Total cost of ownership
When companies make decisions about their IT investments, one of the most common problems they encounter is the seemingly simple issue of how much does it cost? Most of the time, it is easy to calculate the purchase price of the hardware or the license fees for the vendor's software. IT projects typically include the costs of conversion to the new hardware or software. But when the analysis stops at that point, companies find themselves wondering why, even after successful project implementations, their IT operations, support and software maintenance costs keep going up. ?
| The reason, of course, is that there are many hidden and ongoing costs that frequently are not considered when a project is originally proposed. Because this issue is so pervasive, a discipline and methodology has been developed called total cost of ownership (TCO) that is designed to properly state the costs of an IT investment. |
| Therefore, simply stated, Total Cost of Ownership (TCO) consists of the costs, direct and indirect, incurred throughout the life cycle of a technology investment, it includes the initial cost of acquiring software (purchase price or license fees), hardware costs, installation costs (staff time or consultant costs), end-user training costs, and the cost of maintaining the software (annual maintenance fees, support costs, and upgrade costs). |
| We consider direct costs to include hardware, software, operations and administration costs while indirect costs may be end-user operations and downtime costs. All of the direct and indirect costs are compiled, computed on an annual basis and then totaled to provide the total cost of ownership. |
| Research has shown significant TCO savings when using Open Source Software platfoms in comparison to Microsoft Windows platforms. |
| Amazon.com for example was able to cut $17 million in technology expenses in a single quarter, largely due to a switch to Linux. Amazon spent $54 million on technology and content expenses in its third quarter (ending Sept. 30 2003), compared with $71 million in the year-ago quarter, and executives expected that technology costs as a portion of net sales would decrease by 20% this year. More>>>: http://news.com.com/ |
