TCO – Back to Basics

Total Cost of Ownership (TCO) has been around for decades as the standard litmus test to calculate direct and indirect costs associated with the purchase of IT, but through time-worn iteration, it has morphed in a BIG way.

TCO-Back to Basics

The dynamic change of TCO itself is in large part caused by the spiraling amount of pieces that make up what defines cost itself. However, while that is fine and good, I have observed antithetical usage of TCO in daily conversation which is in stark contrast to the over-arching intention of the acronym.

In this day and age of shrinking budgets, higher accountability and mind-boggling competition, the call signs surrounding daily dialogue with and within enterprises resonate loud and clear, and ubiquitously at that:

“Can you cut my costs?”

“Can you save me money, time, resources…now?”

“Can you give me more X ,Y, and Z  for less?”

“Can you get it done faster, cheaper and with better support?”

In my business, my de facto answer is ‘yes’ to all of the aforementioned, not because I am programmed to say such or because everyone says it but rather because I mean it.

“I mean, I really mean it.”

So big deal…one may think…

  • Well, it is a big deal. It is a really big deal!
  • When I answer yes to a question about TCO, my answer could seem overtly simple and it is it.
  • But the path to be able to give that answer in earnest, is far from simple.
  • My path to ‘yes’ is multi-faceted to say the least because the question itself is hugely complicated.
  • TCO is complex, can represent virtually limitless things to different companies and I know it.

“I respect it.”

  • With that always in mind, I am wholly comfortable in answering “yes” although the answer may often and unfortunately appear trite on the surface.

Reality 1: I hear the letters T C and O, sequentially, more than I can count.

Reality 2: I’ve come to realize that even the most seasoned professionals have lost bits and pieces of the meaning of each singular word that makes up the whole, TCO.

Reality 3: Along the way, the individual parts of TCOTotal and Cost and Ownership have become diluted, or perhaps a better way to put it is that they have become segregated.

Result: Collectively, the acronym has become, for lack of a better word, cheap.

What the heck am I talking about? What’s my point? 

 TCO – Let’s Break it Down

“T”

  • Let’s remember that the acronym starts with T.
  • Was this an accident? I have no idea.
  • It could just as easily have been called OCT – Ownership Cost in Total, but it wasn’t and isn’t.
  • It starts with ‘T’, I take it at face value and am exactingly mindful of its meaning.
  • The word, Total, by definition is all-encompassing, complete and absolute.
  • Total is akin to a circle, in that it has no beginning nor end.
  • It identifies, considers, and accounts for everything, and only then does it satisfy the word – Total.
  • Total doesn’t parse out pieces nor does it examine parts in isolation without consideration of how the parts affect one another.

“Total is total – Period.”

  • As such, I am obsessed with making sure that I have considered all things that make up the word Total with regard to cost.

“C”

  • In my experience as I am in the software business, Cost, when people speak about TCO is uber-weighted towards license cost, maintenance cost and service cost.
  • I agree that these are very important costs and should be fully vetted.
  • I concede to initially speaking about TCO with these costs at the core, because it appears to be the predominant way of the world.
  • However, I find that real, consultative, educational and eye-opening discussions surrounding TCO springboard from my desire to enlighten.
  • This enlightenment begins with the identification that pure, net monetary cost-savings are only a starting point that alone quickly becomes banal.
  • TCO, no matter how much the monetary savings are, only pivots into value with real “to the core” worth, when it is fortified with tangential insights – things that are often overlooked or talked about as if they are separate line items.

“Separate line items they are not. This is where we begin filling in the word Total.”

  • Conversation around licensing, maintenance and service is fairly black and white. What comes after that is truly mindful conversation where real value comes in.
  • What blows my mind is that these costs are often addressed in a vacuum as if they can stand on their own, absolutely.
  • In reality, although the above costs are without doubt important, they are just a small piece of what determines actual and real cost.
  • Opportunity costs, risk mitigation costs, migration costs, human capital costs, human resource costs, time to market costs, hardware costs…the list can go on forever
  • I want to focus on two main ones: time and people.
  • At the end of the day, I can always reply to any and all questions about positively affecting TCO with a resounding ‘yes’ because I am confident that I can save enterprises time and preserve their people.
  • These two costs, however one may want to slice it and dice it, are priceless.

“O”

  • Ownership is commitment.

“Consider something that you want to own. Make sure that your people can and want to use it while leveraging the foundation of skills that they already have and let them build on it.”

  • Commitment comes from confidence that a sound decision and process to get to such decision has been performed with complete certainty.
  • In this day and age of ‘lease’ this and ‘rent’ that, true ownership and related commitment has become elusive.
  • The current IT landscape is truly exciting, dynamic, transformative and just plain awe-inspiring.

“The world we live in now, especially as it pertains to IT, is a continuum of ‘WOW!'”

  • I am a huge proponent of experimenting with, trying, and embracing new and innovative technologies.
  • In fact, I often dream of the next IT thing that it is in all reality hard to even fathom.
  • At the same time, although I dream and dream big, I am not a dreamer.
  • There is a time and place for everything and in enterprise business; a constant dream-state is not necessarily prudent.
  • To that end, when it comes to day in and day out TCO, sometimes, it is better to buy a better, more efficient, and time-tested ‘wheel’, and resist temptation to buy into and reinvent the wheel.

 

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