During times of economic uncertainty, it’s more important than ever to budget and not spend more than needed on optimization and modernization within your business systems. That’s why understanding the Total Cost of Ownership (TCO) in your existing environments can save you money in the long run.
But what exactly is TCO?
TCO, otherwise known as “total cost of ownership”, is an estimate of all the direct and indirect costs associated with acquiring and operating a product or system. Total cost of ownership in SAP reflects the cost to maintain custom objects on your existing SAP ECC system, as well as the eventual cost to remediate when migrating to S/4HANA.
In this blog, we’ll be diving more into what TCO means to your business and why you should care about it, as well as how it makes a difference in an SAP ecosystem. Additionally, we’ll explain how EdgeReady Cloud and modernization process can lower the TCO in your current SAP ERP system.
What is Total Cost of Ownership?
The total cost of ownership simply refers to the summation of the purchase price of an asset plus the cost of operating that asset. TCO involves taking a bigger and better look at the asset and what its value will be over time, keeping in mind the cost implication of such assets.
As an example, think about the cost of owning a car. After purchasing the car, you still have to pay for the license, insurance and gasoline. Overtime, you’ll also have to service the car regularly, and keep the cost of repairing the car when faulty in mind.
When you are about to make a purchasing decision, it’s best to not just look at the item's price (also known as purchase price). You also need to consider its long-term cost, known as its total cost of ownership. An item with the lowest total cost of ownership is of much value as time goes on. This also applies to SAP ERP users looking for great SAP solutions.
When searching for the best SAP ERP system, you have to make sure your company is improving efficiency, reducing waste, and increasing productivity rather than running operations extravagantly while accumulating technical debt.
Here’s how to calculate TCO:
Total Cost of Ownership = Total Investment Cost + Total Ongoing Cost
If you’d like to learn more about how to lower TCO, we have an exclusive e-book that provides you with everything you need to get the process started.
Importance of TCO And How It Makes A Difference in an SAP Ecosystem
TCO Impacts the Efficiency of an SAP System
The total cost of ownership of an SAP system will determine if the system is worth using or not, taking into consideration that the company needs to save money and decrease operational overhead.
With the ongoing pandemic, budget reduction is more important than ever, and this need can be met with through reducing TCO. Through diagnostic tools like our patented modernization process, you can easily evaluate the total cost of ownership and rate of change of your current SAP ERP ecosystem.
TCO Allows Companies to Analyze SAP Vendors
Total cost of ownership in SAP also plays a crucial role in analyzing vendors' products and the cost of ownership that the vendors propose to their SAP customers. It can be used for the provision of comprehensive cost figures to potential customers. SAP vendors can use the TCO data provided to improve the products and services they offer with the goal of reducing TCO and increasing customer value.
TCO is also valuable for corporations looking for a competitive advantage by decreasing technological and workforce costs, thereby increasing profitability. It offers a realistic picture of what employers spend on their workers and the management of their workforce. In addition to value, benefits, and salaries, TCO takes account of the cost associated with recruitment, compliance efforts, time and attendance, and the system needed to manage, process, and support all of this activity.
Pillir’s Patented Modernization Process and EdgeReady Cloud Lower TCO of SAP Ecosystems
Understanding the cost implication, both directly and indirectly, in maintaining your current SAP and comparing it with your estimated TCO will help you in selecting an SAP ERP solution that is in line with your current budget.
With EdgeReady Cloud and the #1 modernization process, you can now save money, lower the total cost of ownership (TCO), and customize your SAP ERP systems. Install our patented modernization process, the number one ABAP Discovery and TCO Analyzer for SAP Customers today. Click here to learn more.