Move to maximize ROI in addition of minimizing TCO

In any ERP implementation, enterprises should focus on two aspects:

• Reducing the cost of implementation and reducing the TCO (Total cost of ownership)
• Maximising the ROI of the ERP. 

Typically most companies stop at the 1^st aspect and sadly neglect the 2^nd but the main aspect. It is high time that the enterprises now shift to the next level and focus on more holistic picture of increasing the ROI (Return on Investment) instead of just focusing on reducing the TCO. 

While TCO takes care of just one part of the story which is cost, it leaves the rest of the part where organizations need to measure and realize both tangible and non- tangible benefits of ERP. Typical ROI calculations will include the TCO part as the input and the benefits converted to money terms become the output.

To simplify, organizations need to consider ERP as just another business profit center

 which needs to payback the investment in certain period and then start churning profits for them.

The ROI calculation will include the TCO part and data like:

• How many more customers we can serve in same period
• How many more products or services we can sell using the existing systems and infrastructure (not just the IT infrastructure but the different business process infrastructure)
• How can the ERP system help us improve our margins (yes, it can; by giving the management directions for reducing costs, investments etc.)
• How much reduction can we see in our administration costs and inventory costs
• By what amount could we reduce our working capital and
• How transparent, compliant and predictable are our operations now…

The list is long and has to be brainstormed for every enterprise uniquely based on the priorities. All of them are so important that if we do not measure these pre-decided key performance indicators after the ERP deployment (say after 6 months), we will not be able to realize the true benefits of ERP.

In-fact, to go a step further, the ROI calculation criteria should be discussed and agreed between business and IT teams before going for the actual ERP deployment because of 2 major reasons –

1. This will give a clearer picture of the measurable objectives of ERP deployment to business in all areas 
2. To have the success criteria clear to everybody and the same can be communicated to the consulting partners too so that everyone works for the same objectives in mind.

The above points are related more with the functional heads of the organizations that go for ERP implementation solutions; but the same needs to be understood by the ERP implementation partner or the IT team of the enterprise (in cases of the ERP deployment being majorly handled by the in-house IT Team) also. They too need to start thinking in these terms and rather than focusing alone on highlighting their capabilities on reducing the TCO of ERP while deploying or supporting it, they should go for highlighting and practicing ways to improve the ROI. This will truly become a partnership model of working between provider and customer and much better results can be achieved in all areas.