.FLYINGHEAD KEEPING SCORE ON TCO AND ROI
.TITLE The cost of a lifetime: calculating TCO for handheld enterprise solutions
.AUTHOR Dale Troppito and Dawna Paton
.SUMMARY This month, we kick off our new Computing Unplugged Magazine monthly column, Keeping Score on TCO and ROI. TCO analysts Dale Troppito and Dawna Paton focus on the definition and implementation of TCO and ROI best practices, specifically for mobile enterprise solutions. This column is a "how-to" guide for value analysis techniques, the benefits of use, and pitfalls to avoid. We promise to keep our topics practical, pertinent and pithy.
Rev up your neurons and sharpen your pencils! You are about to depart on a monthly cerebral journey into the parallel dimension of benefit and cost analysis for mobile computing in this new series called Keeping Score on TCO and ROI. Total Cost of Ownership and Return of Investment, glibly referred to as TCO and ROI, respectively, are critical assessment tools for judging the performance of any technology investment.
While TCO and ROI have been lurking in textbooks for a long time, these financial disciplines have only recently found their way into the hip pocket of every enterprise CFO (Chief Financial Office), COO (Chief Operating Officer) and CIO (Chief Information Officer). Proven TCO and/or ROI have become the procurement gates for most enterprises — particularly for technology investment. Prove it or lose it (meaning, the sale) is the new enterprise hard line being taken with vendors.
Buying on the basis of accurately forecasted value return isn’t such a bad thing. Implemented correctly, continual measurement of TCO and ROI facilitates the ongoing evaluation of an enterprise’s corporate infrastructure, guiding follow-on investment in deployed solutions. Questions are being asked:
.BEGIN_LIST
.BULLET Should we renew our subscription?
.BULLET Should we ramp the solution roll-out to other parts of the organization?
.BULLET Should we invest further in our selected vendor for other solutions?
.BULLET Should we switch and cut bait on our currently deployed solution?
.BULLET How do solution vendors compare in terms of payback?
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Answers to these seemingly tough questions become clear when supported by experiential economic data.
Qualifying and quantifying technology value delivery is the mission and passion of our company, the Gantry Group. Our new Computing Unplugged Magazine monthly column, Keeping Score on TCO and ROI, will focus on the definition and implementation of TCO and ROI best practices, specifically for mobile enterprise solutions. This column is a "how-to" guide for value analysis techniques, the benefits of use, and pitfalls to avoid. We promise to keep our topics practical, pertinent and pithy.
This first column fully considers TCO assessments for enterprise mobile solutions that use handheld devices. Handheld TCO is an important calculation for understanding just what the solution is really going to cost the enterprise — always a good-to-know prior to committing to the deployment.
.H1 TCO: a sum of the parts
The first advice about calculating TCO is to keep things simple. Think only in terms of bottom-line impact — or cost. Think tangibly, not intangibly! You can easily mislead yourself by thinking that intangible contributions — like increased productivity — are important. In this example, what really matters in the equation is what your staff actually does with the extra time!
There are 6 basic categories that contribute to annual mobile solution cost. Each must be considered and profiled in order to achieve a complete picture of your mobile solution investment:
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.BULLET Handheld unit costs
.BULLET Mobile solution set-up and deployment costs
.BULLET IT services and repair depot costs
.BULLET Mobile solution software distribution and management costs
.BULLET Training costs
.BULLET Help desk costs
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.H1 Handheld unit costs
Of course, the actual cost of the handheld devices is the first thing to consider. Handheld costs must be amortized over the expected lifetime of the device, a lifetime that can vary widely by application, industry, and an enterprise’s philosophy toward adoption of the latest and greatest technology. A handheld’s lifetime can be one year, at best, in harsh environments (e.g., a construction site) or as much as five years when the handheld rarely leaves the protected confides of a fine Italian leather briefcase.
The mobile solution environment also dictates the consideration of three other important factors: loss, breakage and theft rates. A highly mobile handheld runs a greater risk of being dropped, left behind at the latte shop, or cherry picked off the lunch table. Handheld durability factors heavily into the breakage rate. Often, one drop of the handheld can decommission it for a screen refit or replacement of the device entirely.
Depending on the application, loss/breakage/theft rates can annually account for 1% up to 10% of the deployed handhelds in the field. The cost of these replaced devices must be accounted for as an adjustment in the annual handheld unit cost assessment.
Finally, there are the handheld accessories (e.g., protective cases), peripherals (e.g., add-on memory and batteries, printer, barcode reader, folding keyboard, cameras), communication/data services (e.g., wireless email accounts, paging services, and voice services) and third party software application licenses to be considered. Such costs add substantially to the base device unit cost. The total add-on costs should be amortized over the expected lifetime of the handheld.
.H1 Mobile solution set-up and deployment costs
An enterprise mobile solution typically requires a modification to the central corporate infrastructure to accommodate fluid bi-directional data exchange between headquarters and the field. Upfront costs for the underlying solution framework — synchronization servers, extra storage, synchronization depots and connectivity enhancements — must be factored into the cost equation as an amortized mobile solution lifetime expense.
The mobile application itself is typically a rollup of third party software and custom in-house components. The costs for software licenses, software subscriptions, maintenance contracts, and in-house software engineering time must be priced, paying particularly close attention to annual costs and one-time costs that may be amortized over the mobile solution lifetime expense.
Testing and roll-out of the mobile solution require IT organization time. Don’t forget to include it into the TCO tally.
And finally, you have to keep the mobile solution up and running. You probably have a vision for enhancing the capabilities of the mobile solution. So add the engineering and contractor time to maintain and enhance the mobile solution.
.H1 IT services and repair depot costs
Prior to deployment, each handheld must be loaded with the appropriate operating and application software, and configured for each assigned user. Such set-up sessions can take 30 minutes to 4 hours for an IT person to complete, depending on the selected handheld and mobile solution. So factor in the loaded salary of IT specialists’ time for the entire complement of handheld devices to be deployed.
Then there is the handheld emergency ward to consider. Handheld devices can become unhappy when they are dropped or their batteries deplete. Dropping a handheld can easily result in a broken screen. Data loss can occur when the handheld runs out of juice. The list of ailments goes on, but the result is the same: the handheld shows up for rejuvenation at the IT repair depot. Cost of parts and IT service time to affect the repair must be assessed.
It can be difficult to estimate what your handheld repair rate is going to be. A lot can depend on the application type and the physical environment of the mobile solution. Initially, take a percentage of the total deployed devices to compute the total repair sessions expected annually and assume an average repair time per device. Replacement part costs and the loaded salary of the IT staff must be factored in. We recommend monitoring your incoming at the repair depot during the first year to capture an actual metric.
.H1 Mobile solution software distribution and management costs
Each handheld device is running operating system software, one or more third party software applications, and perhaps your custom application software. This software may require maintenance updates and/or upgrade management multiple times each year. Associated update license fees and the service time of your IT staff to administer these updates must be considered for each deployed handheld.
.h1 Training costs
How "handheld-facile" is the user community of your mobile solution? Training the user community is a great way to get users up and running quickly with handheld basics, mobile solution capabilities, and data synchronization procedures. Training can reduce help desk costs and IT repair depot rate but, yes, it has a cost associated with it as well. So, factor in the costs of the trainer and facilities costs for the total number of training sessions that you will need to affectively train the user base.
Planning any mobile solution upgrades? It may be necessary to hold follow-on training sessions annually to get the user base acquainted with the new mobile solution capabilities and policy changes.
.H1 Help desk costs
Depending on the complexity of the mobile solution, the intuitiveness of the user interface, and the cooperativeness of the handheld, users can become stumped and run into problems. So users turn to the technical support group, or help desk. Help desk staff may be fully dedicated to fielding mobile solution calls, or they may prorate their time, while servicing other solutions.
If you have dedicated technical support staff to the mobile solution help desk, count their entire loaded salary as an annual expense. If they are supporting multiple solutions, estimate the expected call load for the solution and prorate their time. Most help desk groups track calls on a per solution basis. By tracking the calls attributed to the mobile solution and accounting for average call length to resolve the problem, you can achieve a fairly accurate snapshot of the mobile solution’s support costs.
.H1 Pulling it all together
Ok, that’s it! We have just dissected the major TCO components of any mobile solution. Add ’em up! We recommend that mobile solution TCO be calculated over a 3-year Net Present Value forecast for the entire mobile solution within the enterprise — and per handheld. A fully-loaded handheld cost is a helpful metric to consider as you scale your mobile solution within the company.
Expanding the perspective a bit, TCO is really just the investment side of the ROI equation. Remember, ROI equals total benefit less total investment. So you are halfway into the process for calculating your mobile solution ROI — but that’s a topic for a future Keeping Score column. So stay tuned.
.BIO Dale Troppito and Dawna Paton are managing partners of the Gantry Group. Troppito has guided Gantry’s rigorous ROI best practice models based on a 25-year career in the technology sector as a CEO, product development executive and chief marketing officer. You can reach her at dtroppito@gantrygroup.com. Paton believes that the technology leaders of the future will be those that understand the crucial role that a market-validated, value delivery strategy and compelling ROI play in shaping corporate competitiveness and customer satisfaction. You can reach her at dpaton@gantrygroup.com.
