Total Cost of Ownership

Total Cost of Ownership

Regardless of the objective of the analysis, several mandatory elements must be included for the analysis to qualify as a Gartner TCO:
• Identify the domain or activity for which an annual TCO is required (for example, distributed computing, telecommunications or data center), or to make a specific decision, such as, “Will server consolidation really save us money?”
• Develop a chart of accounts, which is a list of cost elements that refers to TCO as
defined above. For IT costs, this must include or evaluate the following:
• Direct cost elements relating to assets or activities that are relevant to the analysis;
for example:
• Client, server, storage and all peripheral hardware costs
• Software and related support costs
• Maintenance and development costs
• Networking and communications costs
• IT operations and support costs
• Associated indirect cost elements — for example, labor costs associated with the end user’s use of an asset or activity, and any subsequent downtime involved.
• Ensure that the chart of accounts contains cost elements that satisfy the TCO definition’s criteria for “holistic view” and “enterprise boundaries” — that is, taking a wider view of costs than normally occurs. Rather than simply being concerned about identifying and listing the costs within a specific function or department, the chart of accounts must also contain cost elements or cost categories that could be affected by activities or changes in the domain. For example, the chart of accounts for a help desk TCO may include cost elements outside of IT operations or IT support. Limiting the chart of accounts to cost elements only contained within IT operations is misleading, because help desk users incur a cost in the form of time spent and, thus, opportunity lost. Indirect costs may be associated with other departmental budgets, but they are still part of a properly constructed TCO. It’s easy to turn a blind eye to such costs — for example, assuming that they’re too small to be relevant, while ignoring the multiplication factor caused by the many individuals who are involved.
• Review the chart of accounts to ensure that all of its elements represent an annualized view of the TCO in question. The chart of accounts should contain details on critical affecting factors (such as depreciation periods) because these will significantly affect any annualized view.
• Review all chart-of-accounts elements to ensure that critical cost elements have been included and don’t overlap, thus avoiding double counting.
• Collect and validate information regarding the costs and other data required to populate the chart of accounts. Use the enterprise’s financial management system, asset management system and HR records to detail unit costs, and use survey questionnaires to establish people’s use of time.
• Amortize all cost elements in the chart of accounts during a specified time period (such as annual, quarterly and so on). For example, a server with a three-year depreciation period would be included in the chart of accounts as one-third of the total server cost.