COMMUNICATIONS BUDGET AND PLAN STRUCTURE

An organization’s annual business plan consists of several components, not just budgets. The purpose of a business plan is to set out goals and objectives—with great focus on financial targets the organization hopes to achieve in the coming year. Typical practice is to begin working on next year’s business plan and budget in the midto late third quarter of the fiscal year. For organizations operating concurrent fiscal and calendar years, school, and budgeting start around the same time. Usually the business plan and budget goes to the board or owner in December. Well-laid plans get approved; lousy plans become the root of contention and revision during the holiday season. Most organizations don’t enter a new fiscal year without a board-approved operating plan for the next year.

Communications budgeting and planning involves only the expense and asset accounts in the system. This is the time and place to get new inputs into budgeting and operating practices, as well as organize new parameters in operating and capital expenditures. Regardless of reporting structure, it is strongly recommended that communications cost management be accounted for as a departmental peer to other operating functions such as sales, marketing, accounting, management information systems/information technology (MIS/IT), etc. Alternatively, it can be part of MIS/IT if all subaccounts are properly structured and their entries classified appropriately. But care must be taken to keep the two separated and well defined, because of the potential for, and sometimes outright, duplication of resources or empire building. Missing an opportunity to acquire a new operational capability is also possible as well. This is the syndrome known as the left hand not knowing what the right hand is doing.

Good budgeting and planning practice uses previous years’ actual results as a foundation on which to build the next year’s plan. Overall, the process involves studying and understanding previous years’ history, followed by development and analysis of alternative scenarios. Reports of actual expenditures by category, department, and location covering the past year are the critical starting point. These reports should come from accounting on a regular monthly basis.

Excellence in budgeting and planning practice dovetails with and leverages successful long-range business and strategic planning. Gaining a detailed understanding of the content of goods and services making up the numbers may require examination and study of the invoices and contracts that caused the numbers. This is the area where communications subject matter expertise can greatly enhance clarity and meaning with respect to cause and effect of capital and operating expenditures, really purchasing decisions, on individual departments as well as the overall operations of the enterprise. It is important to determine the value of each and every spending transaction. What is the result of providing every single employee with a telephone? What would happen if they didn’t have a telephone, or if they had to share a telephone with another person? Managers in all departments with responsibility need to evaluate and consider the work content of each and every employee. What is their input and output; how much is dependent on 24/7 availability of a telephone for incoming and outgoing calls? The same questions should be asked about their computers, LAN usage, pagers, mobile phones, and other gadgets. Not that they aren’t valuable, but it’s a simple matter of understanding how valuable. And if the value is real, is it being applied to, or used by, all appropriate headcount?

Capital spending should be scrutinized as well. Look at the previous 2 or 3 years of capital spending. What was the cost of each component in the spending package? What was the expected result? Capital spending should either result in savings or profitable revenue growth, preferably both if possible. What was the promised return compared to reality today? Get numbers, because you will (or should be) asked. If you’re not asked, then you should update your resume and watch for an opportunity to move to a job where management asks before you’re forced to because the management you work for might not get supervised by the bank or board before the business isn’t a business any longer.

The budget is only one part of an overall communications plan. Depending on the way the enterprise is organized and conducts its accounting practices, communications budgets, and operating activities may be centralized or decentralized. They may be wholly an internal function or completely outsourced. In reality, it’s highly likely somewhere in between the two extremes and a mix of both. Other key parts of the plan include people and vendor or supplier resources. Communications expense and capital expenditures are significant dollar amounts. We know from experience that opportunities for significant one-time and ongoing savings exist. It is not unusual to realize 8% to 10%, or even 15%, favorable impact on pre-tax profit. Budgeting and financial planning time is the time to create a plan to realize those savings.

In addition to impacting the cost of communications directly, budgeting and financial planning provide opportunities to impact the organizations overall growth rate and the competitive and strategic position in the marketplace. Creation of a website with adequate, but not oversized communications network access and just the right amount of advertising and promotion can be just the ticket for a newly created product or service offering. Expansion of customer support with a new call center located in an area where labor cost is lower is a no-brainer. But structuring the design of the communications network and system required to support scalable growth over a 2-, 3-, or 5-year period requires knowledge of communications technology and commercial products and services to design, build, and operate in a way that enables and does not constrain growth. Competent communications budgeting and planning supports the department with direct responsibility to determine and plan the website. The responsible department describes what they want in the way of capabilities and results; communications management designs the facility and prepares a detailed operating and capital project plan, including budgets for both.

INITIATING COMMUNICATIONS COST MANAGEMENT

Communications cost management (CCM) should be initiated or approved by a senior executive or officer equivalent responsible for ensuring organizational expenditures and accounting are in compliance with accounting and financial rules applicable to the organization. This individual should request or be provided with a briefing on known and suspected level of expenditures directly attributable to telephone service (i.e., data communications, website development, deployment, web publishing, content distribution, delivery, e-commerce, two-way radio, satellite, cable television, and any other service that could be deemed to be or directly support the organization’s internal and outside communications).

Communications Cost Management Executive Briefing Content Preparation

An executive briefing should be prepared for by researching basic facts and parameters of the organization’s communications cost accounting and operating practices. The following list of high level actions, analysis, and summary outlines what and how to prepare and present the information:

• Gather all known contracts and billing agreements for voice, data, video, and Internet equipment, facilities, and services. If there are bills being paid according to tariffs on file with the FCC or PUC, obtain a copy of all the tariffs referenced in each billing. If it’s convenient and easy to get, include postage meter usage and overnight shipping, especially departments whose work output is not something physical other than paper documents. Every paper document is a candidate for electronic transmission at a fraction of the cost. And don’t forget that compact discs and other magnetic or optical media contain files that go quicker through the network at a similar fraction of the cost of paper.
  
  
• Gather up at least 3, preferably 6 months worth of paid bills. Each bill should show circuit identification or other deliverable being billed. If the individual items on the invoices are not clear, get an explanation of the item, function, or purpose from the service provider. This should be a written service description that provides greater detail than what is included on the invoice. Usually the invoice references some kind of service description. If the unit price of the deliverable is not included on the invoice or in the service description, request this information from the service provider specific to each invoice.
  
  
• Make a list of all billed deliverables paid for and include department, location, and name of the employee using the item. If it is a common item, such as a data line, list all the computer applications using the facility. Accounting might be able to provide a file or printout with this level of detail.
  
  
• Find out how the organization acquires or otherwise commits to pay for communications services. The two best places to start are purchasing and accounts payable. Is there a central source for coordinating and consolidating service ordering and terminations? Does each department just order a telephone line or other service or facility when they need it and then pay the bill when it comes in?
  
  
• Make a list of all equipment owned or leased and include year acquired, current book value, or unpaid lease obligation, monthly depreciation or lease payment, monthly maintenance cost, and planned replacement date if any. Some or all of this information may be available from accounting asset records or inventory files.
  
  
• Summarize all known vendors by service, equipment, and estimated annual unit and dollar volume.
  
  
• If cost management is an internal function, summarize headcount, professional specialty, and job responsibility of each individual directly attributable to CCM.
  
  
• If a significant level of expenditure is attributable to outsourced or vendor-provided CCM exists, summarize the specific vendors, term of contract, monthly or annual cost, list of work activities and deliverables, and names of key individual contributors responsible for the deliverable, their professional specialty and job title, pay grade, and responsibilities.

The briefing should provide a complete picture of how much money is at stake, what it’s being spent for, and the value of the assets attributable to communications functions by department and organizational function. For example, if a set of server hardware and software exists that is used by a single department in engineering, marketing, sales or other area, make sure that department and the function for which it is used is very succinct and clear.

In addition to being clear and succinct about the cost and use of communications assets and expenditures, it is critical that the process and practices being followed be equally clear. This knowledge and information can be used to rationalize next steps and characterize current status. The outcome should be a realistic assessment of the process and practices with respect to compliance with applicable accounting and reporting rules under which the organization operates. Recognition of potential savings is important because real money is at stake. If changes need to be made in operating practices or procedures to improve the competitive or strategic position of the organization, this is the time to get that on the table for consideration as well.

Next Steps

By the time the work in the executive briefing is completed, it is highly likely that additional steps will have been taken, but not included in the briefing. What needs to be done is to take the high level work items, and expand the details of each to gain deeper insight and understanding of how much money is at stake, potential savings, improvement in service levels, better use of human resources and assets, and the limits of flexibility as represented by spare or unused capacity for growth.

Once you have an overall picture of how much money is at stake, and what it’s being spent for, you can consider and decide the level and timing of effort appropriate for further work because you are now ready to take constructive, proactive ownership and management of communications cost in the enterprise you’re part of. Here’s a high-level list of topics and an explanation of what needs to be done, how to go about it, and a view of value or impact on the organization’s ability to accomplish its mission.

LINKING IN COMMUNICATIONS NETWORKS

Linking involves two types of paths through the network: physical and virtual. Paths are created through the network when physical links are connected in series between two terminal sites. A receive path output from equipment in a terminal is connected to transmit path input on another facility. For a full-duplex or two-way path, the receive path from the opposite direction must be connected to the transmit path in the opposite direction. This type of linking process in digital networks can be extended many times without undue service impairment, except for the accumulation of transmission delay and errors. The latter can be mitigated by good link engineering practice common in radio and optical link budgeting.

When any network is made up of three or more sites, another term comes in to play called meshing. Networks are either fully meshed or partially meshed. The four-site network depicted in Figure 1 is classified as partially meshed because there is no direct path or link between sites 1 and 3 or between sites 2 and 4. Figure 2 shows a fully meshed four-site network.

Figure 1: Four-Site Fully Meshed Network

The difference in meshing has implications in terms of economics, reliability, and robustness. Economically, the partially meshed network connected in a round-robin fashion requires four links. A fully meshed network would require six links. The two additional links might increase the monthly charges for leased private line facilities by 50% when comparing a fully meshed, four-site network to a partially meshed network. Such a choice or decision is the eternal dilemma of network architects and designers. The way out of the woods requires economic analysis and judgment to resolve. For now, simply note that two-site networks need not be concerned about meshing issues. Three-site networks require four links to be fully meshed, four-site networks require six links to fully mesh, and a five-site network requires 10 links. Figure 2 shows a five-site fully meshed network.

Figure 2: Five-Site Fully Meshed Network

As the number of sites in a network increase, the number of links soars, dramatically increasing complexity. The more complex network architecture becomes, the greater the need for more detailed documentation required to manage cost, reliability, robustness, and network performance. Another factor mitigating the need for fully meshed networks is use. For example, consider that when one site connects to another, it is for the purpose of passing traffic. That traffic may be flow only one way or both ways, and if the equipment or people at the site are busy or engaged with one site, it may not be possible to connect to a third site simultaneously. From a slightly different perspective, if two sites are busy, then the likelihood of either of them becoming engaged with a third site is limited. Therefore, use of the other possible links is significantly less likely, so why spend money on all that capacity. However, without a fully meshed network, ways to communicate between all the sites must be established, and the answer is switching. The carrier might provide the switching function, or it can be done with premises equipment.

One last point is that meshing might occur at any one of the communications layers, all the way from the physical layer through and including layer 4 of the OSI stack.

Virtual paths at layer 1 are created in the electrical domain, across disparate physical facilities. Linking of virtual paths involves a combination of several factors such as physical aspects of the connector, a match between transmit and receive pins or pairs, signal polarity, and clocking. For example, digital cross connect switching systems are used to create a virtual path through the transmission network when provisioning private line services. POTS/ISDN switches and their signaling systems create virtual paths through the same transmission network to support voice grade connections enabling telephone calls, facsimile, and modem transmission. The mechanics of the connection involve connecting a transmit/receive pair on one side of the switching system to a receive/transmit pair on another facility.

ATM network architecture includes a virtual path layer, inside which virtual channels or circuits are created and placed. Routing and switching are performed according to information in the virtual path identifier and virtual circuit identifier sections of the ATM cell header.

The linking term is also applied to a process or protocol to create a path for data or information between disparate media. A link created with IEEE 802.2 logical link control (LLC) at layer 2 is at the highest layer of LAN architecture. It defines a set of protocols that support services between the media access layer and the transport layer. LLC is functionally equivalent to the telephone hook-switch and DTMF keypad used to control setup and teardown of a voice connection or link. Most LAN cards, and many other devices supporting LAN connections, have a green indicator light. If the light is illuminated, it indicates physical connectivity between two devices. Many telephones, especially those with two or more lines, have an indicator to show off-hook, active line, or in use. Most equipment with a wide area physical connection is equipped with some kind of indicator as well as alarm to indicate status of the link.

LAYERING AS USED IN COMPUTERS AND COMMUNICATIONS NETWORKS

The basic idea behind layering is that computer equipment and system functions are bound by, or within, layers. Each layer is bound to, or interacts with, its neighbor immediately above and below. If each layer up and down the stack interacts, or interoperates, with its neighbor successfully, then the system or process making up the overall system or network is likely to succeed in performing all the functions it was designed to accomplish.

The layering concept was created by the International Standards Organization to serve as a standard definition of computer industry structure dealing with communications issues in computer environments. The standard is named the open systems interconnect (OSI) model and typically referred to as the OSI stack. The communications industry adopted the technique for use in standards and design documents. Two examples of communications stacks are shown in Figure 1 along with the OSI stack. The OSI stack has seven layers; the synchronous optical network/synchronous digital hierarchy (SONET/SDH) and Internet stacks are both four layers.

Figure 1: Layering Models Used in Computing and Communications

Taken in isolated display, there doesn’t appear to be much of a match or direct relationship between the three. However, we know that SONET/SDH is an example of the physical layer of the OSI stack, and only the physical layer.

The four-layer Internet stack used by many rests on an IP layer, which is a peer to the network layer in the OSI stack.

Each of the layers in the OSI stack is unique in function and behavior, and has a specific relationship with its neighbors above and below. The OSI model is subdivided with layer 1 and 2 classified as being hardware-oriented, whereas the upper layers are said to be software-oriented. As an entity, the lower layers are communications-oriented; the upper layers are user- or application-oriented.

Another commonly used way of illustrating the layering concept and relating it directly to linking is to draw an end-to-end service model with multiple layers showing multiple virtual channels on top of a physical channel. Figure 2 is another example of the use of layering models to show relationships between the layers in communications networks and computers.

Figure 2: Example of Three Layering Models

Figure 2 has been redrawn from the three separate models shown in Figure 1. It shows these three models and how they relate to each other.

The OSI model has been separated between layer 2 and layer 3. This is the division between hardware on the lower level and software on the higher level. The Internet model is left intact and placed above the SONET model. The VT layer has been added to the SONET model.

Layers 2, 3, and 4 have been shaded with four different levels or shades of gray, reflecting the dividing layer between hardware and software in the OSI model. There is a similar division between the IP, and lowest layer in the Internet model and the VT/STS, or highest layer, in the SONET/SDH model. The data link layer is a point of commonality across all three. That is, voice and data networks use exactly the same physical layer network interfaces and protocols as the Internet does. For example, an unchannelized E1/T1, E3/DS3, or OC3/STM1 facility can be used to support all types of traffic defined in the site location architecture.

Most depictions of SONET/SDH layering don’t include the virtual tributary (VT) layer. If this layer is included on top of the SONET/SDH model, it becomes a direct fit, or interface to the Internet model for plesiochronous (PDH) point-to-point links or leased/private line facilities. Another point worth mentioning is the fact that many purveyors of network equipment and services are offering direct interface between IP and SONET/SDH synchronous transport streams. In and of itself, it’s an incremental step. However, if this physical layer capability is combined with differentiated services in the network, traffic aggregation, and type of service (TOS) capabilities in new and emerging network equipment, the result is a potentially dramatic and profound impact on ISDN/PSTN and plesiochronous (PDH) network facilities and services.

Consolidating mixed or disparate traffic requires knowledge of all three layers and a detailed understanding of how they relate to each other when integrating equipment and software. More importantly, understanding how the traffic payloads are organized and structured is key to successfully mapping the traffic to the network to get maximum use of the network. Much has been said and written about convergence or converged networks. Occasionally, the term multi-service network is used. Layer 2 and 3 is the place in the layering models where multiple, disparate traffic types are converged and mapped to a common access and/or transport facility. Physical placement of routers and switching equipment and its configuration determines physically where, and in what sequence, the so-called convergence (of disparate traffic) takes place.

Applying the layering concept to communications networks seems quite natural and logical. Two types of layering are commonly used to depict communications networks. Classical telephone networks are structured around a multiplexing, switching, and transport hierarchy, while computer networking and the Internet are structured around protocols and interfaces.

Another term that creeps into the lingo from time to time is overlay network. For example, the larger multi-service carrier networks share transmission facilities between voice grade services that require 64 Kbs transmission links with ATM switches and IP routers that use raw transmission bandwidth in varying amounts. Since the ATM and IP networks came into existence after voice grade services, they were built and are said to overlay voice grade services. Occasionally this term is also understood to mean the ATM and IP networks are above voice grade services in the OSI stack, where voice grade services are seen at layer 2, ATM at layer 2/3, and IP at layer 3/4.

Continuing the evolution, the Internet community has taken these two separate models and created a separate but related structure dubbed Inter-networks. The Internet is a completely different structure with its own unique behavior in terms of how it moves a payload, otherwise called content or information. The concept is built around an idea that combines payload information with address information, hands it to the network, and the network not only carries the information, but when it gets to its destination, the network communicates that fact back to the sender. Overall result: A third network is built using the same kinds of standard layer 1 and layer 2 facilities as voice and data networks.

Continuing to add communications facilities for separate network applications has led many to question and wonder if there may not be a better way to organize their traffic to get better use of all the facilities being paid for. Attempts to address these issues have led to solutions called converged or multi-service networks. A more appropriate label might start with the traffic whereby disparate traffic types are converged into a common access facility or across a common transport facility. Viewing the three layered models in a single context can be a constructive and instructive step to defining requirements for a network capable of carrying disparate traffic.

Multimedia Communication

Multimedia communication is the delivery of different types of information such as voice, data, or video. Communication systems may separately or simultaneously transfer multimedia information.

Video conferencing is an application of multimedia communication technology that merges voice and video via the use of microphones, video cameras, and special multiplexers. Routinely companies set up certain conference rooms at their various sites and equip them with video conferencing equipment. There are various video conferencing standards including the International Telecommunications Union (ITU) H.323 and standard T.120 for multipoint data conferencing.

Video conferencing standards may allow for the use of whiteboards. Whiteboards are devices that can capture images or hand drawn text so they can be displayed in a window in at the connected video conferencing system. Whiteboards allow video conferencing users to place share documents, images, and/or hand written diagrams with one (or more) video conference call attendees.

Figure 1 shows the basic operation of sending video over an Internet connection. This diagram shows a computer with video conferencing capability that calls a destination computer. Computer #1 initiates a video conference call to computer #2 using the address 223.45.178.90. When computer #2 receives a data message from computer #1, a message is displayed on the monitor and an audio tone (ring alert) occurs. If the user on computer #2 wants to receive the call, they select the answer option (via the mouse or keyboard) that is generated by the software. Computer #1 then initiates a data connection with computer #2. The video conferencing software and data processing software in the computers (e.g., USB data bus and sound card) convert the analog audio signal from the microphone and digital video signal into a digital form that can be transmitted via the data link between the computers.


Figure 1: Video Conferencing through the Internet