- Can independent consultants be used to produce TCO estimates?
- This article is an overview of how to leverage TCO.
A company that is purchasing software may use this book or other sources to develop their own TCO. Generally, however, this is not a good idea. Purchasing companies do not have the experience with the application, and this experience is a critical component of performing the analysis. Optimally an IT analyst firm would provide TCO analyses, as they have the broadest database of TCO data points. The problem is that the cost of TCO analysis or really any consulting from the major IT analyst firms is often exorbitant.
I am concerned that the consulting business that the IT analysts would receive from the vendors would pollute their TCO analyses. I am also concerned that IT analysts would not fully divulge the criteria that made up their TCO method, claiming that method as proprietary; instead, they would just share the results. This issue of not sharing the details of the research is documented in this book. The sweet spot for IT analysts is not in doing detailed analysis, but in leveraging their very large network of clients in order to get to the bottom of TCO. However, because IT analysts do not actually work on projects, they have a higher-level perspective and they don’t get the exposure to the reality of working on projects.
Contacting a Consulting Company
If you contact a partner at a major consulting company who works out of the SAP practice, you will hear about the great benefi ts of SAP. If you contact a partner who works out of the Oracle practice—you get the idea. So, if neither consulting companies nor IT analysts can be relied upon for dependable TCO analysis, then whom can a company turn to? I recommend independent consultants. One might observe that because I am an independent consultant myself, that my recommendation is an example of bias on my part. However, I was not always an independent consultant. One of the reasons I am an independent consultant is because I was repeatedly directed to do all the wrong things by major consulting companies that were intent on using me to distribute false information to their clients. I documented these experiences in an article, which I have included at the article.
I am skeptical of information that comes from any of the major consulting companies—and many of the smaller ones. I saw how they undermine the analysis and twist it in order to meet a predetermined objective, even when they have a person like me who is known for analysis. As an independent consultant, I am insulated from the corrupting infl uence of partners or other high-level individuals at consulting companies or at vendors that have steep sales quotas.
The Best Case Scenario
The best-case scenario here is to find an independent consultant through something like LinkedIn. An independent consultant’s experience in an application can be verifi ed by the software vendor. However, a few rules should be followed to ensure that you control for bias as much as possible.
- The independent consultant must have writing and analytical skills. There are many types of skills available on the independent market. The most common type of consultant is a pure configuration consultant. This type of consultant knows the switches to turn on and off in the application in which he or she specializes. The consultant tends to have moderately good communication skills (the communications skills are often limited by the necessity to also have the ability to grasp the complex configuration of an application), but do not generally perform TCO analysis. A good choice is a consultant with a mix of implementation experience and analytical experience.
- The independent consultant should have many years of experience. This is important because when one is younger, it’s more diffi cult to see consistencies between many implementations; younger consultants do not have broad experience on a large number of projects. Part of what you are hiring this consultant for is his or her personal database of projects of a similar type.
- When the independent consultant is hired, it should be made clear that the consultant will only participate in the TCO phase. If the independent consultant believes that he or she may gain more work after the selection, this knowledge will bias the independent consultant most likely in favor of the software vendor—so that he or she can then work on the implementation. Single sourcing in any service area is truly a recipe for failure. Hiring more experts for smaller pieces of work is a more effective strategy, because it allows you to triangulate the information that is received from different entities. I do this myself when I hire attorneys or CPAs. There are various levels of expertise, and no one knows everything. It’s very easy to move outside of the service provider’s area of expertise, where another expert is a better choice.
- When searching for an independent consultant, it’s important to fi nd one with exposure to several applications in the area so that the consultant can compare and contrast for you the different applications. During software selection, multiple companies present to the prospect, and the independent consultant that you choose should be familiar with several of these applications.
- During the interview with the independent consultant, determine if the consultant can see the positives and negatives of the applications that he or she will be helping you evaluate. If the consultant is simply a cheerleader for one application, then he or she will not be able to help you, even if quite knowledgeable in the technology.
- Independent consultants move from project to project. TCO or ROI work, because they are shorter projects, are not as desirable to consultants as implementation projects, which are much longer contracts.
You cannot expect an independent consultant to be available exactly when you want to review software vendors. However, you can hire independent consultants part time and remotely. That means they educate you remotely, listen in through a conference call, view the demo through a web conference, and review the material given to you remotely. This remote approach is quite a bit more cost effective and most independent consultants are amenable to this arrangement. On the other hand, if the independent consultant is available to work full time, there are advantages in that the consultant can provide a general education about the software category and can help with structuring the analysis for the software selection. In many cases, executive decision-makers are busy attending meetings or with other operational tasks, and employing someone who can really concentrate on the software selection can provide benefits.
Of course, the problem arises when no independent consultant can be found who has experience in the particular software that is part of the TCO. This is the case with smaller applications where the independent consulting market is simply not well developed. In this case, the best that can be done is to find an independent consultant with similar experience and exposure.
Getting to the Detail of TCO
The Mechanics of TCO
- Understand why you need to look at TCO and not just ROI when making your purchasing decision.
- Discover how an application, which at first glance may seem inexpensive when compared to its competition, could end up being more costly in the long run.
- Gain an in-depth understanding of the cost, categories to include in an accurate and complete TCO analysis.
- Learn why ERP systems are not a significant investment, based on their TCO.
- Find out how to recognize and avoid superficial, incomplete or incorrect TCO analyses that could negatively impact your software purchase decision.
- Appreciate the importance and cost-effectiveness of a TCO audit.
- Learn how SCM Focus can provide you with unbiased and well-researched TCO analyses to assist you in your software selection.
- Chapter 1: Introduction
- Chapter 2: The Basics of TCO
- Chapter 3: The State of Enterprise TCO
- Chapter 4: ERP: The Multi-Billion Dollar TCO Analysis Failure
- Chapter 5: The TCO Method Used by Software Decisions
- Chapter 6: Using TCO for Better Decision Making
How It Works
How It Works
Each TCO calculator is self-service allowing you to continually change different elements in order to see the impact on costs. They are designed to adjust to the specific project factors such as the number of users, the general level of customization, the number of post go live adjustments to the application, etc..
The TCO calculators can improve your ability to plan your purchase.
How It’s Unique
How It’s Unique
Our self-service calculators have been developed through detailed analysis verified by many years of project experience combined with all the available research – all in order to develop a series of uplifts to costs based upon inputs. The formulas used are nuanced, and do not simply “scale” in direct proportion with changes to the inputs.
- Our TCO calculators are designed to scale to any sized implementation and different levels of implementation complexity and customization.
- We offer a true TCO by estimating internal costs (such as the time spent by internal resources on implementation and support) as well as the external costs. In comparison with the very limited TCO studies that exist on enterprise software, our TCO calculations are easily the most comprehensive.
- Having performed this analysis for many applications, we have brought key observations between these applications as well as between various software categories.
What Is Included
What Is Included
Each package is a combination of two analyses. The first analysis is the interactive TCO Calculator which is provides a total TCO based upon the individual costs of software costs, hardware costs, implementation costs, maintenance costs as well as Lifetime Improvement Costs (the costs of the estimated improvements and adjustments to the application over its lifetime). Both these individual component costs as well as the aggregate of all the costs constantly change given your input to the calculator.
What It Is
What It Is
This offering provides buyers with the detailed information they need to for both the total cost of ownership of a single application, as well as the comparative total cost of ownership between multiple applications. This is the only self service TCO calculator that exists on the Internet, and it is available currently for 57 of the most well known enterprise software applications. This calculator receives input from you and automatically adjusts the costs so that they are customized for your intended way of implementing and using the software.
Transforming a Complex Analysis into a Simple Cost Breakdown
Even though all of the calculations behind each TCO calculator are complex and have been extensively tested and validated, they are easy to use. All that you need is basic information about your project such as the number of projected users, whether the implementing is more simple or more complex, etc..
Each package covers a single application including a comprehensive total cost of ownership analysis that takes into account the following costs:
- Software Costs
- Hardware Costs
- Implementation Costs
- Maintenance Costs
- Lifetime Improvement Costs