Finding the T in TCO

Tallying total desktop technology ownership costs requires looking well beyond users' PCs.

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.

"Most companies tend to miss those indirect costs, and the vast majority of companies miss those hidden costs," Campbell says.

Experts say the best way to start calculating TCO is to analyze your company's true needs. Workers today are requesting all sorts of technology, claiming that it can help them do their jobs. But you have to ask: Will it really help people work faster or better?

Many CIOs and chief financial officers have failed to take this initial step, according to Phillip Redman, an analyst at Stamford, Conn.-based Gartner Inc. He says there has been a disconnect between what employees want, what they need and what IT people are offering. But that's beginning to change as employees introduce their own mobile devices into the workplace as a way to synchronize e-mail, calendars and contact management.

"Most companies today are in the evaluation stage," Redman says. They realize that they need to provide the support, integration and technology necessary for these "toys" to become corporate tools.

One Piece at a Time

Redman recommends evaluating a desktop system's individual pieces—the cell phones, communicators and integrated PDAs—to calculate TCO. Look at each component separately. If you try to assess the entire system at once, there would be too many different combinations to consider accurately.

"There's no way to look at everything as a whole, as one," he says.

But Redman and other experts emphasize that the components shouldn't be viewed as stand-alone tools. Even if companies calculate the TCO for each component, they should consider, for example, how a salesperson in the field will use a handheld device, how the data will be transferred to the main network and how it can be accessed from desktop PCs.

But it's tough on IT departments that don't have control over the separate pieces of the desktop puzzle even though they're frequently called upon to support those pieces.

"Many times, the handhelds are entering the organization from the user's end; they buy it themselves and use it for accessing e-mail or company data," says Kevin Byrd, senior director of product marketing at JP Mobile Inc., a software developer in Dallas.

As a result, users with various devices are asking IT departments for support and special configurations. These demands often create all sorts of stealth costs—from staff time to new software requirements. Systems that are built up in such a scattered fashion rarely make financial sense or have accurate costs attached to them, experts say.

"That's where you get extremely high costs of ownership for handhelds," whether they're notebooks, PalmPilots or Pocket PCs, Byrd says. IT staffs that implement central control for desktop system peripherals can save a lot.

Standardization Debate

Bill Cook, CIO at the Clovis Unified School District in Clovis, Calif., oversees a network of 10,000 computers, including 3,000 to 4,000 student-owned computers, and a $2 million annual IT budget. Laptops are already part of the district's desktop system, and Cook is analyzing the benefits of handhelds in providing anytime access to student information.

The first step to reducing costs, Cook says, is standardizing hardware. "Together, they are a nightmare in terms of support costs. It really does make a difference to get one-stop shopping," he says. The district uses IBM hardware.

Support costs are higher and compatibility issues are more time-consuming with hodgepodge systems, says Cook.

"With a hardware and vendor standard, you have less finger-pointing and more action," he says.

Many companies buy desktop PCs from a single vendor, analysts say, so it makes sense to follow this practice for mobile devices as well.

However, Campbell says, companies shouldn't always standardize. BlackBerry devices work well for sales reps who need e-mail, he says, but they won't work as well for maintenance workers who need access to manufacturing systems. Those workers would be better served by Palm OS-based devices.

In short, says Byrd, companies should aim for a centralized system that gives the IT department control and is flexible enough to accommodate different devices and expansion into other applications.

Other factors to consider include how many workers need mobile devices, how much training they need and how data will be backed up—all of which translate into dollar amounts.

Some industry analysts put the TCO of a PDA, including the cost of providing support, network connectivity, replacement units, training and software, at $2,500 to $4,400 per year. They peg the TCO for a desktop PC, including everything from hardware to downtime, at $11,000 to $12,000. Some say companies can add those numbers to calculate the per-user cost for workers who use both technologies, a practice called "business provisioning."

"You just add that on per user, per year. That's why we calculate TCOs individually," Redman says.

However, he and other experts point out that there will be overlaps, such as a shared server, that can affect the final numbers.

"When the PC was introduced, it really was an individualized tool. Now the PC is part of a much larger information system; that's why breaking out the total cost of ownership for a desktop system is a tricky proposition. It's only one element of the system," says Anik Ganguly, executive vice president of products at Open Text Corp., a Waterloo, Ontario-based supplier of collaboration and knowledge management software.

Analysts say any calculation of a desktop system's TCO should include capital costs, such as hardware, software, configuration and training. It should also take into account operational and administration costs, such as the additional accounting associated with paying monthly fees for mobile services. Finally, it should incorporate end-user expenses, including the cost of diminished productivity caused by workers fiddling with their high-tech devices.

The numbers used to calculate TCO go beyond the obvious. The work that Rocket Computers did for the beer distributor is a good example: In addition to accounting for the company's direct costs for new Symbol Technologies Inc. handhelds and the supporting infrastructure—a communications server, modems and wiring—Villanueva analyzed whether a handheld that needed to be plugged into a cell phone was cheaper than the wireless Symbol model.

After crunching the numbers, the company decided to go with 25 handhelds that needed to be plugged into phones. If the distributor had chosen the wireless model, it would have had to pay $12,500 more for the handhelds upfront, plus hundreds, maybe even thousands, of dollars a month for transmissions via Cellular Data Packet Transmission networks—a variable cost that Villanueva says had the potential to be a "runaway train."

In the end, companies will find that TCO is the sum of fixed, variable and semivariable costs.

"A solution is all about looking at hardware, software and services," Redman says, "and how they connect together so they succeed."

Pratt is a freelance writer in the Boston area.

Adding It Up
ACQUISITION $2,200 $600 $200
TCO $12,300 $2,700 $1,369
INVESTMENT LIFE 3-4 yrs. 24 mos. 18 mos.
BASE: Average of 100 mobile users, three years, 100 laptops BASE: Average of 100 mobile users, Three years, replaced twice

Source: gartner inc., 2002

Copyright © 2002 IDG Communications, Inc.

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