Skip to Content
Maximize Return on SAP Investment by reducing TCO – Use SAP TCO Models  Introduction:   In today’s world of reduced budgets, the demand to control cost must be balanced with the imperative to be responsive to business needs. In order to justify the SAP Investment from a financial perspective we need to use various TCO/ ROI models.  The TCO concept has become a staple of the cost estimation and management processes  at most large corporation but  has had slower acceptance at small and mid-size businesses where the operational urgency can have a higher priority   than rigorous financial planning.  TCO concept has both benefits and drawbacks. Its best feature is the discovery and assessment of hidden technology acquisition costs. However, the area of hidden cost assessments also contains most of a TCO model’s pitfalls. Hidden costs are such precisely because they not obvious or easy to quantify.  Definition:  Total cost of ownership (TCO) is the sum of all costs associated for projects and services associated with the IT.  SAP TCO Framework:  SAP has come up with its own TCO framework which includes the TCO model for specific and complex ERP installations in the entire organization.  SAP TCO framework helps the customers to understand the entire cost associated with  their ERP systems.  SAP TCO framework process involves three steps.  1.     Questionnaire Company’s relevant information will be collected from the key stakeholders  Such as company structure, the existing IT landscape and the practices that are used to implement and maintain the landscape and associated costs. 2.       Information will be uploaded into SAP owned database which contains the information from all the customers for analysis. 3.     Industry specific analysis will be made and SAP suggests specific procedures to modify their business practices to reduce Total cost of ownership.   Important components of TCO framework are  1.     SAP TCO Model Identifies the areas of cost at a granule levels.  2.     SAP TCO Reference Parameters define concrete parameters to measure the cost in the areas defined in the TCO Model. These standard parameters will help the company to compare their own parameters with them.         3.     SAP TCO reduction procedure is collection of recommendations for reducing costs in various areas. image Understand your IT Cost using TCO Model  In order to give the detailed description for IT investment, companies’ needs to understand every single cost incurred in maintaining the current landscape and the benefits they get by leaping to ESOA enabled SAP System.  Cost incurred in ERP projects can be categorized as follows        1.     Investment Cost are one-time costs such as hardware / software cost , licenses etc         2.     Ongoing Cost relates to operations, maintains, application, system supports as per SLA‘s.  Compare and reduce the SAP TCO image Calculating TCO  Current Total Cost of Ownership =   Current total Investment Cost +  Current total Ongoing Cost       Estimated TCO as per Service Enabled ERP solution                                                    =   Estimated Investment Cost + Estimated Ongoing Cost   Reduced TCO = Current TCO – Estimated TCO.   Conclusion:  Understanding direct and indirect cost incurred in maintaining the current SAP landscape and comparing with estimated TCO will have help the IT managers to have an edge in their presentation for rolling out the ESA enabled ERP solution in terms of financial impact. SAP TCO Model should be considered for designing 5 year SAP road map  in the organization.
To report this post you need to login first.


You must be Logged on to comment or reply to a post.

  1. Former Member
    This is a great Weblog on SAP TCO, it gives the clear idea of how TCO is really helpful in reducing total cost of IT implemabtation, and helpful to IT managers to enable service oriented & adaptive business solutions to companies by implemanting ESOA enabled by SAP.
  2. Former Member
    very good article on TCO and a must read for project managers and architects…
    Can you please put some more reference articles on the same subject..
  3. Former Member
    Thx fo rsharing this information on SAP’s TCO framework. I have also found references to this framework elsewhere but am unable to find it. Do you know where I can find this?




Leave a Reply