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TCO vs. ROI

February 9, 2008 @ ContractMinds - The Blog for Contract Lifecycle Management from samd

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Here’s some blasphemy for you: in my opinion TCO is not a critical evaluation parameter when considering the benefits of contract management. Instead, I favor ROI. What drove me to this conclusion is an experience I had about a year ago competing with a vendor claiming to sell a CLM solution that was as robust as the one I was trying to sell, but at a cost that was 90 percent less. To make a long story short, the prospect, instead of taking a long and reasonable view of their investment, went with the low-cost bidder. Their reason was clear: this choice appeared to carry a lower total cost of ownership. But now that a year has passed and the solution is still not fully implemented (and the parts of it that are, do not work properly) the buyer is back looking for an alternative solution. The problem was that the buyer failed to recognize two things. First, when a price seems to be too good to be true it generally is. And second, the most important financial benefit of a solution is return on investment. The buyer’s lesson? An initially low TCO can quickly be transformed into a high one, if an original investment is abandoned in favor of a performing one. To avoid this problem always check vendor references before plunking down any cash. But also remember that references are generally cherry picked by vendors. So what I’d like to propose is the creation of a CLM customer satisfaction warehouse, a customer-driven clearinghouse of information regarding the performance of individual solutions and the support individual vendors provide. Let me know if you’re interested and I’ll see what I can do to get something off the ground. - Terry Nicholson


This article is syndicated from ContractMinds - The Blog for Contract Lifecycle Management . The original article is available here. Read more in Contract, ContractMinds .

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