TCO vs. ROI – Which one to use?

Firstly, I’d like to outline the basic definitions of the two measures.

  1. Return on Investment: This is calculated by the basic mathematical equation:
    ROI = (Gain from Investment – Cost of Investment) / Cost of Investment
    It is defined by “a performance measure to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments” (Investopedia, n.d.). An important note here is that the ROI calculation can be modified to suit its situation, you may include the running costs in as the cost of investment (Investopedia, n.d.).
  2. Total Cost of Ownership: “In general, the purchase price of an asset plus the additional costs of operation” (Investopedia, n.d.).

Personally, I prefer the Return on Investment approach. While it is inherently not 100% accurate due to the fact that we cannot predict the exact gains from the investment, it will give us not only the negative aspect of the investment, but also allows us to compare it to the financial gain the investment offers.

In my opinion, a Total Cost of Ownership has the potential shock value that may scare off investors due to it only showing the capital layout as opposed to the potential benefits.

Nash (2008) conducted a study that surveyed 225 technology managers with a result showing that 59% of the managers reported that ROI calculations influenced whether they pursued a project in the past 12 months compared to 41% reporting that TCO justified their decision. Nash’s article (2008) goes further to quote a CIO who states “ROI has to be the answer. TCO only looks at one side of the equation”. As per my comments above, I concur with this statement whole heartedly.

My experience in my career has been involved in mostly development of business tools for companies. Management reporting, investment reports etc. and I have not come across a single project that has required a TCO report, but many that have requested ROI’s. I see the place of a TCO report being more of an investigation into areas of business that do not necessarily return an investment, or hold ‘asset’ value; such as weighing up the costs of ‘perk’ items for employees to see if the business has enough excess profit to justify the expense incurred.

References

Investopedia (n.d.) Return on Investment – ROI [Online]. Available from: http://www.investopedia.com/terms/r/returnoninvestment.asp (Accessed: 19 December 2010).

Investopedia (n.d.) Total Cost of Ownership – TCO [Online]. Available from: http://www.investopedia.com/terms/t/totalcostofownership.asp (Accessed: 19 December 2010).

Nash, K (2008) TCO versus ROI [Online] CIO.com. Available from: http://www.cio.com/article/331763/TCO_versus_ROI (Accessed: 19 December 2010).

 

The WIPO Copyright Treaty & Feasibility of Copyrights

As discussed by Adams and McCrindle (2008, p.423), the WIPO Copyright Treaty includes an increased moral right to the author of the work, as per their example in Germany and France that income derived from an authors work must always partially flow back to the author. Also mentioned repeatedly by Adams and McCrindle the development of patents and copyrights were brought about to encourage creativity and reward innovation. The basis of this I am in full agreement of and I do believe that creators of new innovations and ideas must be accredited and compensated for their work. In the WIPO Copyright Treaty (Adams and McCrindle, 2008, p.422), the copyright law extends to the life of the author plus 70 years after the authors death.

The limitations of copyrights I can see would be simply up to the copyright owners’ decisions on how to distribute or how much they distribute their work for. As depicted in a discussion on Google Answers (2002), where an author published a book at a very high price and then died leaving the copyright to no heirs – the public must wait 70 years until they are able to reprint the work at a more reasonable price to increase circulation.

In the feasibility of copyright value-adds and levies are really only accurately argued when considered alongside the fees that the publisher/producer etc. are adding on-top. Many argue from an idealist point of view that (commonly the argument is against musicians) artists should be doing what they do to enjoy the art and not to be all about the money; but in the world we live in – money is an important aid to quality of life and enjoyment (note: I am not saying it is what gives quality to life, but it does help a lot when compared to poverty), to quote Adams and McCrindle again, without reward for innovation and creativity, would there be as many innovations and hard work put into developing new medicines and techniques for helping people? Even music and entertainment is something important to this world.

Never mind being rich and famous but just having monetary compensation to pay bills while enhancing the new potentially life-saving innovations is something we should definitely consider feasible.

While some may take advantage of these laws we have to consider the good coming from it.

References

Adams, A & McCrindle, J (2008) Pandora’s Box: Social and professional issues of the information age. England: John Wiley & Sons Ltd.

Google Answers (2002) Q: Copyrights after an author’s death [Online]. Google: Available from: http://answers.google.com/answers/threadview?id=21037 (Accessed: 28 November 2010).