Home > Articles

Total Cost of Ownership: Principles and Practical Applications

"Cheap" computer technology ain't necessarily cheap. When evaluating what something will cost to purchase, are you giving any thought to the total cost of owning it? What will it cost you to use it? Maintain it? Repair it? Upgrade it? Will end users adopt it? Will they spend all of their valuable working time playing with it? Fighting with it? Complaining about it?
Placing special emphasis on a comprehensive approach combining organization, people, process, and technology, Harris Kern's Enterprise Computing Institute is recognized as one of the world's premier sources for CIOs and IT professionals concerned with managing information technology.
Like this article? We recommend

The total cost of ownership (TCO) of a computing system is defined as the total cost for acquiring, activating, and keeping that system running. It's an accounting methodology that today is proving to be crucial in making sound IT decisions.

Many IT professionals conveniently factor in only the costs of purchasing hardware and software when doing TCO analysis. This isn't surprising; when pressed for time, they only take into account what's easy to find out. In the relatively easy-to-manage world of mainframes and big centralized computing systems, hardware and software accounted for much of the cost factors. In the current era of e-business, client/server, and peer-to-peer systems, however, the costs of managing and maintaining computer systems is often much higher and cannot be ignored.

What should go into the computation of the TCO of any system? We can group these costs into direct and indirect costs.

  • Direct costs pertain to the acquisition expenses or the cost of buying the system, and cover all of the following activities:

    • Researching possible products to buy, which is essentially a labor cost but may also include materials cost, such as purchase of third-party research reports or consultant fees.

    • Designing the system and all the necessary components to ensure that they work well together. Naturally, this cost component will be higher if a move to a totally different system platform is being considered.

    • Sourcing the products, which means getting the best possible deal from all possible vendors through solicited bids or market research. It's often sufficient to get a quotation from three vendors (with the cheapest one not necessarily being the best choice). With the Internet, it's even easy to get price quotations from sources outside the country, to get a good spectrum of pricing options.

    • Purchasing the product(s), which includes the selling price of the hardware, software, and other materials as negotiated with the chosen suppliers. Include all applicable taxes that might be incurred. Don't forget to consider the costs of the systems at the end-user side; some system choices might entail a change or upgrade at that end.

    • Delivering the system, which includes any shipping or transportation charges that might be incurred to get the product into its final installation location.

    • Installing the system. Bear in mind that installation also incurs costs in utilities and other environmentals—not just labor costs. If the installation of the system will result in downtime for an existing system, relevant outage costs must be included. Any lost end-user productivity hours during this activity should also be factored in.

    • Developing or customizing the application(s) to be used.

    • Training users on the new system.

    • Deploying the system, including transitioning existing business processes and complete integration with other existing computing resources and applications. Include here the costs to promote the use of the new system among end users.

  • Indirect costs address the issues of maintaining availability of the system to end users and keeping the system running, which includes the following:

    • Operations management, including every aspect of maintaining normal operations, such as activation and shutdown, job control, output management, and backup and recovery.

    • Systems management, such as problem management, change management, performance management, and other areas.

    • Maintenance of hardware and software components, including preventive maintenance, corrective maintenance, and general housekeeping.

    • Ongoing license fees, especially for software and applications.

    • Upgrade costs over time that may be required.

    • User support, including ongoing training, help desk facilities, and problem-resolution costs. Remember to include any costs to get assistance from third-parties, such as maintenance agreements and other service subscriptions.

    • Environmental factors affecting the 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 cost factors seem fairly obvious, but quantifying each cost is difficult or impractical in today's world, because few organizations have an accounting practice that's mature enough to identify and break down all these types of expenses in sufficient detail. For example, very few organizations record all employee activities by task and hours used—information you would need to answer questions like these: What support costs did you incur last month? How much time did each user spend in solving computer-related problems? How much work was lost due to downtime on desktop PCs?

Additionally, companies rarely have accurate inventory and asset information regarding their computing systems, especially in large, multi-location computing environments where PC, server, and local network purchasing decisions are often handled at the department level.

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. A fair amount of intelligent "guesstimation" is much better than blindly deciding on an IT solution on the basis of sticker price alone. In addition, TCO analysis provides a good basis of comparison between alternative system-deployment strategies, between platform choices, and between competing products.

Industry TCO Estimates

When IT and user labor costs are factored in, industry consultants have estimated the TCO of typical office PC systems from as low as $3,000 to as high as $10,000 per unit, per year. Note that typical PC hardware and software prices range from a low of $700 to a high of $2,000 for desktop units.

An example of how TCO can help in making a decision on system migration is a recent analysis by the Gartner Group that estimates the migration costs per PC system going from a Windows 98 to a Windows 2000 platform to be anywhere from $2,000 to $3,000. The same sort of analysis by Giga Group—but quantifying the labor savings gained—puts the cost of migration at $973 per system. In Giga Group's approach, they tried to quantify the gain in user productivity hours from the use of the much more stable Windows 2000 operating system.

Although all analyst's TCO estimates vary considerably, they all point to the fact that

  • TCO results will be very different for every organization, given their varied computing environment, user experience level, and IT expertise.

  • PC systems have much higher indirect costs than direct costs.

  • TCO analysis is never going to be an exact science, due to the many assumptions and unknowns that have to be taken into account.

  • As you provide more functionality and capability to end users, TCO rises. As you install more software or provide more complex hardware at the hands of end users, you pay increasingly more for support and maintenance.

TCO provides a good model for evaluating computing costs—direct and indirect, visible and invisible, budgeted and unbudgeted. Of course, TCO cannot be your sole determining factor for choosing a computing system. What I'm driving at here is that you should be aware of these costs and plan for them.

At the same time however, you must always balance the costs of providing a system versus the benefits it brings to the business and the end users. Many decisions you make will not be due to cost-avoidance but rather on the basis of business advantage. Case in point is having Internet connectivity. On one hand, providing such a facility for the enterprise means additional investments in firewalls and other security products, as well as a dramatic rise in potential damage from hackers, viruses, and other malicious activities. But on the other hand, what business can adequately compete or even survive without the access to information, worldwide reach, and accessibility to customers that the Internet provides?

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.


Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.


If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information

Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.


This site is not directed to children under the age of 13.


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure

Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact

Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice

We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020