Skip to main content. Download Resource. Eric Saboya. What is the level of effort for program management staff associated with training, vendor relationship management and other meetings? Does staff capacity already exist on your team, or will you need to hire and train new resources to handle the program? Is there an opportunity to build capacity with existing staff at a lower cost than hiring new staff? What is the licensing model? For example, is it open source or proprietary? What are the licensing costs, and how will these change with scale?
Is there a flat fee per number of users or individual fees per user or device? Is there a platform fee or costs to add users? If you are working with software vendor, what are the costs to add features now or in the future? If the software is open source, is there a responsive, established user community that will provide support and help add features at no cost?
Do you have skilled, available technical staff who can customize the software? What is the level of effort for technical staff to customize the software? What are the costs to contract with a consultant who is skilled and familiar with the software code to do the customizations? What are the costs to translate terms and develop the software in additional languages, if needed? What is the level of effort for staff to install and configure the software?
If you are replacing an existing system, consider the time needed to uninstall a previous system and to transfer data from the old system to the new system. If sixty percent of ERP implementations fail, and if the vast majority of ERP implementations miss their deadlines by significant durations, why are TCO estimates still based upon assumptions that do not include these very critical factors? Ninety-six percent of ERP implementations include moderate to extensive customizations.
Customization results in high implementation costs, high continuous improvement costs, and high maintenance costs. Other software categories have various degrees of customization— almost always less than ERP—so ERP should receive the highest bump for coding-related implementation costs. All TCO estimations are based upon some type of duration, that the company uses the application. While different software categories have different average usable durations, there is really no perfect way to estimate this value, and it is difficult to know how long the application will be in use in the company.
Furthermore, an application that does not work very well can be kept too long—often for political reasons—while an application that is working well can be replaced due to issues that are related to what happens to be popular at the time. Support resources include everyone required to support the application: technical, functional, and management.
There is a marked difference between vendors—and the degree to which the applications have been designed to be maintainable.
This maintainability can be everything from how easy the application is to use its usability: more usable applications require less hand-holding to accomplish tasks to how straightforward it is to update its master data. Developing TCO estimations is the difficult part. The more interesting part is actually using the TCO, as there many varied uses.
TCO can be used specifically or generally. For instance, once one has a handle on TCO for an application area, the TCO can be used to make future decisions after the purchase has been made. After TCO is developed, it can be put to use in supporting decision-making in a variety of ways. Companies should really have TCO analyses performed for all of their applications. Strangely, companies do not estimate their probability of success prior to deciding which project to fund. Instead, they take the naive assumption that all projects will succeed, even though IT projects have a high failure rate, even if the exact failure rate and the definition of failure is most often not specified.
TCO analysis is not a complete cost benefit analysis, however. TCO pays no attention to many kinds of business benefits that result from acquisitions, projects, or initiatives, such as increased sales revenues, faster information access, improved operational capability, improved competitiveness, or improved product quality. When TCO is the primary focus in decision support, it is assumed that such benefits are more or less the same for all decision options, and that management choices differ only in cost.
Encyclopedia of Business Terms and Methods. In actuality, few software products provide identical benefits, and the more complex the product, the more variability between each alternative return on investment ROI.
The simplest items commodities are the easiest to compare, precisely because their properties in this case physical properties are uniform. This is why silver, tin, grain, cotton, etc.
In contrast, enterprise software is complex; each application has different implications for how well the software meets the business requirements in terms of functionality, effectiveness of the user interface, ease of integration with other applications, amount of support needed, and hardware requirements and those are just the major items.
Frequently the variability or score of these different items is unknown during the software selection process. This is brought up in a quote from Ian Campbell of Nucleus Research:.
TCO assesses costs without regard for the benefits. We buy based on value, and I would challenge you to think of an item you purchase in your daily lives based solely on lowest costs. Secondly, the ROI of enterprise software is quite difficult because it means estimating the financial returns from software, which is an extremely complex endeavor.
Calculation of ROI is complicated by the fact that the specific areas of functionality that will be leveraged by the company must be estimated, and then the net benefit of that functionality must be projected.
This is the only way that we know of providing a differential ROI between competing applications in a software selection. It is interesting to read articles about ROI, and after reading through them just to find essentially nothing explained of how to estimate ROI. In one way this can be seen as curious as so much is spent on enterprise software, but it is considerably less curious when one appreciates how difficult it is to calculate an ROI.
And, in fact, once you dig into the detail of ROI estimations, it turns out that there is not much there. Furthermore, there are both explicit and implicit benefits to software, and the ROI estimations that we have evaluated will bring up the explicit or the hard benefits only, as it is often considered too difficult to ascribe a number to the implicit or soft benefits.
We offer a complete tool, with criteria that challenge the IT industry, ready for use. Comparing ecolabels can be confusing. There are, however, some basic ways to assess which ones actually deliver credible, verified results. A code of conduct and independent factory audits can help structure efforts to improve factory conditions and identify non-conformities. Access to sustainability aspects about products and their life cycle plays a vital role in sustainable IT management.
Cooperation and innovative perspectives are keys to solving the broad range of sustainability challenges we face — from the climate crisis to the reduction of biodiversity and the growing problems associated with chemicals and e-waste. We have talked to Alexandra Wu from IVL about the circular economy and how it is applicable to electronics.
Reality is full of disruptions and unplanned events. It's hard to fit those neatly into rows, columns, and cells so analysts tend to ignore them to the organization's peril. The longer the time horizon for analysis, the greater the impact this mistake has. While working as a business strategy consultant in the early 's, I distinctly remember a colleague telling me he just heard about this thing called the "world wide web.
Any financial model I created for a client at that time that went out more than five years was flawed because it didn't account for the explosive growth of the internet.
The same is true for any financial analysis built within the past five years that didn't account for the explosive growth of mobile communication and social networks. How do you incorporate unplanned events into your TCO model?
History teaches us that disruptive events in your business will happen. You will either incur the costs to adapt your software or incur the organizational costs of not having software that meets your needs.
It's not pretty when organizations find their software isn't flexible. It spawns manual processes outside of the application which has a negative impact on every type of metric. Recognize that your software will have to be adapted to meet new conditions. The longer the planning horizon, the more adaptations you'll require.
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