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Avoid the Two Biggest Mistakes in Software TCO Analysis

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An important factor in the buying decision for any large
capital purchase is determining the total cost of ownership (TCO). Learn more about how to complete a proper TCO analysis and avoid early sources of project failure: http://ap.pn/2cLqWDj

Published in: Software
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Avoid the Two Biggest Mistakes in Software TCO Analysis

  1. 1. Avoid the Two Biggest Mistakes in Software TCO Analysis
  2. 2. An important factor in the buying decision for any large capital purchase is determining the total cost of ownership (TCO). It’s an imperative assessment if you want to have a system that fits your needs, provides the highest benefit, and has the lowest life-cycle cost of ownership.
  3. 3. For Example: When buying a car, instead of just the selling price, you think about: Expected breakdown frequency Repair costs Gas mileage
  4. 4. The same should apply when evaluating a multi-million dollar software investment. Failed IT investments are often in the news. Knowing how to assess TCO is therefore very important. Let’s have a look at some common mistakes…
  5. 5. Mistake 1: Only Using Hard Cost Input Numbers Don’t choose a software because its costs are easy to define and low. This ignores key factors such as: How the software sits with users How easily it can be adjusted
  6. 6. Traditional software was often easily measured, e.g. management software increases output by 10%. Newer software designs are more complex. They incorporate difficult to quantify factors, such as built in communication. How will this affect your decision time? How will this affect your competitive advantage?
  7. 7. Mistake 2: Not Accounting for Unplanned Events Unplanned events will inevitably change your business plan. Think of the advent of the internet in the early 1990s. Think of the explosion of mobile communication in the last ten years.
  8. 8. How can you prepare for the unexpected? Establish potential costs for both small changes, as well as core logic changes. Accept that at some point your software will have to be adapted to meet new conditions.
  9. 9. The Right Way to Build a TCO Model Application start-up costs: Software licenses Server and infrastructure costs The cost of training users Costs of adaptation: Expected frequency of changes Cost per change On-going support costs: Maintenance costs Upgrade costs Internal costs Organizational benefits: Improved productivity of users Better insights Efficiency of communication Improved management control
  10. 10. There are usually many factors that account for big scope, long term projects getting derailed. The seeds of failure are often planted early. A complete and proper TCO analysis can help avoid these early sources of project failure.
  11. 11. Learn more

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