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    Tco1 Tco1 Document Transcript

    • A TriActive White Paper Calculating Your Total Cost of Ownership (TCO) In today's IT world, all IT Managers need to know what the acronym TCO means and understand how their TCO number relates to the standards touted by the industry press. How do you REALLY calculate your Total Cost of Ownership for a desktop PC? Introduction As the manager of an IT organization, First, you have to take into account both how do you feel when you pick up the DIRECT and INDIRECT costs. Some latest edition of your favorite technical of the information may be difficult to publication and find an article about how find; we've provided some industry the total cost of owning a desktop PC in averages for those instances. an organization has recently risen by $1,000 per year? Do you feel excited DIRECT costs are relatively easy to enough to rush to your boss and show obtain. You should know from him that your operation is running $2,500 experience, or by talking with your under industry standards, and you expect accounting department, what your total a raise to reward you for your superb salary costs are, and how much you spend management skills? Do you scour the buying hardware and software. Your building and burn all copies of the article accounting department will also have in case anyone realizes that you're running information on how much depreciation is at $3,000 more than you should be? being charged to you or your user departments on your IT capital items. Chances are you do neither because you have no real idea what your Total Cost of INDIRECT costs are always difficult to Ownership is for your PC equipment. ascertain. It is virtually impossible to What may be even more unnerving is if track how much time your end users your boss reads the article before you do, spend fixing their computers in one way and then asks you what the TCO actually or another, unless you get everyone in the is in your company. company to keep detailed timesheets (and that's counter productive in itself!). For The purpose of this article, and the your indirect cost calculations, you may associated analysis tool, is to help you gain need to rely on your best estimate, or use real knowledge of everything that goes the industry averages which we provide. into a TCO calculation and then help you analyze what the actual number is for your Calculating Your TCO organization. Review the following information for details on what items are included in each calculation. Then, turn to the analysis tool
    • Your Total Cost of Ownership (TCO) Page 2 at the end of this article to find the TCO as possible, but not EXACT to the for your organization. nearest cent. Organization Statistics Direct Costs Before you start gathering detailed cost Hardware and Software information, there are three simple pieces of information you need to know: Hardware and software costs are the annual expenditures associated with all 1. How many PERSONAL purchases of client, server, network and COMPUTERS (PCs) do you have in peripheral devices and any related your company? software products. This category is for Unless you have a good hardware hardware and software expenses only and inventory system (which is an important does not include any IS labor fees. It is part of an asset management program), it essential to involve accounting and may be difficult to get a complete count, purchasing in accumulating the but you should attempt to get this with as information for this category. much accuracy as possible. Take into account ONLY those computers that are Hardware should include ALL (but not be accessed by end users, and do not include limited to) of the following items: PCs that are functioning as corporate • Desktops and mobile computers servers of any kind. This number should • Servers include any laptops that are used by end- • Peripherals user personnel, as well as any PC • Network communications equipment equipment used by internal IT staff. (hubs, routers, bridges and switches, etc.) • Memory 2. How many end users of PCs are • Storage devices there in the company? • CDROM drives This is not necessarily the same number as • UPS devices in question 1, as many companies have a • quot;Cards” of any kind number of users with two or more • Cabling computer systems. Software should include ALL (but not be 3. What is the average PC end user's limited to) of the following items: salary? • New and upgraded software for any You'll almost certainly have to get this client computer, server, peripheral and number from your accounting communication device department. You want to know what is • Operating systems the average salary of everyone in the • Off-the-shelf application software company who uses a computer, including such as word processors, all the executives, all the managers and all spreadsheets, etc. (This should NOT the sales staff. It's very unlikely that you include the costs for any internally developed have detailed salary information on all software, as this is covered in a later employees at your fingertips; so calculation.) accounting will probably give you their estimate. As with all statistical information, this needs to be as accurate ________________________________________________________________________ TriActive, Inc. September 2001
    • Your Total Cost of Ownership (TCO) Page 3 4. How much do you spend on 8. What are your annual hardware hardware expense purchases in an and/or software lease costs? average year? This should include any lease fees for Use the past 12 months of expenses on hardware, software or supplies. hardware to give you a reasonable idea of what you spend. Remember, however, Management and Staff that most large hardware purchases are generally counted as capital rather than Now it's time to figure out how much you expense items, and this question should spend on the people who manage your ONLY be answered with expense items. enterprise networks. The salary Capital items are included in the information should be as accurate as depreciation line of question 6. possible, and you should not worry about 'burdening' in overhead costs, as this is 5. How much do you spend on automatically calculated by the analysis software expense purchases in an tool. Just use total compensation, average year? consisting of base pay plus any bonuses Use the past 12 months of expenses on that employees may receive over the software to give you a reasonable idea of course of the year. If you expect to give what you spend. Remember, however, raises during the year, include the that most large software purchases may be appropriately prorated amount in the base counted as capital rather than expense salary. items, and this question should ONLY be answered with expense items. Capital 9. What is the total salary for each of items are included in the depreciation line the following categories (including of question 6. management staff)? If you have multiple offices with remote 6. How much is your annual employees, they should be included in depreciation on hardware and software these figures. Everyone who is part of the capital purchases? IT Infrastructure group within your Your accounting group will supply you organization should be in one of the with the depreciation charges for large following groups. If there are people in hardware and software purchases. other departments (such as purchasing) Depreciation typically uses a three-year, who spend a percentage of their time straight-line schedule for hardware and working on IT Infrastructure issues, then software. Occasionally, certain hardware their prorated salaries should also be items are depreciated over longer periods, included in the appropriate category. but this should be checked with your internal accounting group. We have tried to keep this section to a minimum number of categories, but be 7. How much do you spend annually aware that the following detailed list of on computer supplies? functions should be considered when Include the annualized expenses for all deciding who contributes to IT computer supplies used throughout the Infrastructure: organization, such as diskettes, CD- • Network Management ROMs, tapes, toner and other general • Troubleshooting and Repair disposable supplies. • Traffic Management and Planning • Performance Monitoring ________________________________________________________________________ TriActive, Inc. September 2001
    • Your Total Cost of Ownership (TCO) Page 4 • End User Administration Internal Training Personnel • Operating System Support • Maintenance Labor If you have dedicated internal training • Systems Management resources who allocate some or all of their • Systems Research and Planning time to providing IT training to • Evaluation and Purchase Infrastructure personnel or to end-user • Software Licensing and Distribution personnel, they should be included in this • Asset Management category. • Application Management • Security and Virus Protection IT Purchasing Personnel • Hardware Configuration • Hardware Installation/Disposal Many IT organizations don't have • Storage Management dedicated purchasing agents, but you should include a proration for purchasing • Disk and File Management personnel who are involved in the • Capacity Planning acquisition of IT equipment. • Data Access Management • Backup and Archiving General End-User Support Personnel • Disaster Planning and Recovery • Repository Management Include cost information for any • Outsourced Management Fees administrative staff who are involved in IT Infrastructure support, such as a Note that in the analysis tool, salaries are receptionist or secretarial staff. automatically increased by a 30% burden to cover insurance, benefits and Other Infrastructure-Related accommodation costs. Personnel Help Desk Personnel Anyone who works for the IT Infrastructure group who doesn't fit easily This includes all the people who staff your in the above categories should be included help desk, and all associated managers. here. Systems Administration Personnel 10. What are your annual travel costs for all of the above personnel? This includes all personnel involved in If any of the IT Infrastructure personnel keeping your computer systems, travel during the year for job-related applications and peripherals up and reasons, include all travel and running, including dispatched and accommodation expenses in this category. advanced support services (Tier 2 and Tier 3). 11. How much do you spend annually on consulting fees and/or professional Network Administration Personnel service fees relative to infrastructure and operations? This includes all personnel involved in keeping your networks up and running, A number of companies use specialized including dispatched and advanced consulting staffs for project or task-related support services (Tier 2 and Tier 3). reasons during the year. Any such ________________________________________________________________________ TriActive, Inc. September 2001
    • Your Total Cost of Ownership (TCO) Page 5 expenditures should be grouped into this Business Applications category. These are the programs that are primarily 12. How much do you spend annually used by end users conducting the main on outsourcing any of your IT business of the corporation. These operations? typically include such applications as If you outsource any of your IT accounting, order processing, sales, operations, such as using an ASP to payroll, inventory, and human resources. provide any of your IT services, use this category to record the costs. Infrastructure Applications 13. How much do you spend annually These are programs that do not directly on training for your IT Infrastructure impact the business of the corporation, personnel? but are used in the support of the system You have already accounted for any infrastructure. These include systems internal training staff activities in your management, communications software, response to question 9; do NOT include database software and office-productivity them in this category. However, if you suites. send your personnel to external training, or if you use an external resource to Depending upon the organization of a develop or deliver training courses for development department, some personnel ANY use within your personnel or end- may fit into more than one of the user community, include the costs in this following categories. If so, prorate their category. time to each category. 14. How much do you spend annually 15. How much do you spend annually on maintenance contracts for your PC on salaries in the following new equipment? application development areas? If you outsource the maintenance of any The salary information should be as of your PC equipment, then you should accurate as possible, and you should not include the annual fees in this category. If worry about 'burdening' in overhead costs, you pay these fees on a one-time basis for as this is automatically calculated in the multiple years, you should amortize the analysis tool. Just use total compensation, one-time fee during the analysis period. consisting of base pay plus any bonuses that employees may receive over the Development course of the year. If you expect to give raises during the year, include the Since we have already covered any appropriately prorated amount in the base hardware purchases in a previous section, salary. development costs consist of the annual labor and fees for the production and Design maintenance of all applications. There are two categories of applications that should The personnel involved in gathering user be considered: requirements, defining specifications, designing architecture, and prototyping a project. ________________________________________________________________________ TriActive, Inc. September 2001
    • Your Total Cost of Ownership (TCO) Page 6 Development 18. How much do you spend annually on leased lines? The personnel involved in the production This includes monthly, recurring costs for of the code for a project. switched and dedicated circuits, including 56k lines, ISDN, and T1 and T3 lines. Testing 19. How much do you spend annually The personnel involved in the on remote access communications? development of QA testing plans and the This includes costs for circuits used to execution of the testing. provide remote access to your LAN, any Web hosting fees, and Internet Service Documentation Provider fees. The personnel involved in configuration 20. What are your annual WAN costs? control and technical writing for This includes any long distance or applications. monthly usage charges allocated to the client/server network. 16. How much do you spend annually on salaries in the following existing Indirect Costs application maintenance areas? Indirect costs are those IT-related The categories here are identical to those expenses that are not budgeted and in the 'new' application development in invariably are unaccounted for by most IT question 15. This category covers those departments. The largest area within this personnel involved in the maintenance of category is typically the self-support and existing applications, rather than the peer support of end users. The activities development of new ones. performed by end users include debugging their own systems when errors occur, 17. How much do you spend on backup and restoration of valuable data consulting fees and/or professional files, file directory maintenance, casual service fees related to development computer learning during the work day, efforts? and end-user programming of minor (or This category should include any fees paid major) applications. to external organizations or individuals for any design, development, testing, or In attempting to reduce direct costs, a documentation work done in conjunction number of organizations will slash IT with new or existing projects. support budgets, without realizing that there will be a corresponding rise in Communications indirect costs as end users spend more time supporting themselves and their This category covers all annual expenses friends and colleagues. There is no really for voice and data communications lines accurate way to measure how much time and usage. end users spend on IT-related tasks without detailed timekeeping or statistically valid surveys. ________________________________________________________________________ TriActive, Inc. September 2001
    • Your Total Cost of Ownership (TCO) Page 7 For those of you without the time or 23. How many hours per month of resources to conduct lengthy in-house end-user productivity do you lose due surveys, we have provided some industry to planned or unplanned system and standards as guidelines in the appropriate network downtime? categories. Downtime expenses are a measure of the annual losses in productivity when end 21. How many hours annually does users cannot perform their jobs as the average PC user spend on planned due to the unavailability of their computer-related training? computers. This can be for a variety of When introducing a new end user to the reasons, such as: corporate computer systems, there is often time spent on in-house training. • Waiting for resolution of a help-desk Similarly, whenever a new application is problem introduced to the organization, all the end • A planned or unplanned system down users need to go through some kind of event training and familiarity program. These • Unavailability of one or more and other training times should be programs included in this category. • Server problems causing denied access to necessary data Our research has indicated that 40 hours per year is a reasonable number to use if Our research has indicated that 2 hours you are not sure, but this can be modified per month is a reasonable number to use as required. if you are not sure, but this can be modified as required. 22. How many hours annually does the average PC user spend on local file Comparison maintenance, end-user self-support, and end-user scripting of applications? After you have answered each question on This is the most difficult number to the following analysis tool with estimate without detailed studies and information about your organization, the surveys. Our research has indicated that annual Total Cost of Ownership for each 40 hours per year is a reasonable number of your PCs will be calculated and to use if you are not sure, but this can be displayed. The current average is around modified as required. $10,000 per PC per year. How do YOU compare? Copyright © 2001 by TriActive, Inc. All rights reserved. Any reproduction or redistribution of this information beyond your organization without the written consent of TriActive, Inc. is strictly prohibited. ________________________________________________________________________ TriActive, Inc. September 2001