How real is your Total Cost of Ownership (TCO)?
Let’s talk TCO. That’s Total Cost of Ownership and so that we’re absolutely clear, it’s the “TCO of your current ERP implementation project” that we want to address. We want to help you define and recognise your organisation’s real, or actual TCO and in the process, reveal some of the not-so-small hidden costs that often go unnoticed or worse, mysteriously become invisible whenever someone is trying to sell you an ERP system.
As a long time ERP software vendor, we’ve accumulated a lot of project planning know-how and skills. But when it comes to ERP project assessment, pricing and scheduling, many other factors come into play before you can even begin to rack up expenses.
What is TCO?
TCO is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or system. To help our customers realise and maintain low TCO, Priority recommends a checklist of the 3 key expenses for ERP projects:
- Internal resources (IT, manpower, operational costs, admin costs)
- External services (consultancy firms, freelance consultants)
- Software (licenses, upgrades, maintenance)
The true total cost of the ERP system’s deployment, however, is usually unclear during the evaluation process, because these expenditures are not readily apparent until they come up over the lifecycle of the project. Some (but not all) of these “unexpected” or “hidden” costs can include:
- Data conversion and improvement (both from existing systems and ongoing)
- Add-ons (external components), private customizations, satellite utilities (websites, BI, BPM, document management, email, etc.), their interfaces to the main ERP application and their migration through ERP upgrades (service packs and advanced versions)
- Identity management and security enforcement
How to achieve low TCO
All of these hidden costs require careful analysis and time to learn. Here are some of the major factors that can determine the TCO of your ERP solution, helping you to ensure the highest value for your money. The challenge is to select an ERP solution that not only meets your business needs, but one that can help you tackle and ultimately, minimise these hidden costs:
- Check your IT expenses! One of the larger hidden costs is the expense of your IT staff and internal resources. Your IT team is the cornerstone of your ERP system and the applications that work with it. You want an ERP system that can seamlessly integrate with as many applications as possible, reduce the costs of maintaining a large IT team and the time and resources required to handle numerous and often, costly applications.
- Installation time. ERP system installation can take months. This is dependent on several factors on the vendor side, such as skilled project analysis and a highly competent project team. On the customer side, your IT staff, in close cooperation with your management team (e.g. CIO, CDO, etc.), needs to be on board 100% long before installation begins. As a team, you and your vendor need to have a clear understanding of installation costs and time frame.
- Implementation. You want quick system implementation, as it will unquestionably lower your TCO, saving on project time and costly resources. Implementation costs largely depend on the scope and core functionality of your ERP system and just how well it’s adopted by your employees. You want a system that ranks high in flexibility and ease of use with tools such as user-level configuration utilities for data migration, interactive training tools incorporated into the system and easy-to-understand documentation and Help tools.
Learn one more tip for achieving a low TCO and read the rest of the post here.