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Ways to cut costs: Move to MPLS

In many IT organizations roughly 70% of the personnel and capital resources are consumed maintaining the existing applications and IT infrastructure. However, at any point in time, IT organizations have a number of new initiatives underway.

Typically some of these initiatives are strategic in orientation while others are more tactical. In demanding economic times there is usually more attention paid to tactical initiatives in general, and to cost cutting initiatives in particular. We believe that in 2009 the typical IT organization will place great emphasis on cost cutting initiatives.

Because of the emphasis on cost cutting and because of the large percentage of IT resources consumed with maintaining the status quo, it is reasonable for IT organizations to look at how they can reduce their overhead. Given the ongoing costs involved, one place for IT organizations to focus their cost cutting initiatives is on reducing the recurring cost of the company’s WAN. One possible initiative is to move off of legacy technologies such as Frame Relay and ATM and onto newer technologies such as MPLS.

Many WAN providers are pricing their MPLS services in such a way as to encourage this migration. This can be a painful transition, but challenging economic times might well justify the organizational pain.

IT organizations should also consider going to their WAN provider(s) and look to re-negotiate their existing contracts. There are at least two instances in which this tactic is likely to be successful. The first is those situations in which the IT organization has an existing contract with a WAN provider and the annual revenue commitment is low compared to the actual spend.

For example, assume that an IT organization has committed $5 million a year to their WAN provider and they are currently spending $8 million, hence they have $3 million dollars a year to use as negotiating leverage. In this type of situation, the IT organization may well be able to negotiate lower rates if it agrees to commit most, if not all, of the additional $3 million to their current WAN provider.

The IT organization is more likely to be successful with this negotiating tactic if they can convince their current WAN provider that if they do not receive better rates they will take some or all of the additional budget to another WAN provider.

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