BusinessDictionary.com defines Total Cost of Ownership (TCO) in the following way for computer systems:

                      “…Total of direct capital investment in hardware and software plus indirect costs of installation, training, repairs, downtime, technical support, and upgrading[sic].”

ERP Pricing: an accurate picture includes TCO

ERP pricing considerations for traditional systems

ERP (Enterprise Resource Planning) pricing can only be accurately evaluated if TCO is taken into account. TCO will give the buyer reliable numbers with regard to a true picture of ERP pricing when evaluating different systems being considered for purchase and implementation by any company in the market for a new ERP system.

ERP pricing is never straightforward. Per unit pricing is one variable in the formula that will eventually result in the TCO for each software package under consideration and the “unit” is dependant on the licensing structure. Some licensing is determined by user and some by machine.

For instance, licensing for a SAP is distributed by server while Oracle licenses its product by processor. Licensing by server means – one license, one server regardless of the number of processors within a server. Licensing by processor requires one license for EACH processor within a server and hardware requirements for an in-house system infrastructure. The more sophisticated and powerful a system, the more processors required.

Software: Typically, servers, processors, users and/or clients are also licensing units for traditional systems aka ERP pricing units dictated by user access levels. SAP user license prices are determined by how much functionality a position requires. All employees need to enter their time for payroll – that level of access is one price while someone configuring the system needs much more functionality and higher priced licensing. Oracle licensing is less flexible in licensing strategy and subsequent price structures. Often, other software or third party tools are required to make the system run and should be factored into the per user price.

Hardware: Infrastructure requirements to run and support each system. Get quotes for hardware based on specs provided by software vendor in conjunction with IT Department or independent consultants that include hardware maintenance and service agreements.

Maintenance and Support: price over 3 year contract for maintenance to keep the software current and support contract covering the life of the agreement. Training: Consider training offers from each company and how much the vendor brings to the table as a part of the package – this can be considered a value add and quantified by obtaining training prices from outside vendors.

Implementation: How long will implementation take and how much staff will be pulled off of everyday operations resulting in downtime. Consulting costs – all charges that the company is responsible for should be added as implementation costs. The number of consultants that an implementation requires and the length of time for which they will be needed often carry a significant impact on the price of implementation.

Adding all of these figures together and dividing that number by the number of users is a nice way to get a TCO and a meaningful indicator of ERP pricing. As with any purchase, per unit price is only one factor in determining the cost of an ERP system.

Written by :

tracey boxer