What is TCO?

TCO or Total Cost of Ownership is a concept relating to understanding the total cost of owning and managing an IT element, or a group of elements; be it a piece of hardware or a software. The idea is to identify the various aspects of cost and try to bring it down to an optimal level in order to lower the ultimate TCO and result in higher productivity. The objective of TCO is to result in lower costs and optimum productivity.

What costs does TCO take into account?

One realizes that it is not just the costs of hardware and software that affect the IT budget, but also the costs that are involved in IT support, training and downtime. In fact, hardware and software represent only one quarter of the total cost.

An additional criterion for measuring and understanding the IT costs is to differentiate between budgeted and unbudgeted costs. Budgeted costs include costs relating to hardware, software, networks, systems, training and development. On the other hand, unbudgeted costs cover mostly the costs arisen due to 'self support' and 'peer to peer support' systems and also majorly due to the downtime (planned or otherwise). Unbudgeted costs are important as it is estimated that more than 50% of the total IT costs arise outside the IT budget! Another study states that 75-80% of the total TCO is because of downtime and support. So managing unbudgeted costs of support and downtime is extremely essential to maintain a good level of TCO. Which means that investing in strong systems and spending on training will show a positive effect of preventing an unnecessary increase in TCO. The infrastructure should have as less downtime as possible and the scope for self and peer support should be minimized.

Strategy solutions to reduce TCO:

TCO is mainly intensified due to large downtime and more of self-learning and peer support. Hence to reduce the TCO, these two problems have to be taken care of. The following solutions could work towards the objective:

1. Proper system investment:
A proper investment in suitable and strong systems will ensure a lesser downtime. TCO should be aimed to be reduced through lesser downtime and not through lower costs of hardware and software.

2. Efficient system disbursement:
A proper software disbursement policy should be chalked out for different users as per their requirements and tasks. It is here that the decision whether to allot a thin client to a group of staff or a fully operating workstation is made. However the solution does not lie in just trimming down the hardware availability across the floor. The systems and software should be properly deployed according to predetermined user groups. Such a policy should be put in place so that new groups that may be formed in the course of time are taken care of without much confusion.

3. Outsourcing:
Certain functions are best outsourced. A typical example of an outsourced service is that of support and help desks. This reduces ongoing costs and lets the parent organization concentrate upon their direct operations.

4. Training:
Training to the staff either outsourced or undertaken internally always helps remove the self-learning part from support functions. Hence a proper training mechanism should be adopted at different levels to bring more efficiency and more productivity.

To sum up, TCO becomes an important consideration for IS departments as an unchecked TCO can disrupt the whole planned technology process for the organization. A proper TCO exercise will keep unnecessary costs in check and add more productivity and efficiency.

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