CIO.com (serving Chief Information Officers (CIOs), other IT leaders, as well as the ecosystem that surrounds and interacts with them) describes the most common TCO elements for enterprise software. 

What are the key takeaways?

As stated in the article:

“The Total Cost of Ownership (TCO) for enterprise software is the sum of all direct and indirect costs incurred by that software, and is a critical part of the  ROI calculation. However, it is often ignored or woefully underestimated.”

Building on the above point, when considering a purchase of enterprise software, understanding a clear picture of your TCO is critical in a couple key ways:

  • The full cost picture that informs ROI: It will help you understand the full cost picture, not just licensing costs or any initial purchase costs. This will in turn help you develop a more accurate estimate of return on investment (ROI).  Otherwise, lacking a complete picture of of TCO, your ROI would very likely be overstated.
  • Comparing costs across suppliers: It will help you make a better and more meaningful comparison across competing suppliers. In comparing the value that different suppliers bring to the table for your procurement, you will want to see how your suppliers compare in terms of the total cost across the lifetime of the solution you are buying.  Some suppliers may seem attractive in the cost to get up and running but might end of being more expensive over the life cycle of the IT solution.

As the article mentions, the TCO elements presented in the article are meant to help you develop a TCO picture of the three main types of enterprise software, namely:

  1. Cloud software, e.g. Salesforce or NetSuite
  2. Off-the-shelf software. Typically runs in an on-premises or hosted data center
  3. Custom software that is developed by a company, usually because it gives them a competitive advantage (e.g. Netflix’s movie selection software), or because they can’t buy something close enough to what they need.

Full Article: CIO.com

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