The Savvy CIO

The basic piece of business technology is the PC: simple and inexpensive. When you purchase a $1,000 PC, you’re spending about 4% of the total cost of that machine over 5 years. In other words, maintaining, supporting and powering that PC for 5 years will cost your business nearly 25 times the initial purchase price.

Cost of a PC: $1,000
Total Cost of Ownership (TCO) over 5 years: $25,000

I know. Stunning.

TCO includes the costs you can see on your balance sheet (energy and internet, IT support, part replacement) and the costs you can’t (training for IT staff and users, downtime, user self-support, administration). You can imagine how TCO increases rapidly as the technology in question grows in cost and complexity.

Basing a technology purchase on initial cost can lead to a bad decision. A common rationalization for a big purchase is the false belief that once the high upfront layout is over, it won’t cost the company anymore: It’s free!

Free, in this case, is NOT free.

Technology decisions must consider total cost of ownership. TCO allows you to compare the various ways technology is offered: internal IT staff, outsourced IT consultants, capital purchases, software as a service subscriptions, etc.

The MaintainITProject has a list of core TCO questions to consider.

Good technology is unrivaled in its ability to improve business efficiency. The total cost of good tech is still worth it. But don’t be fooled by that attractive initial price tag and the promise of “free”. Know the TCO.

This entry was posted on Wednesday, May 13th, 2009 at 1:15 pm and is filed under Cost of Ownership (TCO), Strategy & Consulting. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.