IT BUDGETING

Server TCO: The Price Tag Is Just The Beginning

TCO Caveats

In the 1980s, an analyst firm made a big splash by applying TCO to computer use for the first time. It decided that each desktop computer owned by a corporation cost that organization about $10,000 a year (again, mostly for support). The shock waves caused by the announcement that the purchase price was a fifth of the total cost remain with us, and made TCO part of the IT management lexicon.

Not everyone is happy about that. The TCO calculation and methodology has three major weaknesses:

1. No standard way of assessing it. You are on your own when you undertake a TCO analysis -- you must decide what is reasonable in your situation. Therefore, your results may not be comparable with anyone else's.


2. The T in TCO. If you accept that you need to establish total costs, then you have to cast a wide net. All related costs should be included. Some of the required data points are obvious, but some are obscure. Many are not specific to IT, and even when actual amounts can be established it can be hard to separate the IT portion from the portion devoted to the rest of the enterprise.
   
   A list of possible costs, culled from various sources, in descending order of apparent relative obscurity, includes 26 different items. While you may not want to chase them all down, they are worth thinking about when comparing servers.
   
   Server TCO Elements (in descending order of obscurity):
   
   
   1. Hardware purchase price.
   2. Software purchase price.
   3. Purchased warranties.
   4. Maintenance contracts.
   5. Installation costs.
   6. Networking hardware (cables, routers, etc.)
   7. Finance charges.
   8. Consultants.
   9. Infrastructure (tables, racks, enclosures, etc.)
   10. Support personnel, salaries.
   11. Support personnel, training.
   12. Networking services (Internet service, phone lines, etc.)
   13. Security.
   14. Insurance.
   15. Direct power costs, to run the computers.
   16. Indirect power costs, for cooling and lighting.
   17. Floor space.
   18. End-of-life disposal costs.
   19. Backup efforts.
   20. Auditing.
   21. Assessment management.
   22. Executive time spent on managing technology.
   23. Disaster recovery planning.
   24. Downtime and its affect on productivity.
   25. Economic impact of security breaches.
   26. Opportunity costs (such as the interest lost by not leaving the money in a bank.)
       
       Some of these figures will end up being estimates, even guesses, and could be arbitrarily large or small. Many costs (such as power) may not be paid directly from the IT budget.
       
       And, with so many data points, it is easy to play with the numbers until they say anything you want them to say. On the Web, you'll find scads of vendors offering TCO calculations demonstrating the superiority of their system, gadget, or philosophy (Microsoft, for instance, can show that Linux has a higher TCO than Windows Server, despite being free.).
   
   
   
3. The problem that triggers the most complaints is that TCO emphasizes costs over benefits. Under TCO, the lowest-cost solution is to do nothing and spend nothing.

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