TCO, ROI, and NPV and Their Relation to Small and Medium Businesses
Business owners are confronted by dozens of abbreviations and acronyms each day. Keeping track of what they are and what they mean can be a challenging task. However, there are three they should know about if they want to drive their organization’s success. They are TCO, ROI, and NPV.
TCO (Total Cost to Company) is a financial term used in the purchase of any asset. But let’s look at it in terms of technology products. Your financial manager looks at the initial cost and the value attached to the purchase throughout its lifespan.
For example, you might buy a piece of hardware, such as a laptop, which comes with a five-year warranty. The computer will require support services and software upgrades during its lifespan. So, the TOC goes well beyond the purchase price, making the cost of the laptop higher. However, the TOC must be weighed against the ROI (return on investment).
ROI is the total amount of money that will be recuperated from that laptop after paying off the initial investment. The first point of departure is looking at how the laptop will save the company money, as this is an ROI. Perhaps, now that the company has a laptop, fewer employees will be needed, thus cutting the organization’s wage bill.
With a more effective operating system now that the business has that laptop, sales will increase, thereby generating more income. When you look at the bigger picture and see how much money will be flowing into the company as a result of the purchase of the laptop, you can see that it offers an ROI that will by far outweigh the TCO.
NPV still relates to our laptop scenario, but it goes beyond the TCO and ROI. The laptop could become part of a vital process or function in the company. How the laptop figures into this improved process has a financial value as well. Sound process management increases productivity, which in turn drives sales, thereby generating higher revenues.
At the Peak IT Group, we take TCO, ROI, and NPV into consideration, putting them at the forefront of any recommendations we make when our consultants work with your company. We analyze the purchases we are advising you to make so that we can show you what the TCO will be, and balance it against potential ROI and NPV.
Included in our services is a root cause analysis, which identifies areas in your processes that need improvement. We also consult on project management to make sure that your project is completed with minimal disruption and optimal revenue generation.
Are you looking for a trusted organization that will make recommendations about IT services that consider the financial aspects as well? Do you want to deal with a team of professional consultants who will show you not only what IT support you need but also what the long-term benefits will be? Contact us by telephone or email, and let us show you what the Peak IT Group can do for you.