Computers are steadily getting cheaper while IT budgets demand more and more resources, a financial puzzle that can be solved with Total Cost of Ownership. Imagine if you could flip the price tags of new hardware and software over to see their real cost to your company. The business class desktop with the reasonable US$1,500 price tag might turn out to be a whopping US$20,000 over a four-year lifespan.

Total Cost of Ownership was initially a controversial financial model developed by Gartner, a technology research company. After more than a decade, it's become a standard method of evaluating the financial impact of technology. There is still controversy over comparable TCOs, such as whether Windows, with its greater market share, offers a better TCO than Linux with its lower initial price. Relying solely on vendor TCOs is as useful as relying on vendor advertising, but independent comparisons can offer a realistic estimate of a new technology's cost and worth.

The TCO of a company is calculated by aggregating the TCOs of all the IT assets of that company on an annual basis. Each asset's costs, both direct and indirect, are estimated throughout its full life cycle, and then divided for an annual TCO. Gartner's TCO studies have repeatedly shown that the sticker price of technology is a fraction of the true total costs.

Direct costs
Hardware	The initial purchasing price and full leasing costs, divided by the asset's expected lifespan until replaced, not its actual working life. One recent Gartner TCO study, "PC TCO Revised for Longer Life and New Technologies", showed that the associated costs of a desktop PC beyond the first three years outweighed the costs of a new notebook.
Vendor maintenance contracts	Unlike flat plans, per-usage and pro-rated plans need to be estimated against comparable equipment's maintenance needs.
Spare systems and spare parts	The estimated cost of spare parts not covered by warranties and vendor maintenance contracts, as well as hardware and software backup systems.
Supplies and materials	The estimated annual cost of items such as toner and cabling wires.
IT staff salaries	Salaries and associated costs for all IT staff, including help desk support, outsourcing and consultants.
Network and telecommunications costs	Individual networking costs, if not included in a separate network TCO, such as wireless connections for laptops and home dial-up accounts.
Office facilities and equipment for IT staff	The initial purchasing or leasing price of office space and equipment used by IT staff. Factor in trade shows, client-based work sites and other out-of-the-office working expenses.
Administration	A proportion related to the IT staff headcount percentage for finance, HR, administration and procurement.
IT training	For both IT staff and end users. If in-house, the estimated cost by productive hours or as outsourced.
Indirect costs
Support	Either the full cost of the IT helpdesk, or the proportion spent wielding IT-related queries.
End user operators	End users, frustrated by an ineffective support structure, often train and organize themselves into an unofficial support system for their own department. This can make a non-functional help desk appear effective, but in the long term, resources are misdirected and wasted. Interviewing and cataloging each department's support process can reveal these people and uncover the limitations of the help desk.
Downtime	Planned maintenance such as upgrades, as well as a reasonable estimate for unplanned downtime due to viruses etc. when end users are unable to work.
Futzing	Not widely accepted yet, this new category covers time and resources wasted when end users spend non-productive time on IT equipment, such as surfing the Web or playing games.

Should the desktop stay or should it go?

The TCO answer to the debate over desktops versus notebooks is not an easy one to answer, but Gartner provides some hints. Typically, notebooks are more expensive initially, have a shorter lifespan, and are easier to damage. They are also more difficult to upgrade and may require wireless or mobile connections which are more expensive than permanent networking.

The research firm divides notebook users into two categories. "Road warriors" spend most of their time out of the office, while "day extenders" use their notebooks chiefly at their desks. Road warriors have a higher associated TCO of up to 68 percent more than a comparable desktop, in part because their equipment is more vulnerable as it gets moved around and they cannot take easy advantage of office facilities and support. However, there is no choice for a traveling salesman who must have a laptop.

Therefore, it is the "day extenders" for whom TCO analysis is the most useful. Gartner places their TCO costs at as little as a 20 percent premium on similar desktop users.

That said, laptops have one great advantage over desktops. Their portability allows employees to bring work home easily and encourages them to make use of time away from the office productively. Depending on the end user's salary, the extra hours that a laptop offers can quickly match the higher TCO incurred. The higher the salary, the more sense it makes to go mobile. At least at management level and above, a laptop's higher TCO can make sound financial sense.

Back to Special Report Home