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How to estimate the ROI of a SD-WAN implementation

Going forward on a SD-WAN implementation is a big step for enterprises, but determining the return on investment can be a deciding factor in whether to crop more expensive MPLS lines.

Over the past couple of years, software-defined WAN, or SD-WAN, has been a constant stream of articles and webinars....

In spite of this barrage of information, relatively few organizations are going ahead with SD-WAN implementations. As pointed out in Ashton, Metzler & Associates' survey, The 2016 State of the WAN, one of the primary inhibitors to SD-WAN adoption is the perception that the current products and services are unproven and immature.

Given that SD-WANs are relatively new to the market, this inhibitor is understandable, but it will likely dissipate over the next year or two. Another primary inhibitor to deploying SD-WAN revealed in the survey is enterprises and other organizations don't see a compelling business case for SD-WAN implementations.

My goal here is to help network managers create that compelling business case.

The business case for a SD-WAN implementation

When building a business case for any kind of investment in IT, the two types of savings you can realize are hard savings and soft savings. Hard savings refer to a verifiable reduction in spending, such as the reduction that results from canceling an MPLS circuit used for your WAN. Soft savings refer to benefits like improved productivity or better compliance. Since soft savings are harder to measure and more difficult to use as justification for an investment in IT, we will focus on hard savings.

A key feature of most SD-WAN products and services is to dynamically load balance WAN traffic over multiple links, based on application-centric policy. Proponents of SD-WAN services claim this capability enables network organizations to make less use of relatively expensive MPLS circuits and more use of relatively inexpensive broadband internet bandwidth, without experiencing degraded application performance.

SD-WAN hard savings

To demonstrate how this capability can be used to develop a compelling business case, consider a hypothetical company, called PaysTooMuch. PaysTooMuch has 100 branch offices and averages two T1 links to an MPLS service from each office at a monthly average cost of $550 per T1. Assume that by implementing SD-WAN, PaysTooMuch can, on average, reduce one T1 link at each branch office and replace it with a high-speed broadband internet link, with an average monthly cost of $50. This yields a monthly savings of $500 per branch office. Implementing SD-WAN in all of the branches would result in a total monthly savings of $50,000.

Enterprises can employ numerous metrics to measure the financial viability of deploying any kind of technology. One of the most useful metrics is the payback period -- the amount of time before the resultant savings equal or exceed the cost of deploying a new technology or service. To demonstrate how to calculate the payback period, assume the SD-WAN that PaysTooMuch implemented costs $400,000. Implementing SD-WAN resulted in monthly savings of $50,000, and PaysTooMuch gains a payback period of eight months -- $400,000 divided by $50,000 in savings per month.

The analysis presented is likely to be sufficient for most organizations. Some businesses, however, need a more sophisticated analysis. For example, it is likely that if PaysTooMuch had not procedded with a SD-WAN implementation, it would need to add increasing MPLS capacity in the near future. If, because PaysTooMuch opted for SD-WAN, it doesn't have to add this capacity, additional savings that could be included in the previous analysis ensue. In addition, the analysis above included only a one-time cost for the SD-WAN service. Many organizations would want to see ongoing monthly maintenance costs included in the analysis.

Not every organization uses the same metrics to justify an IT investment, and not every organization requires the same degree of granularity in the analysis. But companies should be able to easily calculate the payback period that is associated with SD-WAN implementations at a high level. At a minimum, the analysis provides the company with greater insight into whether adopting SD-WAN will result in hard savings. In addition, it might be a rigorous-enough analysis to convince senior management to sign a purchase order.

Next Steps

More advice on SD-WAN and determining ROI

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What to consider before choosing SD-WAN

This was last published in August 2016

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