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
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.
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
MIS-Fall 20094
TCO and its seven factors Hardware Acquisition 17% Software Acquisition 7% Installation 4% Training 7% Support 21% Maintenance 7% Infrastructure 36%
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.
MIS-Fall 20096
Key factors in reducing TCO Standardization Centralization Automation
Average Company’s IT Portfolio Profile
Transactional13%
Infrastructure54%
Informational20%
Strategic13%
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.
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.
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 !
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
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
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
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
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
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
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
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
MIS-Fall 200919
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