Information Technology – Total Cost of Ownership

In the digital economy, Information Technology is the vehicle that drives revenue growth and increased cost efficiency. A vital tool for assessing financial impact is the Total Cost of Ownership or TCO analysis.  It instills discipline in articulating business benefits and impacts in common financial terms.  To improve company profitability, it is imperative to have a complete understanding of all underlying costs associated with your Digital Technology platforms and your Information Technology infrastructure.

Total Cost of Ownership processes are relevant in two areas:

• Understanding your current Total Cost of Ownership
• Developing Total Cost of Ownership models for all future investments

The total cost of existing software and hardware platforms are often not understood.  While it is pretty easy to identify the cost of electricity, licenses, software and hardware, it is very difficult to identify the total cost for all Information Technology services. An effective TCO model will include the following attributes:

1. Understanding the impact to the organization for downtime and availability
2. Service desk costs include more than the cost of the system and the people who manage them.  There are other folks on the line as well 
3. Asset management is not just about keeping track of assets in the organization.  Hardware, software, training, shipping, etc. are all costs that aren’t often tracked
4. Current software and future upgrade costs and all activities required to support them
5. Changes in infrastructure requirements

A TCO analysis should be used for every digital technology initiative.  The more complex the initiative is, the more important this analysis is.  Some examples include:

1. Selecting which initiatives to include in next year’s budget or in the company’s strategic plan.
2. Identifying which cloud solution is the best choice
3. Determining which ERP systems are the best choice financially in the long run.
4. Understanding the total investment required for a Business Transformation.

The biggest advantage of a TCO analysis is that it identifies both apparent and hidden costs over the expected life of the product, service or project, and when TCO models are completed for the current state and the future state, it becomes very easy to make decisions about investment strategies.

Total Cost of Ownership processes should be developed to comply with a company’s needs. We find that most middle market company leadership teams do not have a process and that their employees (Information Technology, Finance, Purchasing, etc.) are not trained in the concept of Total Cost of Ownership, especially as relates to Information Technology.  Group50’s Digital Technology Practice has developed Total Cost of Ownership methodologies, assessments and training programs designed to create and implement a TCO discipline in a company.

Contact us about creating a TCO model for your current state, implementing a TCO processes throughout your company or creating a TCO model for your future state, at (703) 201-3936, or send us an email at info@group50.com or snene@group50.com to learn more about how you can make TCO an integral component in your Information Technology toolkit.