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Total Cost of Ownership TCO of IT

Written by: Linda Jacobson

Article Overview: Business owners too often don't factor in the total true costs of IT assets. Indirect, or "hidden", costs (lost productivity) are frequently higher than the more obvious direct costs (hardware, software and support). Detailed TCO calculations aren't practical for small businesses, but it's feasible and, we'd argue, critical, to understand and apply the general concepts of TCO. This topic is the first in our 2009 whitepaper series: "Making every IT dollar count!" The full whitepapers are available on our website.

Total Cost of Ownership TCO of IT

Total cost of ownership (TCO) includes the direct and indirect costs over the lifecycle of an asset.

The biggest direct IT costs are hardware, software and support. The purchase price of hardware and software is typically less than 50% of the total direct costs.

Indirect, or "hidden", costs are incurred through lost or reduced productivity resulting from downtime, informal peer support, suboptimal performance and other causes of poor functioning or wasted time. Indirect costs can account for more than half the TCO. Despite this, they are often totally overlooked.

Costs can be reduced and productivity increased by proper planning and management.

Detailed calculation of TCO doesn't make much sense for most small businesses, but understanding the true costs, their relative importance and how they can be contained, is critically important.

Decision-makers must always balance the costs of a system versus the benefits it brings to the business and the end users. "Cost is what you pay. Value is what you get." (Warren Buffett).

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Article Tags: cost of ownership, decision makers, direct and indirect costs, downtime, end users, hardware software, informal peer support, lifecycle, productivity, relative importance, small businesses, tco, true costs, warren buffett



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