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Timing Your Business Case with the Technology Valuation Lifecycle - page 5 / 8

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Whole Cost Model

Opportunity Costs Switching Costs Total Cost of Ownership (direct and indirect costs) Investment in Technology (direct costs)

Switching Costs are costs incurred when a purchased technology is replaced with new one. When buying a technology, switching costs should be considered if it is replacing an old

technology.

Buyers

also

need

to

consider

potential

switching

costs

the

current

technology

creates for future purchases.

Sellers have the incentive to raise switching

costs

for

future

purchases to lock-in customers and raise barriers to entry for competitors.

Recently businesses have emphasized “agility,” or the ability to adapt to a rapidly changing environment, as a strategic imperative. Being agile means having options you can exercise at

less cost. When comparing technologies, Buyers

options.

When an option is not created by

Programming Interfaces, the others should be considered.

Opportunity

Cost

a of

should consider if technology, such not being able to

a technology creates or limits as having open Application integrate the application with

Perhaps just as important to gaining a complete picture of cost is having an equal assessment of benefits. If an Early Majority Buyer uses a TCO methodology to contextualize the investment within operations, it is only fair to ease the burden of proof for reduction of Soft Costs for inclusion in ROI estimates.

It is also

reasonable

benefits.

MIT’s Eric

that Early Majority Buyers should be flexible Brynjolfsson and others3 recently studied the

to considering intangible interaction of information

technology and human capital to reveal that the intangible benefits of workplace conjunction with technology deployment may exceed productivity benefits from

organization in the technology

itself. In other words, technology deployment is an productivity. Predicting changes in human behavior

organizing principle and resulting human

that improves employee capital productivity is an

important qualitative exercise for any project, but is not a technology valuation metrics. However, technologies at the that are deployed in the operational context, should give capital intangible values alongside their TCO valuation.

factor for the simplified models of Early Majority stage of development significant consideration to human

3 Timothy F. Bresnahan, Erik Brynjolfsson, and Lorin M. Hitt, (February 2002) "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence". Quarterly Journal of Economics, Vol. 117 pp. 339-376. [Click here for the Working Paper version][Click here for the abstract]

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