Many IT shops have discovered that large chunks of their costs have not been budgeted properly. In response, consultants have come up with new Total Cost of Ownership (TCO) models for accurately costing today's distributed computing systems, and for reflecting previously unbudgeted expenses.
What Is Total Cost of Ownership (TCO)?
The TCO of a computing system is an organization's total cost for acquiring and maintaining that system. Once, many IT professionals only factored in the costs of purchasing hardware and applications. This wasn't surprising—they grew up in the relatively easy-to-manage world of mainframes, where these were by far the most important costs to consider. Now, however, in the era of e-business, PCs, and client/server systems, the amount of work needed to manage and maintain systems has become overwhelming.
End users can't be blamed for taking it upon themselves to deploy departmental applications, when a few years ago they couldn't get their mainframe gurus to deliver solutions quickly enough. But now that these systems are in place, there are more components, locations, and users to manage—and the costs of computing now go far beyond the costs of acquisition.
What should go into the computation of the TCO of any system?
Acquisition cost comprises the cost of acquiring the system, and includes these costs:
Research possible products to buy.
Design the system and all the necessary components to ensure that they work well together.
Source the products, which means getting the best possible deal from all the possible vendors.
Purchase the products—the selling price as negotiated with the chosen supplier.
Install the system.
Develop or customize the applications to be used
Train the users
Deploy the system, including transitioning existing business processes.
Cost of maintaining availability of the system to the end users, which covers these areas:
Systems management, including every aspect of maintaining normal operations, such as activation and shutdown, job control, output management, backup, and recovery.
Maintenance of hardware and software components, including preventive and corrective maintenance and housekeeping.
User support, including ongoing training, help desk facilities, and problem support.
Environmental factors, including a system's external requirements for proper operation, such as air conditioning, power supply, housing, and floor space.
Other factors that don't fall into any of the above categories, depending on the type of system deployed and the prevailing circumstances.
All these categories seem straightforward, but quantifying each cost is difficult or even impractical in today's world, because few organizations have an accounting practice that's mature enough to break down expenses in sufficient detail.
For example, we know of no organization that records all employee activities by task, information you would need to answer questions like these:
What support costs did you incur last month?
How much time did each user spend solving computer-related problems?
How much work was lost due to downtime on desktop PCs?
Additionally, organizations rarely have accurate inventory and asset information regarding their computing systems, especially in large, distributed computing environments where PC, server, and LAN purchasing decisions are often handled locally.
So what's the value of knowing a system's TCO? Obviously, our objective is not to calculate exact figures. Rather, you need to understand what these costs could reasonably be in your organization. You must plan for these costs, even if you can only roughly estimate them. The TCO also provides a good basis of comparison between alternative system deployment strategies, between platforms, and between competing products.