total cost of ownership mis-fall 2009 compiled by amina tariq

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TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

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Page 1: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

TOTAL COST OF OWNERSHIP

MIS-Fall 2009

Compiled By Amina Tariq

Page 2: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 20092

What is TCO? Total Cost of Ownership (TCO) is defined as all

of the possible costs incurred in the life cycle of a workstation, from acquisition to disposal.

Statistics puts the Total Cost of Ownership in business computing in a range between $7k-$13k per computer per year.

Page 3: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 20093

TCO – Total Cost of Ownership

Relationship ROI/TCO Cost Categories

Design & Development Costs

Application Architecture Applciation Data Model Application Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time

= TCO

Page 4: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 20094

TCO and its seven factors Hardware Acquisition 17% Software Acquisition 7% Installation 4% Training 7% Support 21% Maintenance 7% Infrastructure 36%

Page 5: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 20095

What is TCO, continued During the computer’s lifecycle, the cost of

managing and supporting a computer and its users is far greater than the cost of the computer itself.

Due to the difficulty in measuring the TCO it is often neglected in purchasing decisions.

Page 6: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 20096

Key factors in reducing TCO Standardization Centralization Automation

Page 7: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

Average Company’s IT Portfolio Profile

Transactional13%

Infrastructure54%

Informational20%

Strategic13%

Page 8: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 20098

Relationship TCO & ROIRelationship ROI/TCO

• As the TCO of a project increases, the ROI decreases.• There is an inverse relationship between TCO and ROI.

Page 9: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 20099

Relationship TCO & ROI

Relationship ROI/TCO

A low TCO not only reduces an organizations

operational costs, but also effects the financial

success of a localization technology initiative as

measured by ROI.

Page 10: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 200910

TCO – Total Cost of Ownership

Cost Categories Design &

Development Costs Application

Architecture Applciation Data

Model Application

Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time

Design & Development Costs

Pay Now

or

Pay (much more) Later !

Page 11: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 200911

TCO – Total Cost of OwnershipApplication Architecture• Single most important factor

•An optimal architecture is

• Flexible, Multi-tiered

• Scalable, Object-Oriented

• Developing this is

• Challenging

• Time-consuming

• Costly

• Not developing this is even greater

• Higher maintenance costs

• Poor performance,

• Scalability, flexibility

Cost Categories Design &

Development Costs Application

Architecture Applciation Data

Model Application

Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time

Page 12: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 200912

TCO – Total Cost of OwnershipApplication Data Model

• Application Data Model impacts

• Performance

• Scalability

•Many organization lack

• Domain expertise

• Sufficient Time (aggressive schedules)

The Applicatio

n DNA

Cost Categories Design &

Development Costs Application

Architecture Applciation Data

Model Application

Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time

Page 13: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 200913

TCO – Total Cost of Ownership

Application Functionality• Incremental Application features and functionality

increase development costs since they add complexity

• Source : COCOMO II

• Organizations realise too late that the functionality they can

afford to build themselves fails to support business

needs and the functionality

available in packaged technologies

Cost Categories Design &

Development Costs Application

Architecture Applciation Data

Model Application

Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time

Page 14: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 200914

TCO – Total Cost of OwnershipIntegration Costs

• Internal solutions offer

• Poor Integration

• Poor Interoperability

• Opportunities to reduce• Are limited

• Single instance

• No ability to spread cost

• Poor integration capabilities will increase TCO

Cost Categories Design &

Development Costs Application

Architecture Applciation Data

Model Application

Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time

Page 15: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 200915

TCO – Total Cost of OwnershipTraining Costs• Commonly overlook

• Always under-estimated

• Misconception

• Small number of uers = Low Training Costs

• Focus on functionality rather than usability

• Limited scope for cost reduction

• Many training costs are fixed

• Training Manual(s)

• Trainers

trained

Cost Categories Design &

Development Costs Application

Architecture Applciation Data

Model Application

Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time

Page 16: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 200916

TCO – Total Cost of Ownership

Maintenance Costs• Majority of costs incurred not during development but during

• Operating

• Maintenance

• Upgrade

• 70-90% of annual budget

• 10% new feature(s)

• Maintenance increases with

• Bad Architecture

• In-adequate data model(s)

Cost Categories Design &

Development Costs Application

Architecture Applciation Data

Model Application

Functionality Integration Costs Maintnenance

Costs Training Costs Opportunity Costs Development Time

Page 17: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 200917

TCO – Total Cost of OwnershipOpportunity Costs• Definition : When resources are limited, the decision to pursue one opportunity over another requires a company to incur one or more opportunity costs

• Hard to quantity and qualify

• Companies that do consider it

• Generally agree that re-inventing the wheel is prohibitively expensive from an opportunity cost perspective

• Companies maximize shareholder value when they accelerate their

• Time to market

• Allocation of resources to best usage

Cost Categories Design &

Development Costs Application

Architecture Applciation Data

Model Application

Functionality Integration Costs Maintnenance Costs Training Costs Opportunity Costs Development Time

Page 18: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 200918

TCO – Total Cost of Ownership

Development Time

•Assumption : Once operational, applications deliver significant financial benefits (Revenue, cost savings)

• => Lost Opportunity Cost

• Days to design, develop, implement and deploy * Daily Benefits of Operational System

• To minimize opportunity costs

• Reduce development time

• Aggressive schedules

• Reduced functionality

• Reduced ROI

• Leads to bad deployments and user acceptance

Cost Categories Design &

Development Costs Application

Architecture Applciation Data

Model Application

Functionality Integration Costs Maintnenance Costs Training Costs Opportunity Costs Development Time

Page 19: TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

MIS-Fall 200919

THANKS!

FOR REFERENCE PLEASE READ THE NOTES WITH THE SLIDES