Page 1Total Cost of Ownership

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Strategic Planning for Technology:

Training:

Hardware technical support:

Software:

Total Cost of OwnershipThe hidden costs of technologyBy: Marc OstenMay 2, 2001

A small nonprofit decides to develop a Web site. Ten thousand dollars later, with the site up and running, theorganization realizes that it has neglected to allot funding for the editing software, high-speed Internet access,and staff time and training to update the site.

Unfortunately this organization has not fully considered all of the critical elements of operating the Web site.This scenario reflects a common challenge when planning and budgeting for technology of any kind--includingthe many different components (see list below) of owning and operating technology. How do you determine thetotal cost of ownership (TCO)? Think of the components as a whole unit and plan to move on all TCO areasrather than concentrating on one. Smaller steps taken in all the TCO areas simultaneously will have a moresustained and positive impact on your organization's technology culture than major advances in one. Moving inone area assertively, like buying lots of new hardware or instituting a major training initiative, may generate aburst of enthusiasm but cause problems if other areas are out of sync.

The Components of Owning and Operating Technology

Technology integration is complex and requires investments to planfor the alignment of technology initiatives with your mission. Start by getting stakeholders involved inassessing your current technology status and then strategize on what steps to take. You might need to hire afacilitator to assist you, and count on spending time discussing your assessment results and plotting an actionplan for future technology actions. In the above scenario, if the nonprofit spent time planning strategically forits Web site development, it would have been better prepared for the full range of management challengesthat go along with launching a Web site.

Budget time for staff training, but make sure that training is task-specific and has immediate on-the-job application. Short, 15 to 30 minute mini-lessons are more valuable than hours of software training.Also, consider identifying staff members who are interested in being mentors for other personnel, perhapseven paying them a stipend for their services. Our scenario would read much differently if at least one staffmember had been trained in editing Web pages.

Assume that machines you buy will work, but budget for network and PCsupport in case they don't. Don't be surprised if you have to spend close to $300-$500 per year per PC on thenetwork. You can secure a contract with a PC repair service or vendor that charges by the hour or charges aflat annual fee. For example, some national vendors such as Dell and Gateway offer extended service packageson new hardware purchases. Either way, hardware technical support should appear as a line item in yourtechnology budget.

If you have lots of different software running on different computers, incompatibility will cost youtime and money in constant upgrades. If you have standardized software running throughout the organizationyour upgrades will be easier to facilitate and save you time. You will still have to spend money occasionally toupgrade and to have a technical expert customize and test the software, but uniformity will generally lead toquicker and cheaper problem solving. When you buy new computers, if they come with preinstalled software,make sure to choose older versions that are compatible with your existing computers. Returning to ourexample, having the correct editing software would reduce the time and effort of updating Web site content.

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Connectivity:

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Replacements--Computers don't last forever. Count on replacing them every three or four years. Prices thesedays range from $700 to $1,000 for a network ready PC. Getting on a hardware cycling schedule will also helpreduce hardware technical support costs since your PCs will never be more than four years old.

You can realize the power of computing when your PCs are networked in-house or through theInternet. The number of connections and the speed are two key things to consider here. When you do anywiring or purchase any network hardware, think ahead and assume that you'll have more people on thenetwork in the future. The up-front expense of using high-speed networking (100 million bits per second--MBPS) and Internet ( DSL or cable) connections will always save you money in the end. Again, in terms of theinvestment of staff time and effort, the nonprofit in our scenario would benefit from a faster Internetconnection when uploading documents to their Web site.

In sum, the best way to avoid mistakes in technology implementation is to consider the total cost of ownershipand plan accordingly. In addition, it is important to assess the value that technology can have for your internaloperations and programs. Combining the financial and human resources necessary in each of the categorieslisted above will give you a sense of the TCO in a particular technology tool or strategy.

Adapted by the Summit Consulting Collaborative from Taking TCO to the Classroom, Consortium for SchoolNetworking.

Additional Resources

For additional technology planning resources, see the Summit Consulting Collaborative site.

Dempsey, Jed, Robert E. Dvorak, Endre Holen, David Mark, and William F. Meehan III. 1998. "A Hard andSoft Look atIT Investments." McKinsey Quarterly 1: 126-137.

The Consortium for School Networking has a section on TCO.

About the Author:Marc Osten is Founder of Summit Collaborative http://www.dotorgmedia.org/.

Copyright 2001 CompuMentor. This work is publishedunder a Creative Commons Attribution-NonCommercial-NoDerivs 2.5 License.

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