Getting real with TCO and ROI
From price to cost to value
In a previous post, we presented a model for Total Cost of Ownership (TCO) in IP security. In another post, we explored how the TCO could be further used and how the cost of risk could be included in the TCO. In a subsequent post, we looked at different kinds of value IP systems can bring, and how to calculate the Return on Investment (ROI).
However, while based on a lot of experience and real data, the previous posts presented the TCO and ROI as theoretical concepts. How would the TCO and ROI methodology look in real life?
Customer TCO and ROI cases
During the past years we have used the TCO and ROI approach to analyze a number of real installations. With the kind support and permission of key customers and Axis partners, we can present the long-term cost of ownership of these installations, as well as the value created by the IP systems.
TCO applied in a smart city installation
Vicente López is situated in the northern section of the greater Buenos Aires area in Argentina, with a population of approximately 300,000. In order to create a secure environment for its citizens, the local government has deployed a large video surveillance solution based around Axis cameras. Learn more in the Vicente López case story video.
A TCO analysis was conducted of this 1500-camera project. The analysis revealed a TCO of around $29 million over ten years. About a third of this cost was investment in hardware and software, while two thirds were staff costs relating to installation, maintenance and operation of the system. The benefits of the system include much faster response time for emergency staff, smoother traffic flow and overall a better sense of security for its citizens.
The TCO analysis allowed the city managers of Vicente López to better forecast the costs of the system, and to have a concrete and constructive dialog with other decision makers in the municipality regarding budgeting and future expansion of the system.
Saving costs in the hotel industry
Christie Lodge is a hotel facility in Avon in the Rocky Mountains of USA. To protect its customers, staff and assets, Christie Lodge has deployed a video surveillance solution with around 40 Axis cameras.
A TCO analysis was conducted for the Christie Lodge system and with a calculated seven-year lifespan, the total cost arrived at around $90,000. About 40% of the costs are investments in products, while 60% are costs relating to deployment, maintenance and operation.
Christie Lodge has experienced many benefits from its system. Staff feels more secure, and the video has been used to clear up guest complaints, car incidents and burglaries. But the main savings for Christie Lodge have come from the reduction of its rented security staff and from battling liability claims, in particular so called “slip and fall” cases where individuals claim to have slipped and injured themselves on the premises.
Altogether, Christie Lodge estimates that it saves around $40,000-$50,000 each year with the Axis system. This means that the investment paid for itself during the second year of operation, creating a total ROI at the end of year seven of 250%.
Positive ROI from reducing retail shrinkage
RC Willey in Salt Lake City, USA, is a leading home furnishings retailer with retail outlets and distribution centers spread across western USA. It has deployed an enterprise video surveillance system with 800 Axis cameras.
With a seven-year expected lifespan for the system, the TCO analysis for RC Willey arrived at around $1.4 million. In this case, two-thirds of the cost relate to hardware and software, while a third includes costs for installation, operation and maintenance.
The main savings for RC Willey come from reduced shrinkage. In addition, RC Willey has used the system to mitigate litigation claims, including many “slip and fall” cases. RC Willey estimates that the yearly savings from the Axis video surveillance system is around $5.7 million. With the TCO analysis as a background, it shows that the cost of the system is saved already in the first year, and the final ROI after seven year arrives at an astounding 2700% for RC Willey.
All cases are unique
As the cases show above, the TCOs are very different depending on the situation. There are no simple rules that state that a certain share of the cost is always products, or maintenance or something else. On the contrary, every project has a unique cost distribution, and it is up to each project to conduct a TCO analysis to capture that reality.
For the value of the system – the ROI – the differences are even more pronounced. In the city surveillance case, the benefits had not been quantified enough to make a complete ROI calculation. In the retail and hotel cases, the cost savings were clear and tangible, and it was possible to calculate an estimated ROI. However, it is worth noting the difference in magnitude between the cases.
Better business decisions with TCO and ROI
TCO and ROI analyses are very powerful tools that can help you better calculate the cost of a planned or existing system. TCOs and ROIs also help you estimate the value the system could deliver. Including a TCO and ROI perspective in your buying process can help you evaluate competing offers more reliably, and in the end allow you to make better and more sustainable business decisions.
For more details on the TCO and ROI methodology and for a detailed analysis of the case stories presented here, please download our new white paper: