White Paper

State Of The Art In TCO: Managing The Total Cost Of Ownership

Source: SAP Americas

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State Of The Art In TCO: Managing The Total Cost Of Ownership

IT executives are constantly expected to demonstrate the value of their investment decisions. However, they all know how difficult it is to even list all the ways that "value" can be defined. Cost savings may be the most desirable metric. But efficiency, productivity, flexibility, standardization, predictability and avoidance of future costs (to name but a few) are just as valuable but significantly harder to measure.

This "IT Value Challenge" is why IT executives are always seeking answers to questions such as:

  1. Are we running IT in the most effective way?
  2. What are my true costs and associated costdrivers?
  3. What options exist to reduce costs?
  4. To meet today's challenges, what are the most important "lessons learned?"
  5. Is outsourcing a viable alternative, and how it its value tallied?
  6. How can I measure and demonstrate ROI to the rest of my corporation?
  7. How does our IT performance compare to industry benchmarks?
  8. How is IT helping us leverage our core capabilities?
Simply put, understanding the value of an IT investment is a challenging task. And although much of that understanding is company-specific, there are many metrics and perspectives that are applicable to most companies. To help understand and leverage these commonalities, the Americas' SAP Users Group (ASUG), in collaboration with SAP, developed this benchmarking initiative on Total Cost of Ownership.

Calculating and minimizing the total cost of ownership is an immense task, one that is made more difficult by the fact that every company must:
1. Discover and apply its own unique suite of relevant benchmarks
2. Determine from its findings what actions to take
3. Decide which TCO-related alternatives are the most beneficial or feasible

This high level of complexity and situational specificity is why a business-focused approach to TCO is so important. Simply put, companies that fail to consider the business impact - to manage TCO rather than just seek to reduce it - are nearly certain to obscure or diminish the effort's net benefits and increase its costs.

Through the TCO benchmarking survey, SAP and ASUG have determined that the most effective, highest-performing companies manage TCO. We also have learned that, for those companies, managed TCO suggests four fundamental best practices:
  • Focus on the business impact of every IT solution and ensure that C-level decision makers understand the complete life-cycle issues pertaining to each IT solution.
  • Leverage, build and retain in-house talent and core knowledge throughout the solution life cycle.
  • Develop centers of excellence (shared services operations) for deploying critical skills across the business.
  • Revere simplification and avoid variety. While TCO-analysis tasks are company-specific and situational, best practices are not. They are universal. So universal, in fact, that they might credibly be labeled best business practices, rather than best practices in total cost of ownership.
Either way, the message is clear: Total cost of ownership - like all business activities - is contextual, which means that the best TCO efforts are shaped by business relevance and measured by business benefit.

The complete benchmarking initiative is available at the download link below.

Click Here To Download:
State Of The Art In TCO: Managing The Total Cost Of Ownership