hardware FUD did not include telephone service in its requirements, but the offer is worth examining Obviously, the sales engineer was listening, since all Proposals are set for two years, which matches the time frame (the potential opening of another office, this time in Asia) at which FUD will need to reconsider its contract anyway

Current Cost Structure 256 Kbps leased line, data only

Proposal 1 512 Kbps leased line, data only

Proposal 2 512 Kbps Frame Relay, data only

Proposal 3 1,544 Kbps ATM, voice and data

Item Per Month For Two Years

Data Services $2,000 $48,000 Telephone Services $1,800 $43,200

Item Per Month For Two Years

Data Services $3,600 $86,400 Telephone Services $1,800 $43,200

Item Per Month For Two Years

Equipment (lease) $180 $4,320 Equipment (buy) - $3,200 Data Services $3,000 $72,000 Telephone Services $1,800 $43,200

Total Cost (lease) $119,520 Total Cost (buy) $118,400

Of the three Proposals, continuing with leased line service is the least economical Proposal 3 is attractive; for only

$1000 more over a two-year period, FUD could have more bandwidth than it thinks it will need for this transition

Intangibles to consider include the probability of work and/or communications disruption while the voice equipment is swapped out Since this is the first real expansion of FUD, and will occur overseas, disruptions are a major drawback Senior management is already quite nervous about keeping FUD "on the same page" when operating with such a large time zone difference (6 or 7 hours, depending on the time of year) In the words of the CFO, "The existing telephone system works perfectly well, thank you." That, plus the higher price (though not significantly higher,

especially considering the greater bandwidth offered), rules out Proposal 3 this year If a similar deal were offered in two years, it would certainly be worth reconsidering

That leaves Proposal 2 Frame Relay is the least expensive (especially if FUD buys the router instead of leasing), and requires only a minor equipment addition to the network It also meets the requirements established before the

proposals were seen This is an important point: rational contracting decisions regarding your WAN service are easier

to make (and to justify) if the criteria for success are established in advance and were therefore not swayed by a

"good deal" from the sales engineer (although the ATM package was very nearly the best deal anyway)

Choose Proposal 2

Note for the Financially Astute

The CFO corrects your analysis, reminding you that monies spent over time should not be compared in nominal dollars, but rather in dollars converted to their present value (PV) She reruns the numbers, and arrives at the same answer, Proposal 2 (though like all accountants, she lists an expense as a negative value)

[IE-WANS-LS1-F03]

[2001-06-01-01]

Equipment (switch lease) $265 $6,360 Equipment (switch buy) - $4,200 Equipment (PBX buy) - $12,000 ATM Services $4,300 $103,200

Total Cost (lease) $121,560

$3600/mo for 24 months + $1800/mo telco ($119,396.94)

Proposal 2

$3000/mo + $180/mo for 24 months + $1800/mo telco ($110,110.51)

Proposal 3

$4300/mo for 24 mo + $265/mo for 24 months +$12,000 PBX replacement ($112,934.63)

$4300/mo for 24 mo + $4200 now +$12,000 PBX replacement ($111,275.34)

Copyright © 2001 Genium Publishing Corporation