Reducing TCO in SAP Without Compromising Performance

Reducing costs in SAP systems is often seen as a balancing act between keeping expenses under control and maintaining reliable performance.

SAP consultants who work with organizations to manage these systems know that cost reduction efforts can sometimes introduce risks if not handled with care. Stripping down functionality, cutting support, or delaying necessary upgrades might lower expenses in the short term, but they can sometimes also lead to operational bottlenecks, security gaps, and higher costs down the line.

Managing the total cost of ownership (TCO) of SAP landscapes means accounting for infrastructure, licensing, application complexity, data management, and system performance.

In this article from IgniteSAP we explain why reducing TCO means looking for ways to cut back, but also finding smarter ways to run SAP environments.

Infrastructure Management

One of the biggest influences on cost is infrastructure management.

The choice between running SAP systems on-premise, in the cloud, or in a hybrid model has long-term financial implications. On-premise environments typically involve significant upfront investment in hardware, ongoing maintenance, and IT staff. While these deployments offer direct control, they require a dedicated budget for upgrades, security patches, and scalability adjustments.

Cloud-based deployments convert large capital expenditures into operating costs, allowing organizations to adjust their computing resources based on actual demand. However, moving to the cloud does not automatically result in savings, unless systems are configured correctly. Oversized deployments underused resources, and unnecessary replication of environments can make cloud costs add up quickly.

Rightsizing infrastructure is one of the most effective ways to lower expenses. This means adjusting computing power to match actual usage patterns rather than maintaining excess capacity “just in case.” Many organizations pay for more memory and processing power than they actually need. Tools available in public cloud platforms can provide insights into how resources are being used, making it possible to scale down underused components without affecting performance.

Another cost-saving measure is consolidating system landscapes by reducing the number of redundant SAP instances, particularly in companies that have undergone acquisitions or expansions and now find themselves managing multiple systems that serve similar functions.

Application Complexity

While infrastructure management focuses on where SAP runs, application complexity affects how much effort is required to maintain and support these systems.

Custom developments, modifications, and third-party integrations add layers of complexity that increase costs. Many organizations struggle with legacy customizations that were implemented years ago to meet specific business needs but are no longer essential.?

Maintaining these modifications requires ongoing testing and support, especially when upgrading to newer versions of SAP.

System architecture based on a clean core, where the standard SAP system remains unchanged and extensions are built externally using SAP Business Technology Platform or third-party tools, helps keep maintenance costs down.

This makes future upgrades easier and reduces dependency on custom code (that must be checked whenever SAP releases an update) but in practice this still requires a complex overhaul of the existing system in order to see the full benefits.

Licensing and Subscription Management

Another factor contributing to higher SAP costs is obviously licensing and subscription management.

Many companies overpay for licenses due to misallocation, purchasing more than they need, or holding onto user accounts that are no longer active. A regular audit of license usage can reveal opportunities to adjust license types and reassign unused seats to active users.

Switching to SAP’s subscription-based options or considering third-party SAP support services for older systems can present cost-saving alternatives. While third-party support is not suitable for every organization, those running stable legacy environments that do not require frequent updates may find it a more affordable option compared to SAP’s standard maintenance contracts.

Data Management

Data management also plays a role in cost efficiency. As SAP landscapes grow, database sizes increase, leading to higher storage costs and slower system performance. Many companies retain large volumes of historical data in high-performance databases, even though much of it is rarely accessed.

A well-structured data archiving strategy can help move older data into lower-cost storage while keeping essential information available when needed. For example, SAP HANA users can benefit from Native Storage Extension (NSE), which allows less frequently used data to be stored on disk rather than in expensive in-memory storage. This helps control database growth without compromising access to necessary records.

Maintaining System Speed

For organizations concerned about maintaining system speed, improving performance does not always require additional investments.

Often, the way SAP applications are configured can have a bigger impact on efficiency than hardware upgrades alone. Techniques such as optimizing ABAP code, reducing redundant database queries, and implementing caching for frequently accessed data can make transactions faster while reducing system load. For example, SAP Gateway and OData caching allow data to be stored temporarily, reducing the number of times requests need to be sent to the database. This is particularly useful for organizations that have multiple integrations pulling data from SAP in real time.

Automation

Running an SAP system efficiently also depends on automating routine administrative tasks. Many organizations still rely on manual intervention for system monitoring, troubleshooting, and performance tuning. This adds substantially to workloads for employees.

Automating these processes and using AI monitoring solutions reduces the need for hands-on maintenance and allows IT teams to focus on higher-value activities. Predictive maintenance further reduces costs associated with unplanned downtime and emergency troubleshooting.

At the operational level, automation also plays a significant role in cost reduction. Robotic Process Automation? in SAP can significantly reduce the manual workload for repetitive tasks such as invoice processing, sales order entries, or financial reconciliations.?

Companies that have adopted automation for transactions have seen not only reductions in labor costs but also improvements in process accuracy, leading to fewer errors that require corrective actions. Automating SAP governance tasks, such as user role reviews, compliance checks, and access audits, also reduces administrative overhead while improving security.

Security and compliance

Security and compliance are often viewed as non-negotiable expenses, but there are ways to maintain high security standards while keeping costs under control.

Automated security monitoring reduces the amount of manual oversight required, making it easier to track system vulnerabilities and apply patches as needed. Tools that provide real-time anomaly detection help prevent fraud and unauthorized access, avoiding the financial consequences of security breaches.

Companies that operate in regulated industries must also consider the cost of compliance audits and data protection measures. Implementing standardized security frameworks across SAP environments, rather than managing security on a case-by-case basis, leads to lower administrative costs while still meeting regulatory requirements.

While technical optimizations can bring measurable savings, long-term cost reduction also requires a shift in how SAP systems are managed at an operational level. This means rethinking the way SAP projects are planned, how teams approach training, and how cost-saving measures are evaluated.

Predictive system monitoring

Another area where companies lose money is reactive SAP management, where problems are only addressed after they start causing issues. Predictive system monitoring allows organizations to track key indicators and address inefficiencies before they turn into costly disruptions.

Many businesses that move SAP workloads to the cloud assume they will automatically gain efficiency, but without proper monitoring, they may still be running oversized or underused instances. Tools that provide cost governance dashboards for SAP in cloud environments help track spending in real time and identify areas where cloud resources can be scaled down or reallocated.

Key-User Networks

Even with process automation, SAP systems still rely on people to function effectively.

A well-trained team can work efficiently, resolve issues quickly, and require less external support. Many companies spend large sums on external consultants for system troubleshooting, report development, or process optimization when internal teams could manage these tasks with the right training.

Investing in strong key-user networks within organizations: groups of employees with deep SAP knowledge who can support their colleagues, reduces reliance on expensive third-party support.

SAP training should not be a one-time event during system implementation but a continuous process that keeps users familiar with the latest features, best practices, and system capabilities, and having a network of key-users makes this more achievable.

System Changes and Upgrades

A major part of keeping SAP running cost-effectively is how organizations handle system changes and upgrades. Without proper change management, every system enhancement, patch, or business requirement adjustment can become more expensive than it needs to be.

Organizations that embed effective change management processes into their SAP environments experience fewer disruptions, less rework, and lower costs related to system modifications.

A common challenge is resistance to change from users who are used to older processes and may be hesitant to adopt new tools or interfaces. This resistance often leads to workarounds, unnecessary custom developments, or prolonged dual-system operations. Addressing these issues through well-planned training and communication reduces unnecessary expenses and avoids inefficiencies that stem from incomplete system adoption.

Benchmarking and KPIs

Many organizations make changes to improve cost efficiency but fail to track whether those changes actually result in measurable savings.

This is where benchmarking against industry standards and tracking key performance indicators can make a difference. Some useful SAP-related cost efficiency KPIs include cost per transaction, infrastructure cost per user, and system response times. Tracking these over time helps companies identify whether cost-cutting measures are leading to real efficiency gains or if they are merely shifting costs from one area to another.

For companies that want to compare their SAP costs with industry averages, TCO benchmarking studies can provide valuable insights into whether their system costs are in line with similar businesses.

These studies can reveal whether an organization is paying too much for infrastructure, licensing, or support compared to industry peers. However, cost benchmarking should always be accompanied by performance benchmarking: lowering SAP costs is only beneficial if the system continues to support business needs effectively.

Future Considerations

While much of SAP cost optimization focuses on current expenses, forward-looking companies are also thinking about how SAP’s evolving technology landscape will impact costs in the future.

SAP’s shift towards consumption-based licensing models, the growing adoption of AI and automation, and the introduction of sustainability tracking should all be considered in financial planning.

AI tools that analyze SAP performance and recommend optimization actions could reduce the need for manual performance tuning. Self-healing SAP Basis systems, which automatically resolve common issues without human intervention, are also expected to reduce support costs in the coming years. Additionally, generative AI applications that automate SAP configuration, test scripting, and workflow creation could significantly cut down the time and cost associated with implementing system changes.

Short- versus Long-Term

The financial impact of SAP decisions is not always immediate. Some cost-cutting efforts can provide quick wins, while others require long-term commitment.

Short-term cost reduction strategies, such as adjusting licensing agreements, moving data to lower-cost storage, or optimizing cloud spending, can yield savings within months. Long-term strategies, such as adopting a clean core approach, reducing system complexity, and embedding AI-driven automation, provide financial benefits over years rather than weeks, but these add up over time.

TCO reduction is not a single project but an ongoing effort and a consideration in all interactions with SAP systems.

Every system change, infrastructure decision, training investment, or automation initiative contributes to how much an SAP landscape costs to operate. Organizations that continuously evaluate their SAP spending, refine their operational strategies, and keep up with emerging technologies will always be in a better position to control costs without sacrificing performance.

SAP systems will always require investment, but smart cost management keeps those investments focused on business value rather than unnecessary overhead.

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