Executive Briefings

While TCO and ROI Are Not the Same, They Must Be Considered Together

Total cost of ownership is a financial estimate that helps enterprise managers determine direct and indirect costs of a system. TCO goes beyond the initial purchase price or implementation cost to consider the full cost of an asset over its useful life.

TCO and ROI, or return on investment, are frequently confused and misused, but they actually must be used together to properly evaluate customer relationship management projects. Don't pay too much attention to costs and too little to benefits. Rather, forecast and compare costs over the life of a project. A proper TCO analysis often shows there is a large difference between the price of something and its long-term cost.

For example, let's say you buy a car that's inexpensive but it breaks down constantly. When you take it to get fixed, you find that the repair shop is far away and the parts are costly. It also loses value faster than other cars that cost more when it comes time to sell. Your time is also valuable, and all of the trips to the repair shop should be taken into consideration, too.

So, let's do the math on TCO.

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Total cost of ownership is a financial estimate that helps enterprise managers determine direct and indirect costs of a system. TCO goes beyond the initial purchase price or implementation cost to consider the full cost of an asset over its useful life.

TCO and ROI, or return on investment, are frequently confused and misused, but they actually must be used together to properly evaluate customer relationship management projects. Don't pay too much attention to costs and too little to benefits. Rather, forecast and compare costs over the life of a project. A proper TCO analysis often shows there is a large difference between the price of something and its long-term cost.

For example, let's say you buy a car that's inexpensive but it breaks down constantly. When you take it to get fixed, you find that the repair shop is far away and the parts are costly. It also loses value faster than other cars that cost more when it comes time to sell. Your time is also valuable, and all of the trips to the repair shop should be taken into consideration, too.

So, let's do the math on TCO.

Read Full Article