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Velosio

Decrypting the Acronyms: Understanding the TCO and ROI of 4 Top ERP Software Solutions


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As you search for the right accounting and business management software system, you will probably find yourself speaking a new language: the language of the acronym.  The two acronyms you will find yourself tossing around most frequently (aside from ERP of course) are TCO (Total Cost of Ownership) and ROI (Return on Investment).  Both should be taken into consideration when you are comparing ERP software solutions, but in order for these numbers to truly help guide your decision making, you need to understand what they each mean. 

Total Cost of Ownership (TCO)
TCO is the calculation all of the costs of purchasing, implementing, supporting, and using a product over its lifetime.  It can help you budget for projects and compare similar products.  However, since TCO ignores the benefits that the software brings you, it isn’t reliable to help you select a software application or prioritize projects. 

Nucleus Research studied the TCO of four highly competitive ERP solutions: Microsoft Dynamics GP, Oracle, SAP, and PeopleSoft.  This study revealed that of these four software solutions, Microsoft Dynamics GP had the lowest TCO on account of the fact that it takes less time to deploy and fewer resources to support than the other solutions. 

 

Avg. Deployment Effort

Avg. Training Demands

Ongoing Support

Microsoft Dynamics GP

77 man-months

24 hours

3 FTEs

Oracle

81 man-months

27 hours

9 FTEs

SAP

372 man-months

49 hours

33.6 FTEs

PeopleSoft

555 man-months

28 hours

11.8 FTEs

 Return on Investment (ROI)
ROI is a calculation that divides the average total savings, over 3 years, by the initial cost.  (Three years is the accepted operational threshold for technological innovation and product usability).  An ROI calculation will account for both direct benefits (explicitly quantifiable cost savings or revenue increases) as well as indirect benefits (returns that are not clearly observable, but whose effects can be measured through investigation). 

Once again, Nucleus Research studied the ROI that companies using each of the four competing products gained using the calculation.  They studied benefits in the following areas:

  • Reduced staff / increased productivity
  • Reduced IT or other direct costs
  • Improved customer / partner relations
  • Improved operations / visibility
  • Reduced accounting / auditing costs or improved financial management / compliance

 Microsoft Dynamics GP users were the only study participants to report gains in all five of these benefit areas. They were also the able to achieve a positive ROI faster than users of any of the four competing products:

 

% Achieving ROI

Payback Period

Microsoft Dynamics GP

71%

23 months

Oracle

65%

30 months

SAP

43%

46 months

PeopleSoft

82%

32 months

See the full results of the Nucleus Research study.

Hear from real-life companies about the positive ROI they have received from Microsoft Dynamics GP. 

By Socius, an Ohio Microsoft Dynamics GP Partner and 2009 Microsoft Dynamics GP Worldwide Partner of the Year Finalist

2 Responses to “Decrypting the Acronyms: Understanding the TCO and ROI of 4 Top ERP Software Solutions”

  1. Puneesh,
    Since the report I was working from does not indicate the number of SaaS vs. on-premise deployments, I can’t say with certainty how that would affect the numbers. Although, regardless of the deployment method, the basic premise is the same: If the TCO is lower, then the payback period will be shorter and the ROI will be realized sooner. Socius has hundreds of clients who selected Microsoft Dynamics GP (on premise) over these competing products because they were the best fit for their business. I have attempted to address your reference to the features of SAP as they compare with GPs in a different post: https://www.erpsoftwareblog.com/2009/10/looking-beyond-features-to-functionality-microsoft-dynamics-gp-vs-sap-business-one/

  2. Puneesh says:

    MS Dynamics seems to be better as per the research mentioned by you but is it just because they focus more on SaaS model. In terms of richness of features, MS Dynamics has still way to go to reach near Oracle or SAP but as you said benefits of ERP are not considered in this report, MSD is looking as a leader.