How to Calculate Your Server TCO?

With the current focus on fiscal responsibility and due diligence, CIO’s and IT executives have indicated that more than 80% of current IT purchases require financial analysis for justification. In an effort to to justify the use of server virtualization platforms, I devised a model for assessing the 'Total Cost of Ownership' (TCO) of any production (server) environment. TCO analysis for the server park should ideally be done for a period of 4 years since the estimated lifetime of a server is 4 years. Yearly / monthly TCO can thus be obtained to get a fair idea of how much is being spent yearly / monthly. Following are the major points on which the TCO calculations are based:

Hardware Costs

• Cost of physical servers
• Cost of processor/RAM upgrade
• Cost of extra storage devices
• Cost of SAN
• Cabling cost
• Cost of racks

Software Costs

• Cost of OS
• Cost of anti-virus s/w
• Cost of backup s/w
• Cost of server management software (NetIQ etc.)
• Cost of other softwares

Vendor Support

• Cost of service agreements
• Cost of warranties

Setup & Maintenance

• Cost of setup of servers
• Cost of installation
• Cost of maintenance
• Cost of training
• Cost of consultancy

Facility Costs

• Power & cooling costs
• Flooring costs

The TCO thus calculated may then be used to model typical data center strategies and best practices of specific alternative server and operating system solutions. The calculations should be performed using comparable competitive scenarios.

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.