Total Cost of Ownership or TCO is a TLA (three letter acronym) that has perhaps been used too many times. It is up there with ROI (Return on Investment) as a perennial favorite when talking about technology products and in particular when trying to sell technology products and services. I myself am as guilty as the next person. Because of this overuse perhaps sometimes we ignore the TCO benefits and in particular what it means to us and our businesses.
For many businesses and particularly the smaller variety, the main consideration in purchasing a new product or system for their IT infrastructure is the initial cost. I was reminded of this when a potential customer asked me whether I could get a discount on some particular hardware and would I be getting it on-line or from a store. These are very fair questions as they will be the ones picking up the tab and as ever, every penny counts. 10% off is 10% off.
The particular problem with this viewpoint is that the hardware in questions may have only cost two or three hundred dollars so a 10% saving (if there was one to be had) doesn’t add up to much. I therefore write this to draw attention back to the total cost of ownership of hardware, software and systems. In hard times the focus is too often on the capital expenditure right now, but if you intend to be in business in 2 years time and still be using today’s investment then you must consider what the ownership costs will be for the product over the life of the purchase.
Lets take a single server running Microsoft Small Business Server 2008 as a simple example. A server like this for a small business might cost $3000. This is where a small business (and sometimes larger ones) seems to focus most of their time on product selection. They may shop around, comparing models, haggle with the supplier and after several days may acquire that server for $2600 as they managed to really beat down the company. Now comes the expensive part. If your core skills are not IT then you will need someone to set the server up, configure it to your requirements and ensure it is working. If this entails email set up, domain names, migration of existing machines and applications, print queues, group policy, patch management, back up and restore, the list goes on, then you may have someone with you for 3 or 4 days at $500 or so per day. Once the server is happily whirring away, you need to figure in electricity costs, management and administration and monitoring. You may pay $400 per month for a basic service support service.
Did you choose hardware support when you bought the server? If you didn’t becuase it was $350 more for 3 years and something fails like a motherboard, you could be out of action for days whilst you get a new one shipped to you and the cost of setting up alternative arrangements during the disaster could easily run into the thousands in consulting time, new emergency hardware and software, etc. If the systems are critical to your business operations, and they normally are, then please factor how much it will cost you whilst they are out of action.
About a year into ownership your business is doing great and you need to upgrade the server and introduce a new application and remote working. Now your initial system still supports all this by getting some add-ons, but once again you will need to dig deep for the software and hardware additions and the services to implement, plus a review of your well documented backup and recovery plans now things have changed. Lets price this at $5000 for the whole shebang.
I am not going to continue with my theoretical business (based on real world) example but your total over two years (assuming the disaster doesn’t strike) would be – $ 19200, of which $2600 was the only part that you got excited about in pricing terms, though it is only 13% of the TCO over a two year time frame. I didn’t account for electricity or AV software or other subscriptions and ongoing costs and assumed that disaster never struck. so the percentage is more likely less than 10%.
So my point. When you decide to implement a new system and especially if it is an infrastructure update, the important factor is ensuring that you plan your system correctly from the ground up and examine the TCO costs rather than just asking how much will so and so be and is it cheaper on Amazon. That $10 saving, though worth having shouldn’t be the “be all and end all” of your system planning and selection process because it is just a drop in the ocean. Time and time again it has been shown that a more expensive implementation, that is planned carefully before product selection takes place (and not just on price), where fault tolerant components are chosen, adequate disaster recovery options are selected and where the systems are standardized, locked down and controlled will reduce your TCO over the long run and mean you pay out less over the lifetime as your business grows more successful.
