Business success requires close monitoring, examination and optimization of all expenses. There are both obvious and anticipated expenses and other less intuitive expenses. It is easy to know the upfront costs around the time you initially purchase an item. However, the initial price tag does not reflect the total costs related to ownership. The initial price tag might only be a small portion of what the item actually ends up costing you over the long term. This is particularly true when it comes to software and hardware purchases. This is an area where you need to calculate the total cost of ownership, which reflects the real life costs from purchase to disposal.
Total Cost of Ownership (TCO) is a financial estimate used to calculate the direct and indirect costs associated with the purchase and ownership of something over time. In IT, TCO is a comprehensive assessment of all your IT costs and specifically includes hardware and software acquisition, management and support, communications, end-user expenses, opportunity cost downtime, training, and other productivity losses. Simply put, it is the sum of all possible costs related to buying and owning a product. TCO also evaluates the costs associated with software and hardware over the duration of their lifecycle. This includes implementation and maintenance.
The proper calculation of TCO is vital to businesses as it not only factors in the immediate costs of ownership, but it also estimates and tracks the long-term costs. If not initially prepared for, these costs can result in unwelcome financial surprises. TCO is critical for any return on investment (ROI) analysis.
In addition, total cost of ownership provides insight into which software investments are the most beneficial for your business growth. It is better to be aware of the full costs up front rather than finding yourself having to invest more money and time into making a switch to another software package a few years down the road. The TCO of software is much more than the ticket price. It includes:
When performing a TCO analysis, there are 3 broad categories of costs to take into consideration.
These are the most immediate and therefore the least surprising costs associated with ownership. They can be broken down into the following specific costs:
These costs span the lifecycle of the software and include:
Does running this software require additional staff or support? This includes hiring in-house consultants or having a third-party consultant to manage your software. You may need professional and knowledgeable training to use your software to boost operations and functionality and to help you achieve your goals. Consultants are also on top of trends and changes in the industry and can help your business stay ahead in a fast-changing market.
The initial price tag might only be a small portion of what the item actually ends up costing you over the long term.
When thinking about hardware, which can include desktop computers, laptop computers, switches, routers, phones, devices, wireless and security appliances, etc, the total cost of ownership may also depend on what company you choose as a partner. Some of the costs will be similar to those associated with software, while other costs will be completely unique. For example, how much power does it take to run the hardware? What is the cost of disposing of a computer? Total cost of ownership goes up again. Here are some examples of the costs related to owning hardware.
Determining TCO is not intuitive. Before making your next software or hardware purchase, seek expert advice to help you determine your total cost of ownership related to the purchase.
If you are buying new hardware or software, get in touch with CITI. We are a reseller for the best-known brands in the world, including HP, Dell, IBM, Samsung, Lenovo, and Apple. Before you buy, we will calculate your TCO so you make the best decision.