Total Cost of Ownership (TCO) is a simple, rather elegant equation to help you determine what your technology and the services that support it are actually costing you.
What Is TCO?In short, the sum of your capital spend (what it costs, or CapEx) plus the operational costs (what it costs to run it, both directly and indirectly over time, aka OpEx) gives you your total cost of ownership (TCO).Understanding your TCO will help you to determine whether the expense is worthwhile over the long term. It can be applied to your business, your technology, and even in your personal life. For example, you may be in the market for a new house. You are considering a few candidates and need to decide which one will best suit your needs. You’ll look at the price of the house itself, the property taxes you’ll pay each year, the potential value down the road, what it costs to heat and cool it, insure it, potential maintenance issues, and planned upgrades or repairs over time. With these numbers in mind, it may help you to make a decision as to which home both meets your needs and represents good value. This is, in a nutshell, your total cost of ownership, or TCO. Despite all of these variables, when considering an upgrade or new IT purchase, buyers still fall into the trap of only considering the initial cost and not weighing the peripheral costs over time. The downside to this is that a) products that may be more appropriate to the solution you are trying to affect may be overlooked, and b) what you do end up purchasing may cost you a great deal more in the end.
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Real-World ApplicationsIn enterprise situations, there may be several people involved in making IT purchasing decisions, and not all of them will be IT professionals. When presenting IT investment strategies, we generally sync up first with the IT team, as they are quick to understand the value of the solution. The next step is to include other, often non-technical, stakeholders in the buying process. They typically have their own mandates and KPIs to fulfill, and will almost always want to know how the investment stacks up against other, similar solutions. Let's use networking as an example. Interlaced architects, installs, and supports full-stack Cisco Meraki networks for all of our clients. We have compiled some metrics that detail the time and funds that others have been able to save compared to competing networking technologies and methodologies. Here’s what that looks like: Based on an infographic created by Cisco in association with Gartner Technology Research, the summary states:
- 80% or more of all IT costs happen after the original buy-in
- Meraki users can (potentially) save upwards of 90% on operational expenditure
- Whatever you can save on competing products does not compare to OpEx savings with Meraki
- A Verizon reseller is able to launch 6 new stores with Meraki for what they would normally spend on one with other technology
- A food manufacturer/distributor was able to realize an additional $5M in production revenue over five years with Meraki.
- CNOS, a healthcare company specializing in neurosciences and orthopedics, was able to recover the cost of onboarding Meraki within 16 months.