Total Cost of Ownership (TCO)

Apr 18, 2022

When considering options for enterprise software solutions, the Total Cost of Ownership emerges as a critical factor, especially in today’s rapidly changing business environment. 

The concept of Total Cost of Ownership was popularized by business analysts in the 1990s when large differences emerged between the cost of purchasing software systems and the overall cost of operating and maintaining the systems in organizations. One thing was clear: the initial purchase price of the software was merely a starting point. Businesses needed to prepare for additional costs for training, managing, updating, and so on.

 

Calculating Enterprise Software’s TCO 

Methods of calculating the TCO for enterprise software systems can vary widely. But some considerations typically factored in will include: the software (obviously!), the hardware to run it on, implementation (setting up, configuring, etc.), data migration, user licenses, training, external system interfaces (the system will not be entirely isolated), and customization. 

And, of course, there are also the operational costs of the software, which typically include maintenance and support, patches, user licenses, administrative support, disaster recovery and backup systems, and security. 

Calculating TCO can be complicated, but there’s good news. Modern software solutions, such as Eccentex AppBase, will reduce some of the costs which have to be considered.

 

Hard Numbers Aren’t Everything 

Investing in software requires the calculation of TCO. But a common pitfall is to rely too much on seemingly hard numbers to the exclusion of other factors. And those other factors may be what really matters going forward. 

When calculating TCO, it’s important to think ahead to what capabilities the software will deliver. For instance, if the software makes it easier for employees to communicate and exchange pertinent information, that benefit will outweigh some costs. 

Now, it can be difficult to put a hard number on that. But when considering a company’s software options, a highly adaptable platform that allows flexible communication would be more cost-effective than a rigidly designed platform that keeps information in particular departments and makes communication difficult.

 

Expect the Unexpected 

When calculating costs, we naturally focus on tangible expenses. But we also need to consider what might happen going forward. As business needs change, will your software packages be adaptable? What will be the cost of completely disruptive events? If the Covid pandemic taught us anything, it’s that any business in today’s world can be turned upside down nearly overnight. 

Using software solutions that are designed to be adaptable is the only safe way to proceed. The TCO of software is kept low by investing in systems that can be updated quickly by users leveraging low-code solutions. Read about how Eccentex solutions facilitated digital business transformation to cope with massive disruptions during the pandemic.

 

Bet On Innovation 

When acquiring solutions, serious consideration must be given not only to your own future, but to the future of the software vendor. Moving forward, will they be innovating? Will your future needs be met by their products?  

Software that remains stagnant and doesn’t keep up with the latest needs in business will, in the long run, drive up the TCO. The smart move now is to align yourself with a company dedicated to staying fast on its feet. That’s the vendor who will bring forward changes that will aggressively help lower your TCO.

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