TCO - Other costs that matter

Total Cost of Ownership (TCO) has been around for decades as the standard litmus test to calculate?direct and indirect costs associated with the purchase of Cloud SaaS, on-prem software solutions, IaaS, PaaS and IT, but through time-worn iteration, it has morphed in a BIG way.

The dynamic change of TCO itself is in large part caused by the spiraling amount of?pieces that make up what defines cost itself. However, while that is fine and good, I have observed confusing usage of TCO in daily conversation which is in stark contrast to the over-arching intention of the acronym.?

In this day and age of shrinking budgets, higher accountability and mind-boggling competition, the call signs surrounding daily dialogue with and within enterprises resonate loud and clear, and ubiquitously at that:

"Can you cut?my costs?"

"Can you save me money, time, resources...now?"

"Can you give me more X ,Y, and Z?for less?"

"Can you get it done faster, cheaper and with better support?"

In my business, my de facto answer is 'yes' to all of the aforementioned, not because I am programmed to say such or because everyone says it but rather because I mean it.

"I mean, I?really?mean it."

So big deal...one may think...

• Well, it is a big deal.?It is a?really?big deal!
• When I answer yes to a question about?TCO, my answer could seem overtly?simple and it is it.
• But the?path?to be able to give that answer in earnest, is far from simple.
• My?path to 'yes' is multi-faceted to say the least because the question itself is hugely complicated.
• TCO is complex, can represent virtually?limitless things to different companies and I know it.

"I respect it."

• With that always in mind, I am wholly comfortable in answering “yes” although the answer may often and unfortunately appear trite on the surface.

"While I agree that there should be formulas for TCO, I simply want to zoom out a bit and get back to a more basic view of TCO."

Reality 1:?I hear the letters?T?C?and?O,?sequentially,?more than I can count.?

Reality 2:?I've come to realize that even the most seasoned professionals have lost bits and pieces of the meaning of each singular word that makes up the whole,?TCO.

Reality 3:?Along the way, the individual parts of TCO,?Total?and?Cost?and?Ownership?have become diluted, or perhaps a better way to put it is that they have become segregated.??

Result:?Collectively, the acronym, has lost value in what it was meant to describe.

What am I talking about? What's my point??

?TCO - Let's Break it Down

"T"

• Let's remember that the acronym starts with T.
• Was this an accident? I have no idea.
• It could just as easily have been called OCT - Ownership Cost in Total, but it wasn't and isn't.
• It starts with 'T', I take it at face value and am exactingly mindful of its meaning.
• The word, Total, by definition is all-encompassing, complete and absolute.
• Total is akin to a circle, in that it has no beginning nor end.
• It identifies, considers, and accounts for everything, and only then does it satisfy?the word - Total.
• Total doesn't parse out pieces?nor does it?examine parts in isolation without consideration of how the?parts?affect one another.

"Total is total - Period."

• As such,?I am obsessed with making sure that I have considered all things that make up the word Total with regard to cost.

"C"

• Obvious Costs: In my experience in?the?software business, Cost,?when people speak about TCO?is?uber-weighted towards hardware cost (infrastructure cost and related), IT staff to maintain the hardware/security/upgrades, license cost, maintenance cost or license cost, implementation cost and subscription cost, etc.
• I agree that these are very important costs and should be fully vetted.
• In client meetings, I?concede to the fact that I too, initially speak about?TCO with these costs at the core, because it?is indeed the way business is done.
• However, I find that real, consultative, educational and eye-opening discussions surrounding TCO springboard from my desire to enlighten.
• This enlightenment begins with the identification that pure, net monetary cost-savings are only a starting point that alone quickly becomes banal.
• I have also found that clients sincerely appreciate the depth that I go into regarding less obvious costs that are normally not discussed when it comes TCO.
• 'Obvious Costs' are only a partial look at costs as it pertains to TCO. It is missing a vast section of costs that are often relegated to separate line items.

"Separate line items they are not. This is where we begin filling in the word Total."

• Conversation around hardware, licensing, maintenance, implementation, subscription should be fairly black and white. For the sake of this article, we will assume that they are fairly black and white. What comes after that is truly mindful conversation where real value comes in.
• What blows my mind is that these costs are often addressed in a vacuum as if they can stand on their own, absolutely.
• In reality, although 'obvious costs' are without doubt important, they are just a small piece of what determines actual and real cost to any business.
• Here are some costs that are real but often overlooked at the onset of an evaluation:

"Opportunity costs, Implementation time costs, human capital costs, time to market costs, time to value costs, success of implementation % costs, downtime costs, service time costs...the list can go on forever."

• I want to focus on the top two overlooked costs in TCO:

1) TIME

and

2) PEOPLE

• Optimizing time through implementation speed, implementation success %, customer service speed, service speed, issue resolution speed, upgrade speed, update speed, etc., increases a businesses time to value, time to market and ROI. Additionally, all of those things increases the productivity of people.
• At the end of the day, I can positively reply to how I affect TCO with regard time and people because I am confident that I can consistently save businesses time and preserve the efficacy of their people.
• However one may want to slice it and dice it, these two costs are priceless.

"O"

• Ownership is having absolute certainty that the commitment you have made in whatever solution you have chosen has satisfied the obvious financial costs associated with IT solutions comparing Net Present Value of SaaS vs. on-prem solutions, maintenance of infrastructure, subscription fees, maintenance contracts, security, scalability, IT staff to service the infrastructure, hardware, service contracts, etc.

"Consider?something that you want to?own. Make sure that your people can and want to use it while leveraging the foundation of skills?that they already?have?and?let them?build on it."

• In addition to all of the aforementioned obvious costs, ownership is having absolute clarity and commitment to costs that are directly affected by time and people. If opportunity cost is maximized, downtime is minimized, and people are responsive on both the solution provider and receiver side, your business will have optimal time to value and maximum ROI.

About the author:

Chris Chung is the President, Americas and EMEA, of 7thonline, an American SaaS development company founded in 1999 that is headquartered in New York City. 7thOnline provides cross channel merchandise and assortment management solutions. The Company offers retail solutions such as line, merchandise, assortment, store, and visual planning. 7thOnline serves customers worldwide that include Calvin Klein, Eileen Fisher, G-III Apparel Group, Michael Kors, Nautica, Patagonia, PVH and VF, among others. Mr. Chung has his BA in Economics from Northwestern University, Post-Baccalaureate in Finance from the University of Pennsylvania and Executive Education in Finance from the NYU Stern School of Business.

For more information, please visit:?www.7thonline.com.

Advisory Board

• Richard Marcus?-?Former CEO of Neiman Marcus
• Howard Socol?-?Former CEO of Barneys New York
• Peter Solomon?-?Founder of Peter J. Solomon Company
• Steven Richard Walton?-?Executive Director of Wing Tai

Copyright ? 2022 7thonline Inc. All Rights Reserved

?