Although there are more high profile clashes in the last 16, the former AC Milan boss believes that Schalke will pose a difficult test.
The Spanish giants have reached the semifinals for the last few years but failed to jump the last hurdle. They can make the last eight this campaign with victory over Schalke in the last 16.
The Italian manager, who has won the European tournament with AC Milan, believes the Gelsenkirchen outfit poses a major test and has demanded concentration from his squad heading toward the games in February.
"We are in last 16 of the Champions League and it is always difficult," he told Madrid's official website. "We must be very focused. "They're a team that have experience. It's not good or bad luck that we drew them. We will do our best in both games. It is a very important competition and we have to be ready to make the most of our chances. In February we have to be ready.
"We need desire and enthusiasm to make the quarter-finals. In the Champions League, every game matters, we have to stay focused and motivated. We cannot fail in any match in this competition."
Other noteworthy games in the last 16 this season include Arsenal versus reigning champions Bayern Munich, Barcelona facing cash-rich Premier League giants Manchester City and Atletico Madrid's clash with AC Milan.