Total cost
of ownership (TCO) has been a steady beacon in the information
technology landscape since 1987, when Bill Kirwin, vice president
and research director at Stamford, Conn.-based Gartner Group Inc.,
first applied the model to desktop systems. Gartner has since
extended the model into LANs, client/server software, distributed
computing, telecommunications, mainframe data centers and most
recently, Windows CE and Palm OS handheld computers. Around the
corner are models for storage technology and applications
development.
TCO essentially helps a company determine whether it wins or
loses from specific technology implementations. "Supporting office
workers on Windows can be quite a different thing from supporting
stockbrokers on Unix. There can be good and bad implementations in
either case. We use TCO to look at the overall impact of the
implementation. Cost is the numerator. The denominator might be
service, customer satisfaction, quality levels or productivity, for
example," Kirwin says.
The 'Futz Factor'
Although cost-of-ownership factors vary according to technology
and environment, costs are typically broken out into categories such
as capital costs, technical support, administration and end-user
operations.
Gartner has also introduced the "futz factor," which refers to
the use of IT equipment for nonbusiness activities such as playing
games. Although industry experts concur that the futz factor brings
a negative impact to the TCO bottom line, they disagree over whether
"futz" can be adequately measured.
Still, 78% of all IT administrators acknowledge that they can't
document whether or not desktop costs are rising because they "don't
track TCO," according to a study by Forrester Research Inc. in
Cambridge, Mass. Forrester's report is sharply critical of TCO,
dismissing it as "hype."
But others think TCO can shine a light on hidden costs. In fact,
concerns over what TCO might show constitute the very reason why
some IT managers avoid practicing the methodology, suggests James
Delmonte, president of JDA Professional Services Inc. in Houston, an
IT staffing firm that also performs cost-benefit consulting.
"For a lot of companies today, the only way to stay competitive
is to keep taking advantage of the same technology that their
competitors are using, as new products continue to hit the market.
And some organizations may not even want to know how much that's
costing them," says Delmonte.
Another chief barrier to TCO is the perceived expense of
performing a cost-benefit analysis, experts say.
But others suggest that TCO need not be lengthy or expensive.
John Rathje, director of advanced technologies in the Office of
Information Technologies at Central Michigan University, recently
devised a "sample" TCO what-if scenario for what he calls
"consistent sign-on." Like the better known "single sign-on"
technology, consistent sign-on lets users access all their
applications through a single password. But unlike single sign-on,
consistent sign-on sometimes calls for multiple log-ons.
Rathje sees his approach as a lot less costly to implement
because unlike single sign-on, consistent sign-on doesn't require
changes to the underlying software infrastructure. Instead of
consolidating directories for multiple applications, all that's
needed in consistent sign-on is a change in password assignments.
Rathje estimates that the university help desk could save about
$750,000 annually through consistent sign-on.
Between Departments
Other obstacles to TCO are interdepartmental in nature. John
Malloy, a systems programmer at Partners HealthCare System Inc. in
Boston, says that in not-for-profit settings like universities,
researchers often obtain computer equipment through grants. IT
staffers are sometimes unwilling to count this equipment as assets
if the non-IT department isn't managing it, according to Malloy, and
therefore can't give a true TCO calculation for the organization.
For-profit companies can also experience interdepartmental
stress. "Without TCO, a lot of assets get hidden by being expensed
through the departments," Delmonte says. To circumvent this problem,
Delmonte advises consolidating the acquisition of assets within a
centralized purchasing department.
Indirect Costs
TCO also shines a light on indirect IT costs such as support,
training and retooling, experts say.
Companies can use asset management tools to find exactly what
hardware and software is out there in the installed base. According
to Delmonte, organizations can then save money in the long run by
moving users from their existing hardware and software to standard
configurations.
It's less expensive for companies to provide companywide training
sessions on a single operating environment than to let each
department provide its own training. In addition, support and
maintenance are simplified if the help desk doesn't need to keep on
top of so many products, Delmonte says.
To get companywide acceptance and compliance, TCO typically
requires the backing of top-level executives such as the chief
financial officer, chief operating officer or CEO, experts say.
Otherwise, some departments might drag their feet in participating.
"TCO can be very revealing. It might show that certain
departments are too autonomous or that the IT department is being
poorly managed," Kirwin says. But TCO appeals to many top-level
executives as a way of reining in IT costs, Delmonte says.
A Total Cost of Ownership Example
International Data Corp. (IDC) in Framingham, Mass., used TCO to
determine costs and benefits experienced by medium-size to large
commercial sites that had migrated Lotus Domino servers from PC LANs
to IBM's AS/400 midrange systems.
In many cases, the sites included in the study were consolidated
on AS/400s because of a need to cost-effectively manage increasing
numbers of Domino users, according to IDC. The study compared 15 PC
LAN sites to 15 other sites that had migrated from PC LANs to
AS/400s.
Domino servers can function as both Web servers and Lotus Notes
servers. IDC discovered that the five-year TCO for AS/400s running
Domino was 32% less than that of the PC LANs.
But beyond the costs, IDC also found less downtime at the AS/400
sites and markedly higher customer satisfaction among both IT staff
and end users. Many pointed to less downtime as the key to increased
satisfaction.
They also indicated that Domino was playing a much stronger role
in intranet and extranet applications on the AS/400s. On most of the
PC LANs, Domino had been used mainly for e-mail.
(The full text of the IDC study is available on the Web at www.as400.ibm.com/domino/idc.htm.)
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