Total Cost of Ownership, what is it ? and why do we need to know more about it.


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This is a brief presentation about TCO, a subject that should be addressed by all CIO's. A lot of savings can be realized when one gives TCO a careful look ..

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Total Cost of Ownership, what is it ? and why do we need to know more about it.

  1. 1. Ashraf OsmanOctober 2012
  2. 2. Total Cost of Ownership, AKA ,True Cost to Own General definition: Estimate of all direct and indirect costs associated with an asset or acquisition over its entire life cycle. Depreciable life (The number of years over which an asset will be depreciated). Economic life ( he number of years in which the acquisition returns more value to the owner than it costs to own, operate, and maintain). Service life ( The number of years the acquisition will actually be in service).
  3. 3.  Budgeting & planning. Asset life cycle management. Prioritizing capital acquisition proposals. Vendor selection. Lease vs. buy decisions. Identify "hidden" costs of ownership. Put the spotlight on potential cost problems before they become problems. Know the service provisioning cost(chargeback)
  4. 4.  Responding to growing dependence on IT, the UK Governments CCTA ( Central Computer & Telecom. Agency) in the 1980s recognized that without standard practices, government agencies and private sector contracts had started independently creating their own IT management practices. Information Technology Infrastructure Library ITIL was created and ITIL V1 was published 1989-1996 in 30 books. ITIL V2 was published 2007 ITIL V3 was published 2010 CCTA became OGC ( Office of Government Commerce) then became part of UK Cabinet. ISO20000 is the International ITIL compliance standard for any IT facility aiming at performance excellence.
  5. 5.  ITIL is a set of procedures to handle situations that any IT organization would come in contact with. Using a series of check lists, tasks and procedures, an IT organization can take what is available to it and implement it in such a way that ensures the company’s success.
  6. 6.  Service Desk/Service Request Management Incident Management Problem Management Change Management Release Management Configuration Management Service Level Management Capacity Management Continuity Management Availability Management AND …
  7. 7.  Financial Management ITIL Financial Management is about getting the job done within budget. Budgeting: ◦ Predicting how much money is needed to deliver and support IT services Accounting: ◦ Keeping track of where, when, how much and by whom the money is being spent. Charging: ◦ Optionally recover (some of) the money incurred.
  8. 8.  Initial hardware Initial software Implementation, including system downtime Management Research of vendors & contracts Service Support & training Administration Upgrades & related re-training Capital purchases Direct and indirect labor Subscriptions System integration Maintenance
  9. 9. Software Staff Infrastructure Services OtherAcquisition DBA Server SW Implementation Cost of capitalImplementation Sys. Admin. Server OS Data conversion Third party content (clinical decision support)Maintenance LAN/WAN Workstations Interfaces DowntimeReporting PC support Data center Education Service disruptionUpgrades Communication H/W maintenance Project mgmt. Energy consumptionThird party content Temporary Internet Upgrade support Comm. Lines cost(clinical decision manpowersupport)BI Analytics Hiring cost Remote admin. Upgrade re- training Employee churning Server Maint. Employee ramp-up HW renewal Security
  10. 10. Real life example of actual operational savings. Source International Technology Group ITG
  11. 11. IT services company
  12. 12. Manufacturing company
  13. 13. Distribution company
  14. 14. Retail company
  15. 15. Real life example of actual operational savings.
  16. 16. $ in 1,000s Acquisition Operating Change Total % of Costs Costs Costs TCO Software 274 82 138 494 2.9% Hardware 539 97 71 707 4.1% Personnel 55 8,873 5,952 14,879 86.2% NW & Comm 146 543 459 1,149 6.7% Facilities 0 15 15 29 0.2% Total 1,104 9,610 6,634 17,258 —% of TCO 5.9% 55.7% 38.4% — 100.0%
  17. 17. $ in 1,000s Acquisition Operating Change Total % of Costs Costs Costs TCO Software 444 121 220 785 5.5% Hardware 874 222 122 1,218 8.5% Personnel 188 5,699 3,925 9,812 68.8% NW & Comm 255 1,082 892 2,229 15.6% Facilities 60 46 106 212 1.5% Total 1,821 7,170 5,264 14,256 — % of TCO 12.8% 50.3% 36.9% — 100.0%
  18. 18. $ in 1,000s Acquisition Operating Change Costs Costs Costs Software 170 38 83 Hardware 335 125 51 Personnel 133 (3174) (2027) NW & Comm 109 539 432 Facilities 60 31 91
  19. 19.  IBM proposes to conduct a TCO workshop at no charge on KFSH. At the end, you will understand the costs of operating your mainframe or distributed platforms for business applications over a period of five years.
  20. 20.  Project preparation ◦ The IBM TCO team works with KFSH IBM account team to prepare for the on-site customer meeting, gathering information in advance to minimize time requirements. On-site Customer Meeting ◦ Gathering business information (business goals, growth strategies, current costs and pricing information. ◦ Gathering of technical information (details and costs of current IT infrastructure, applications, workloads, utilization, quality of service requirements, and approaches under consideration for improving the IT infrastructure. Report Preparation ◦ The report is prepared offsite by IBM (in approximately two weeks), during which time the customer is available for phone/email consultation and clarification. Report Presentation ◦ In a follow-up customer meeting, the IBM team will deliver the final report to include all inputs, assumptions and the financials, reflecting key operating costs for all alternatives discussed. The full analysis is made available to you.