Gartner has published a lot of material on total cost of ownership (TCO) in last several years, and still a lot of businesses seem challenged by the concept. The most important element in the Gartner approach is to distinguish between budgeted and unbudgeted costs. With hardware and software, the budgeted costs may be just the tip of the iceberg. For instance, unbudgeted costs should include system downtime and could include employee training, system installation, deployment and day-to-day maintenance. Gartner has speculated in some of their reports that unbudgeted costs can be up to 4.5 times greater than the cost of acquisition. Those calculations are sure to give upper management pause as they consider new equipment acquisitions.
What it really boils down to and what you really need to understand before you make any acquisition is this: you can’t just look at hardware and software acquisition pricing to determine what fits into your budget. That $10,000 purchase of a piece of a CRM system could end up costing you an additional $60,000 in unanticipated integration costs, and that’s just to install it. And Gartner writes that one of the key determinants is complexity. The more complex a solution is to install, configure and manage, the more it will drive up your costs. The real demons in all of this mess are the costs you can’t anticipate.
It’s not all bad news though, because with a little planning TCO can be a reliable tool with which you manage your IT budget, resource planning and other expenses.
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