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Tuesday, February 13, 2007

Why Total Cost of Ownership Matters

How are you going to react if I tell you that you'll end up spending 75 thousand bucks over 4 years on that li'l PC you bought a couple of days back for 30k? According to Gartner, nearly 80% of total costs occur AFTER the purchase of the unit! The decision to buy a computer may result in the following TCO analysis: the greater initial price of a high-end computer is to be balanced by adding likely repair costs and earlier replacement to the purchase cost of the cheaper bargain brand, among other factors. The initial price becomes just the beginning of the life cycle of costs. For more than 15 years, Gartner has counseled its business community clients to consider all costs associated with computing when making management decisions about computer acquisitions,upgrades, support and administration. As enterprises have begun to address the significant and rising costs devoted to computing infrastructure, the message has gained wide acceptance among technology users.

Total cost of ownership (TCO) is a financial estimate designed to help consumers and enterprise managers assess direct and indirect costs related to the purchase of any capital investment, such as computer software or hardware.

A TCO assessment ideally offers a final statement reflecting not only the cost of purchase but all aspects in the further use and maintenance of the equipment, device, or system considered. This includes the costs of training support personnel and the users of the system, costs associated with failure or outage (planned and unplanned), diminished performance incidents (i.e. if users are kept waiting), costs of security breaches (in loss of reputation and recovery costs), costs of disaster preparedness and recovery, floor space, electricity, development expenses, testing infrastructure and expenses, quality assurance, incremental growth, decommissioning, and more. TCO is a good metric for comparing the different operating system and server infrastructure choices which organizations face. A good TCO analysis should fit the business plan and identify the best solution to match the business goals.

4 comments:

aman said...

mere dabbe ka TOC calculate kar de!! naya lena hai!

Ashish said...

Aman,

The average lifetime of a system is about 3-4 years. You must have already spent over a hundred thousand bucks on your system ;-) Calculating the TCO of a system such as yours is more difficult than scaling the Everest :p

aman said...

haha! hundred thousand bucks??? if i had that much to spend on it, i would not still be sittin with this piece of crap dude! it's 4 yrs old and it's just had one RAM change and one motherboard change! not even 4k in total! if take the time i've spent on fixin it over n over, well i may well have spent a hell lot on it by now! :)

Marvelan said...

Fine information, many thanks to the author. It is puzzling to me now, but in general, the usefulness.

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