The Problem with Total Cost of Ownership
The issue of Total Cost of Ownership (TCO) seems to come and go every few years. The need for it tends to ebb and flow with corporate budget cycles. TCO is perfectly fine for well-understood commodity functions or defined business processes. If I have to replace a server or a printer, or change a business process, TCO is a perfectly rational metric for comparing different alternatives.
When TCO calculations work, they tend to roll up within a single organization or manager. The hardware, the software, the installation, and the maintenance are under the domain of a single organization that covers the direct cost.
The problem with TCO arises when it’s used as a metric for justifying cross-functional or analytical systems. With these systems, the value isn’t delivering commodity processing but rather supporting decision making. TCO focuses on construction and maintenance costs. But for analytical systems, usage occurs across different organizations and varies with business value and need. TCO can in fact be misapplied.
At a simple level, TCO is often limited to processing hardware, storage, software, and IT resources necessary to configure and manage the platform on an ongoing basis. But this is usually limited to IT staff focused on system development and maintenance. Unfortunately the most expensive cost—not normally included in TCO calculations—is the business user’s time. While TCO quantifies costs for a data warehouse developer, there is no clear way to calculate costs for the dozens or hundreds of business users who are actually analyzing data and creating reports every day. The reality of analytical systems is that development continues every day on the business side.
Nevertheless it’s common for TCO calculations to be reduced to the cost of processing or storage, rather than reflecting the exponential costs of users circumventing slow-running queries and inaccurate data. At the end of the day, TCO shouldn’t only be about the cost of hardware and software installation and maintenance. It should be about the cost of continued business usage.
photo by -Luz- via Flickr (Creative Commons license)