Total Cost of Ownership - Consider the Hidden Costs
Total Cost of Ownership (TCO) is a structured approach to calculating the full costs associated with buying and using an asset or acquisition over its entire life cycle.
TCO takes the purchase cost of an item into account but also considers installation, maintenance, repairs, training and support. A perfect example is a motor car or a printer where the life cycle costs can be many times that of the purchase price.
TCO in the computer world
The calculation of the TCO of a technology product demonstrates the full range of add-ons and extra costs that are incurred after the purchase price is paid. For example, the price of a server (including operating systems, database software and storage) usually accounts for less than 25 percent of the overall, long-term costs to install, maintain, upgrade and support it.
To determine what is included in the price and what is extra consider:
Hardware and software
- Is the new hardware compatible with existing equipment or will you have to replace other items? Will they provide a free system testing facility before you buy?
- What resources are needed to design, configure and customize the solution? Who pays for it?
- Is there discount for volume purchases? Is the warranty sufficient or does it need a top-up? How much are the software licenses per user?
What additional expenses will you have for space, furniture, power and cooling? Will you need extra security, both physical and for firewalls, virus protection etc.?
Do you need to recruit or relocate people to manage and maintain the system and the infrastructure and how much will this cost? Will you need extra people to administer the new system? This is a hidden TCO item.
Installation, maintenance and support
- Is the installation cost included? Will the supplier unpack and set up the equipment? What free support is included - 24/7?
- How much does it cost for upgrades, patches and fixes? Who pays?
- What other maintenance is needed and how much does it cost?
- Are the consumables freely available or only through the supplier? What do they cost per month/per user?
- What are the IT training and/or end-user costs to get everyone productive?
- Who pays?
- Does the supplier provide this on a continuous basis or only on installation?
- If not, how much for the ongoing support?
This is by no means a complete list of extra costs but it demonstrates the TCO over the useful life of a system, e.g. five years. An evaluation of competing bids avoids you getting stuck with hidden costs and unwanted surprises.