Finding the T in TCO

Computerworld - Rocket Computers Inc. recently helped a beer distributor integrate handheld computers into a customized back-office system so that salespeople on the road could log orders into servers at the main office.

As Rocket Computers' consultants put together the numbers, they tried to consider everything that would go into the client's budget. They analyzed the costs of different handheld models, monthly service fees, modems, servers, software and training—and found that the smallest details add up fast.

"When you're looking at a project driven by a $2,300 PalmPilot device ... if we get a hundred of them, now we're looking at a quarter-million dollars. But then there's another $10,000 in cables, $5,000 in modems, then money for training and service," says Roberto Villanueva, president of Rocket Computers in Swampscott, Mass. "Then your quarter-of-a-million dollars is fast approaching a half-million dollars."

Calculating total cost of ownership (TCO) is rarely a straightforward task, regardless of the technology involved. But figuring TCO for desktops has become particularly tricky in recent years, as systems have evolved to include much more than PCs. Now IT departments must figure in costs associated with laptops, personal digital assistants (PDA), cell phones and wireless service connections.

"Just trying to determine what goes into a total cost of ownership can have you banging your head against the wall. Everybody has a different opinion about what [a desktop system] is," says Charles Russell, chief of digital archives at the U.S. Army Reserve in Fort McPherson, Ga. "You've got to look at a million different items."

The Reserve, Russell says, does a complete life-cycle cost analysis before rolling out new technology. That analysis covers factors ranging from the cost to deploy the technology to the salaries for the contractors who will support it. One recent analysis included about 120 categories that required a 38-page spreadsheet.

As the old saying goes, the devil is in the details. That's where companies often overlook numerous small costs, such as cables, modems and training, that can significantly add to a desktop system's TCO.

"They tend to do good with the direct costs," notes Ian Campbell, president of Nucleus Research Inc. in Wellesley, Mass. "It's when it gets more intangible that they tend to forget about it."

Campbell and some IT professionals put costs into three categories: direct, indirect and hidden. Direct costs include purchase, maintenance and upgrade costs. Indirect costs include the added burden on IT to manage the technology and the incremental costs associated with employees learning to use new tools. Hidden costs consist of things like added insurance costs and the time the accounting department needs to capitalize and depreciate the new technology.