Total Cost of Ownership

Page 1

TechSoup.org

Total Cost of Ownership

The hidden costs of technology
By: Marc Osten
May 2, 2001
A small nonprofit decides to develop a Web site. Ten thousand dollars later, with the site up and running, the
organization realizes that it has neglected to allot funding for the editing software, high-speed Internet access,
and staff time and training to update the site.
Unfortunately this organization has not fully considered all of the critical elements of operating the Web site.
This scenario reflects a common challenge when planning and budgeting for technology of any kind--including
the many different components (see list below) of owning and operating technology. How do you determine the
total cost of ownership ( TCO) ? Think of the components as a whole unit and plan to move on all TCO areas
rather than concentrating on one. Smaller steps taken in all the TCO areas simultaneously will have a more
sustained and positive impact on your organization's technology culture than major advances in one. Moving in
one area assertively, like buying lots of new hardware or instituting a major training initiative, may generate a
burst of enthusiasm but cause problems if other areas are out of sync.

The Components of Owning and Operating Technology

Strategic Planning for Technology: Technology integration is complex and requires investments to plan
for the alignment of technology initiatives with your mission. Start by getting stakeholders involved in
assessing your current technology status and then strategize on what steps to take. You might need to hire a
facilitator to assist you, and count on spending time discussing your assessment results and plotting an action
plan for future technology actions. In the above scenario, if the nonprofit spent time planning strategically for
its Web site development, it would have been better prepared for the full range of management challenges
that go along with launching a Web site.

Training: Budget time for staff training, but make sure that training is task-specific and has immediate onthe-job application. Short, 15 to 30 minute mini-lessons are more valuable than hours of software training.
Also, consider identifying staff members who are interested in being mentors for other personnel, perhaps
even paying them a stipend for their services. Our scenario would read much differently if at least one staff
member had been trained in editing Web pages.

Hardware technical support: Assume that machines you buy will work, but budget for network and PC
support in case they don't. Don't be surprised if you have to spend close to $300-$500 per year per PC on the
network. You can secure a contract with a PC repair service or vendor that charges by the hour or charges a
flat annual fee. For example, some national vendors such as Dell and Gateway offer extended service packages
on new hardware purchases. Either way, hardware technical support should appear as a line item in your
technology budget.

Software: If you have lots of different software running on different computers, incompatibility will cost you
time and money in constant upgrades. If you have standardized software running throughout the organization
your upgrades will be easier to facilitate and save you time. You will still have to spend money occasionally to
upgrade and to have a technical expert customize and test the software, but uniformity will generally lead to
quicker and cheaper problem solving. When you buy new computers, if they come with preinstalled software,
make sure to choose older versions that are compatible with your existing computers. Returning to our
example, having the correct editing software would reduce the time and effort of updating Web site content.

http://www.techsoup.org/learningcenter/techplan/page4761.cfm

12/07/2006 11:56:18 AM

Total Cost of Ownership

Page 2

Replacements--Computers don't last forever. Count on replacing them every three or four years. Prices these
days range from $700 to $1,000 for a network ready PC. Getting on a hardware cycling schedule will also help
reduce hardware technical support costs since your PCs will never be more than four years old.

Connectivity: You can realize the power of computing when your PCs are networked in-house or through the
Internet. The number of connections and the speed are two key things to consider here. When you do any
wiring or purchase any network hardware, think ahead and assume that you'll have more people on the
network in the future. The up-front expense of using high-speed networking (100 million bits per second-MBPS) and Internet ( DSL or cable) connections will always save you money in the end. Again, in terms of the
investment of staff time and effort, the nonprofit in our scenario would benefit from a faster Internet
connection when uploading documents to their Web site.
In sum, the best way to avoid mistakes in technology implementation is to consider the total cost of ownership
and plan accordingly. In addition, it is important to assess the value that technology can have for your internal
operations and programs. Combining the financial and human resources necessary in each of the categories
listed above will give you a sense of the TCO in a particular technology tool or strategy.
Adapted by the Summit Consulting Collaborative from Taking TCO to the Classroom, Consortium for School
Networking.

Additional Resources
For additional technology planning resources, see the Summit Consulting Collaborative site.
Dempsey, Jed, Robert E. Dvorak, Endre Holen, David Mark, and William F. Meehan III. 1998. "A Hard and
Soft Look atIT Investments." McKinsey Quarterly 1: 126-137.
The Consortium for School Networking has a section on TCO.

About the Author:

Marc Osten is Founder of Summit Collaborative http://www.dotorgmedia.org/.

Copyright 2001 CompuMentor. This work is published

under a Creative Commons Attribution-NonCommercialNoDerivs 2.5 License.

Creative Commons Logo, Some Rights Reserved

(http://www.techsoup.org/learningcenter/techplan/page4761.cfm)

http://www.techsoup.org/learningcenter/techplan/page4761.cfm

12/07/2006 11:56:18 AM