Return on Investment and TCO Essay
Introduction
Enterprise Performance Management (EPM) describes the methods and solutions required for enterprise management and includes planning, budgeting and forecasting, results consolidation, value creation modeling, performance analysis, and more. Return on Investment (ROI) and Total Cost of Ownership (TCO) are two essential components of Enterprise Performance Management (EPM). According to (Vom Brocke, Recker, & Mendling, 2010), Key Performance Indicators (KPIs) such as overhead, sales, operating costs, and ROI are used for planning, measuring, and performance analysis. In making technology and asset investment decisions, financial metrics, like ROI and TCO, are fundamental. ROI and TCO both provide insight into these investment decisions but from different perspectives. This paper will explain the concepts of ROI and TCO in the context of EPM.
ROI vs. TCO
The two financial metrics, ROI and TCO, are vital to making investment decisions. However, as (Elvidge & Martucci, 2003) denotes, they offer investment insights from different schools of thoughts.
TCO focuses on all the costs involved in making an investment. This includes acquisition costs, implementation costs, asset or technology maintenance cost, and the use of the asset/technology over its lifetime. According to (Uyar, 2014), TCO encompasses more than the direct expenses of purchasing a product; also, it includes maintenance, services, and other indirect costs. A good technology investment is EPM software. When it comes to investment decisions to purchase ERP software, organizations invest in it if it is anticipated to boost the company’s TCO (Vom Brocke, Recker, & Mendling, 2010). This means that the best investment decision must ensure that the TCO will be as low as possible because of the money and time-saving goals.
On the other hand, ROI factors in the expected benefits to calculate the expected return. According to (Elvidge & Martucci, 2003), ROI is expressed as a percentage to represent the next value received from an investment over a specified period. Unlike TCO, whereby enterprises endeavor to maintain it a low as possible, high ROI needs to be maintained….End of Preview….