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Why is total cost of ownership important?

Why is total cost of ownership important?

When businesses are calculating ROI to evaluate a shortlist of service management options, often they automatically use the purchase price (e.g. the subscription or license fee) as the cost element. This figure can be misleading. In real life, technology always requires additional investment on top of the headline cost – from support with implementation and training staff, to ongoing maintenance and continual adjustment and development of the solution. The purchase price is only one part of the cost equation. This is why at Revo, we recommend looking at cost through the longer-term lens of total cost of ownership.

What do we mean by ‘total cost of ownership’?

In short, total cost of ownership (TCO) is the purchase price of a solution plus the ongoing costs of maintenance and development. In other words, it factors in the long term and indirect costs of running a system to estimate the life-time cost of a service management solution. So, going back to the headline question – why is TCO important? – the answer is this: the solution with the lower total cost of ownership will almost always deliver the biggest lifetime value (in other words, the best ROI).

What needs to be included in the ‘total’?

To capture the ‘total’ in total cost of ownership you need to take a holistic view of what the system will cost in the future. Below are some key cost drivers that often get overlooked when businesses are evaluating the ROI of service management solutions.

1.  Hidden operational costs

Before you sign a contract, scrutinise the small print to see what might not be included in the baseline price. For example, will you need to pay extra for updates? Are there custom features that come with hidden costs? It’s easy to be blindsided by an attractively priced starting package and later find yourself paying extra for premium features in order to get the exact performance you need to reach your goals.

How Revo do it: With 4me, there are no hidden update fees. All features are included and available as standard. Weekly updates and feature enhancements are also added automatically.

2.  Implementation costs

To achieve the optimal performance that your predicted ROI is based on, your service management solution must be implemented to meet your needs. But these aren’t solutions that you can plug in out of the box (so to speak). Is any assistance you might need to develop and deploy your solution included in your cost calculation? Have you thought about training staff?

How Revo do it: From advice on switching to system set-up and delivering staff training, we’ll work alongside you to ensure you’re up and running quickly, with minimal disruption.

3.  Risk of future over- (or under-) subscription

Does a solution have the flexibility to scale with your business? This can be important to avoid the cost of over subscription or underperformance in the future. Most service management providers (not 4me) charge a set per license fee or subscription based on the number of case agents a business anticipates will be handling tickets and administering the system. Overestimate users and you’ll end up with licenses you never use. Underestimate and it limits the rollout of your system and the outcomes you achieve. Either way you’ll incur costs that suddenly make an attractively priced system seem less of a bargain.

How Revo do it: 4me charge based on actual usage rather than predicted users, which gives you flexibility and more control over your spend.

4.  Servicing costs

Have you budgeted for system maintenance? Whether you allocate internal resource to oversee updates or hire in a third-party partner, servicing has an ongoing cost. When platforms are neglected, functionality suffers, errors mount, user satisfaction declines, and costs can quickly start to spiral out of control. In time, the ROI that your purchase decision was based on becomes increasingly difficult to achieve.

How Revo do it: 4me operates from the Cloud. This allows feature enhancements, security updates and bug fixes to be uploaded seamlessly. In addition, Revo’s managed service minimises costs (and hassle) associated with routine servicing.

5.  Future development costs

You can’t plan for every eventuality that will crop up in the lifetime of your service management system. As your business evolves you might need to develop your system. For example, you may decide to extend use of an ITSM platform into other business areas to become an ESM solution. Significant efficiency benefits and ROI value can be unlocked by continually developing and extending your system, but any development can incur unplanned costs of ownership if this isn’t something you’ve planned for.

How Revo do it: With the Revo managed service we’ll encourage you to think proactively and strategically about your system, working with you to design and deliver a roadmap to support your wider goals and ambitions.

Need help with understanding TCO?

Hopefully this blog post sheds some light on the importance of total cost of ownership. At Revo, we make total cost of ownership part of our conversations from day one. To delve deeper into how we help our clients understand and manage cost in order to increase the ROI of their service management, download our free TCO ebook.