software defined network SD-WAN


Software-defined wide area networking (SD-WAN) is a recent product category. Most IT organizations have yet to make their first purchase, although many are doing technical investigations and adding SD-WAN gateways into their infrastructure plans. However, the financial arguments required for budgetary approval are still a pending activity. While there is a general belief among networking staff that SD-WAN reduces costs by shifting traffic from expensive private WAN links to broadband Internet connections, quantifying this and other SD-WAN benefits requires a more rigorous approach.

Quantifying the SD-WAN return on investment

Building an ROI calculation can be time consuming, so Enterprise Management Associates (EMA) has produced a paper that provides detailed calculations and explores additional quantitative and qualitative benefits of SD-WAN. Their research concluded that, while the operational and capital cost savings are substantial over a 5-year period, IT productivity gains and improved network uptime provided even greater payback on the investment. This article explores the broader set of ROI considerations to help IT managers make a financial case for SD-WAN investments.

Reduced operating costs

At the core of SD-WAN functionality is changing network connections from private MPLS links to broadband Internet. Secured by encrypted tunnels and integrated firewalls, broadband Internet connections typically cost 95-to-99 percent less per megabit-per-second than private MPLS links. Internet links are so much cheaper that early adopters of SD-WAN significantly increase their bandwidth and are still saving network connectivity costs.

Deployment scenario 5-year cost for 3-Mbps MPLS 5-year cost for 1.5-Mbps MPLS and 25-Mbps Internet Total savings
Per branch $2,700 $2,158 $542
100-branch network $2,700,000 $2,158,500 $541,500

The financial calculation used by EMA for a 100-branch network assumes that each branch replaces two 1.5 Mbps MPLS links with one 1.5 Mbps MPLS link and 25 Mbps of broadband Internet. This configuration delivers a number of benefits. First, an almost 9x increase in bandwidth while still reducing in network connectivity costs by 20%. Second, each branch can now directly access cloud services without having to transit a central gateway. Combined, these result in much better performance for cloud applications and high-bandwidth services such as video conferencing and rich media.

Reduced capital costs

Capital investments make up a smaller percentage of a network’s 5-year cost, but there are still savings to be had with SD-WAN. Virtual appliances, cloud-based management, and dynamic path selection all contribute to the savings. Decoupling the hardware from the service, just like virtual servers and storage, removes much of the cost and complexity of deploying physical routers.

Deployment scenario Investment for legacy network refresh and support SD-WAN investment Total savings
Per branch $548 $458 $90
100-branch network $548,200 $458,200 $89,994

This financial calculation uses published list prices for equipment from leading router and SD-WAN vendors. Integrated security, encryption, and firewall functionality in the SD-WAN devices makes a significant contribution to the total savings. The 16% savings over 5 years is the smallest overall contributor to SD-WAN ROI but does not take into consideration the increased flexibility of network configurations and substantially reduced deployment times of Internet vs MPLS links.

Improved network uptime

Network downtime in the cloud era can be very expensive, costing organizations $100,000 or more per hour. Centralized network management, graphical consoles, and hybrid WAN support make network operations faster and less prone to error. Prior research has shown that an average of 25% of all network downtime is caused by configuration errors that are eliminated by SD-WAN technology.

Deployment scenario 5-year costs associated with 4.38 hours of network downtime per year Savings from reducing downtime by 25%
Per branch $2,190 $548
100-branch network $2,190,000 $547,500

The EMA downtime calculation assumes that a typical organization has 100 branches and suffers over 4 hours of downtime per year. Taking into consideration just the savings from the reduction in configuration errors is enough to pay for the SD-WAN investment over 5 years.

IT productivity gains

Improvements in operational efficiency, resource allocation, and the shift from reactive to strategic activities make the greatest contribution to the ROI of SD-WAN. Workflow-based tools, zero-touch provisioning, and business-aligned policies are some of the key components here. Network staff spend far less time identifying and resolving network problems, and more time on strategic initiatives such as cloud adoption, Internet of Things, and other digital transformation projects.

Deployment scenario 5-year time requirement for operating a legacy network Expected productivity gain Total savings from productivity gain
Per branch $2,370 3.1x $1,609
100-branch network $2,370,000 3.1x $1,609,500

EMA research has determined that network operations staff spend the majority of their work time on network problem resolution. Using interviews with network engineers that have deployed SD-WAN, EMA analysts calculated that smaller organizations (100 branches) transforming their network from legacy routers to SD-WAN would realize productivity gains of more than 3x, and larger organizations (1000 branches) would realize gains of more than 4x.

ROI beyond the IT department

Added together, these SD-WAN benefits result in a 5x return on investment with a payback period of less than 12 months. However, that is not the end of the story. Improved network operations also deliver productivity, agility, and security benefits outside of IT.

Installed SD-WANs deliver higher performance for applications, through more efficient utilization of network links and reducing traffic slow-downs and bottlenecks. They make it faster and easier to roll out new services and new locations, including pop-up sites, by separating the physical and virtual network layers and enabling zero-touch deployment that does not require network experts to travel to remote sites. Finally, they enhance security with end-to-end network encryption, policy- and zone-based traffic segmentation, and distributed firewalls.

While budget approval for SD-WAN investments should be possible just based on the IT savings, opening up the discussion to the broader business benefits makes this a sound strategic investment.

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