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Myths of TCO
by J. Eric Smith
Do you have any idea how expensive it can be to do something cheaply these days? Back in the 'good old days', you could be relatively sure that if you paid more, you got more. Conversely, if you paid less, you got less, all the way down to the "buyer beware" category. But those days are history, and we have technology to thank -- and blame -- for it. Today, the buzzword is firmly centered on "value," with the Total Cost of Ownership (TCO) being the metric by which that valued is measured.
What is TCO? Put simply, TCO is what it costs you not just to buy, but to maintain and use what you buy. For example, when you purchase a car, that is by no means the end to all car-related expenses. You won't get more than three hundred miles before the gas tank needs filling; oil changes, new tires, various filters, belts, hoses, taxes, insurance...all of this contributes to the total cost of owning the vehicle and we haven't even touched upon unscheduled problems. A garden-variety subcompact costing you $18,000 at the dealer could really cost you $21,000 in the first year. Eventually, if you hold on to the car long enough, your total after-purchase expenses will eclipse the actual value of the car.
The same logic applies to technology investments, whether tangible items like servers, routers, cabling; or software items like operating systems, productivity software, and so forth. Technology items tend to defy more than comply with common-sense purchasing laws. Herein lie some of the most frequently-overlooked myths of TCO.
First, let's start with what would seem like a no-brainer: free software. Today, a variety of free operating systems like Linux and free productivity applications like StarOffice are available if you know where to look. With Microsoft Windows costing over $200 and Microsoft office over $500, the TCO decision for what to buy would seem to be a foregone conclusion -- but is it?
Many of these alternative productivity suites have difficulty importing and exporting files used in Microsoft Office. Further, their user interfaces are unique enough from Microsoft Office such that users will likely require additional training and a temporary drop in productivity is experienced as users become familiar with the new program. Saving a few hundred dollars on software suddenly begins to look very expensive.
Smart organizations will extensively test and quantify these issues before settling on an alternative to the mainstream. As a counterpoint, mainstream software programs tend to be targeted more often by hackers and viruses, meaning additional security costs should factor into the formula of determining the TCO.
Second, let's consider the more expensive hardware costs--a $500 computer or a $2,000 computer? Despite what the numbers look like, the $500 computer is likely to cost you more in the long run. Again, the automotive analogy is applicable. You can purchase a used car for next to nothing, but if it continually breaks down and must be repaired, you're actually worse off than if you'd spent a little more up front on a more reliable vehicle. Cheaper hardware has a tendency to be on the trailing edge of the technology curve, meaning it will become obsolete faster and require replacement sooner than a more current model. Going to the opposite extreme is no better. Top-end models cost disproportionately more than midrange systems, yet rarely stay "top-end" for long. Shrewd purchasers avoid either extreme, opting to buy systems rooted firmly in the midrange "value" category.
Last, learn to disregard hype. In the technology industry, it's become "vogue" to have the "latest and greatest" of anything. Software and hardware makers know this and continually push their wares and their "new and improved" versions. Are the improvements detrimental to your organization? A piece of software that both includes useless new features while complicating old, reliable features represents a double blow to TCO. A computer that runs twice as fast as the model it replaces doesn't mean the individual can do twice as much work; the computer just ends up waiting twice as often for that same, slow human to press a key or click a mouse. As in all cases, it is extremely important to thoroughly research how any new purchase will affect your organization--both positively and negatively--then you can make an informed choice. Price tag alone is not enough.
Ultimately, determining the TCO of any given item depends upon careful research of all variables involved in a purchase, not just the initial purchase cost. In almost all cases, the TCO of any purchase will greatly exceed the initial purchase price within the first five years. Translation--TCO, not purchase price, is the most important metric when determining what to buy. Carefully researching a purchase by conducting tests and pilot programs of new hardware and software before committing can ensure your hard-earned revenues are being spent wisely.
