ROI and TCO Services
Return on Investment and Total Cost of Ownership
Elite IT Services has created a
comprehensive set of services to to
assist corporations with the measurement of Total
Cost of Ownership and Return on Investment for
Technology Projects. The
methodology has been built to determine the feasibility
of developing or purchasing ERP applications, third
party software or infrastructure.
Contact
us to find out how we can help your organization
with ROI and TCO planning.
Common Definitions
Return on Investment (ROI)
– The average rate of annual return that a software
project will return based on reduced expenses, increased
revenues or savings by eliminating errors.
Total Cost of Ownership (TCO)
- The total cost to own a software-based system
throughout its entire lifetime. TCO includes, the
initial development costs, hardware costs, software
costs, upgrade costs and support personnel costs totaled
over the systems life span.
Project Benefits – The
benefits of a project in terms of a dollar value. The
benefits are required to determine the ROI.
Corporate Variables - the
default variable worksheet that retains its values even
during a reset. These variables are entered at the
beginning of project entry and will remain the same
throughout the project.
Capitalized Expenditure –
is an investment in additional assets. Cash is expended
upfront to acquire the asset, having an immediate impact
on a company’s cash flow.
Depreciation – The
recognition of an expense of an asset as it is used over
time. Assets that are capitalized can be depreciated.
Capitalizing an asset allocated the cost of the asset
over two ore more periods. The entire cost is not
immediately recognized as an expense. Instead the
expenditure is recognized as a pre-specified series of
expenses at future time intervals.
Net Present Value (NPV)
–The NPV is the equivalent, in today's dollars, of the
amount of money a project will generate (or lose). A positive NPV means that a project will produce
more money than another investment whose rate of return
is the same as the Hurdle Rate. NPV is an Excel
worksheet function. For more information see the Excel
Help File for a more extensive description of the
function.
Corporate Variables
Years of Depreciation Hardware
–
the number of years that a company uses to depreciate
capitalized hardware expenditures.
Years of Depreciation Software
– the number of years that a company uses to
depreciate capitalized software expenditures.
Hurdle Rate – the average
rate of return that a company could receive investing in
other opportunities. This rate is normally conservative
and based on lower risk investments with a lower rate of
return. This variable is used in the Net Present Value (NPV)
calculation. The default setting in the Corporate
Variables Section is 3%.
Internal Labor Rate –
Internal Hourly Rate is the average project and support
salary plus the payroll burden that companies have with
employees. The typical burden is 30% of salary. The
average salary and the payroll burden may be different
depending on which geographical region that the company
operates in. Each company using this model will need to
determine their own internal hourly rate.
The following lists of items are
included within the internal hourly rate:
- Average Salary
- FICA
- 401k/Profit Sharing
- Local Tax (if applicable)
- Unemployment Insurance
- Medical Insurance
- Workmen's Compensation Insurance
- Real Estate Expenses & Utilities
- Phone Expenses
- Parking (if applicable)
- Furniture & Fixtures
- Office Supplies
- Personal Computer & Network Usage
- Computer Software License
- Training
- Management Overhead
Supplemental Staff Labor Rate
- Supplemental/Temporary Staff Rate is based on the use
of a temporary employee (a.k.a. consultant), typically
provided by a consulting company. These temporary
employees normally work on location and will incur some
of the same overhead as the internal employees, with the
exception of FICA, 401k, Taxes and Insurance. The
consulting company that is the actual employer of the
consultant incurs the typical employee overhead for a
temporary employee. Each company using this model will
need to determine their own external supplemental hourly
rate.
The following list of items is
included within the supplemental/temporary staff rate:
- Average Salary
- Real Estate Expenses & Utilities
- Parking (if applicable)
- Phone Expenses
- Furniture & Fixtures
- Office Supplies
- Personal Computer & Network Usage
- Computer Software License
- Management Overhead
The following list of items are typically included within the external staff professional services hourly rate:
- Average Salary
- Real Estate Expenses & Utilities
- Parking (if applicable)
- Phone Expenses
- Furniture & Fixtures
- Office Supplies
- Personal Computer & Network Usage
- Computer Software License
- Management Overhead
For more information about ROI and TCO Services, please contact our Sales department at: 314-469-5650 or email us at: info@eliteitservices.com