The Total Cost of Ownership (TCO) of Enterprise Performance Management (EPM)

moneyHere are some of the ingredients to consider when developing your ROI for EPM:

  • Cost to build or acquire the system (hardware, software, network costs)
  • Don’t forget the ancillary costs to the above (e.g., a system may require an add-on license for a relational database management system [RDBMS] or middleware)
  • Cost of capital
  • Cost to operate, maintain, and upgrade
  • Training costs (administrators and users)
  • Cost to install and implement
  • Cost to upgrade or troubleshoot and fix any impact the system will have on other existing systems
  • Potential consulting cost to re-engineer processes that are being automated
  • Cost to temporarily back-fill any headcount that has been ‘‘seconded’’ for this initiative
  • Labor components of all of the above (procurement staff, IT staff, new-hire administrators, trainers, consultants, and so on).

And here are some of the cash-in-the-door ingredients to consider:

  • How many net new customers will we acquire by having the new or updated system that we wouldn’t otherwise have, and what’s the average lifetime revenue per customer?
  • How many more products or services can we sell?
  • Will the system let me improve my prices or price/volume mix?
  • Will the system make my margin improve . . . measurably?
  • Will the system increase the velocity of cash flow?
  • Can I improve cross-sell and up-sell opportunities?

And in a subtle twist: Look at less cash out the door:

  • Will the system make me more efficient and produce more with fewer resources (measurable productivity)?
  • Is there a direct headcount reduction associated with this initiative?
  • Can I reduce inventory costs? Raw material costs? Transportation and storage costs?
  • Will it reduce my selling, general, and administrative expenses?
  • Can it reduce debt and/or improve our cost of capital?

The challenge to developing ROI for any system and process proposal is actually tracking the results.  We say EPM will improve profitable revenue growth, but does anyone go back and measure that?  Is anyone on the hook for it?!  Let me know if you’ve solved that problem!

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One Response to The Total Cost of Ownership (TCO) of Enterprise Performance Management (EPM)

  1. Corrado Fermo says:

    Ron, most corps will spend the huge $’s to install and train, however they are shortsighted in investing in tracking the ROI.

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