Why TCO is more important than you think

IT costs often hidden and poorly accounted for

When calculating total cost of ownership, the price you pay vendors for IT products is just the tip of the iceberg.

Per-user TCO is about 4.5 times higher than the actual price of hardware and software in typical scenarios, when factoring in users who provide informal IT support, administration, downtime and operation costs. That's according to research issued last November by Gartner, which has written extensively about TCO.

TCO is a mix of direct and indirect costs, related to both assets and tasks. Nearly half of a typical TCO is from users who perform informal technical support, perhaps due to an IT staff shortfall, Gartner said in a report in February.

Gartner said these "end-user operation costs" tend to be hidden, unbudgeted and poorly accounted for. But labor costs can be reduced by making strategic investments in operation assets, such as help desk automation, systems management tools and updated operating systems.

A thorough analysis of these factors can help an IT department build the business case for new products and upgrades.

"Infrastructure and operations funding is hard to justify and obtain. The dynamics of TCO can dramatically improve the business case for such investments when indirect costs are considered," Gartner's Lars Mieritz and Bill Kirwin wrote. "As complexity and labor costs go up, service levels suffer, particularly if there is a lack of capital investment."

Gartner definesTCO as the "holistic view of costs across enterprise boundaries over time." The definition has changed over the years to include non-IT costs that can be related to IT, such as human resources and facilities.

"Think of TCO as a matrix of nouns and verbs. Nouns are the assets, like hardware and software. Verbs are things that need to be done to keep the assets running," Gartner states. "To execute a TCO analysis, each IT asset (noun) is loaded with corresponding labor costs for administration, support and contract fees (verb)."

The first part of the equation is the capital investment in hardware and software. A PC running Windows XP might cost US$2,100 and last three years, thus costing US$700 per year.

But labor cost is the largest portion of TCO, and the most manageable, Gartner says. If you have 100 servers that have to be rebooted 100 times each per year, and it takes a half hour to reboot, the labor costs wasted on this task could equal 35 percent of a full-time employee's salary, according to Gartner's analysis. Capital investments that make the rebooting process automatic and transparent greatly reduce this cost.

Indirect costs balloon when users perform IT operation tasks, such as peer support, formal and informal learning, and local data and file management, Gartner says.

Recognizing that users are sometimes forced to perform IT tasks might provide fuel for an argument that the IT staff should be expanded.

"The undocumented head count in user operations is an opportunity to increase IT operations head count to reduce the workload of end-user IT operations," Gartner writes.

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