Home > Management and Careers

Computerworld - Calculating Total Cost of ownership (TCO) in raw dollar terms alone may not be the best way to determine the costs of IT projects at a time when technology budgets are coming under increasing scrutiny.
Instead, say industry practitioners, it's more effective to tie the cost to the service quality and business value that's delivered by a technology or an application.

Thinking of deploying a newtechnology? Wish to measure TCO on an existing one? Want to know how to price your IT services? The following are some of the costs you should be measuring, according to users and analysts: The obvious costs Hardware Packaged software license fees Personnel Hardware and software deployment Support and service Custom application development Upgrades Energy and space The not-so-obvious Costs System downtime in terms of lost opportunities, productivity Being locked into a technology Moving to other technologies and platforms Having nonstandard configurations Amount of training required

For instance, when conducting a cost analysis for a new desktop system, make sure not to focus on just the hardware, software and support costs. Instead, factor in how the technology can cut systems management costs or improve transaction times.
"TCO is a key measure," says Rod Hall, a vice president at IT and business consultancy Compass America Inc.'s Chicago office. "But it offers only part of the view of the services I offer and the cost of that service."
A more useful approach is to measure the cost of ownership for the level of functionality or service quality that's being delivered by an IT organization to a business department or user community, says Hall.
"I first need to understand the services I provide my users, and I need to understand the unit costs for that service," he says.
TCO is receiving renewed attention at a time when IT managers are coming under increasing pressure to trim operational costs. TCO studies are aimed at helping managers understand the costs associated with acquiring, supporting and maintaining a technology over time. This includes hardware, software, network, development, support and labor costs.
Looking Beyond the Obvious
The real value in TCO is in tying such cost analyses to business benefits, says David Ehrman, manager of business information systems at Schneider Automotive Inc., a North Andover, Mass.-based subsidiary of France's $11 billion Schneider Electric SA.
Schneider, which manufactures programmable logic controllers for manufacturing equipment, recently launched an extranet that enables more than 2,000 global employees to access a common database containing more than 4,000 product brochures, technical documents, installation manuals and training materials.
Previously, gaining access to such information meant knowing where to look or knowing the people