Gartner: Debunking five myths of TCO

Many IT managers mistake equating total cost of ownership (TCO) with cutting costs, says a Gartner analyst.

Many IT managers mistake equating total cost of ownership (TCO) with cutting costs, says a Gartner analyst.

"TCO is really about process improvement and best practices that result in lower costs and improved service levels," said Bill Kirwin during a keynote speech at the research firm's IT Asset Management and TCO Summit in Los Angeles yesterday.

TCO is a management issue, not a technology issue, he said. "You can't just buy technology and lower your [IT] costs."

Kirwin debunked four other myths about TCO - that the methodology is first and foremost about technology, that companies should strive to achieve Gartner's TCO numbers, that the IT platform with the lowest-cost TCO is the best choice and that soft costs do not count.

He especially stressed that companies should not dwell on hitting Gartner's TCO numbers, which is one of the reasons the researcher stopped publishing those figures a few years ago.

"TCO is all about your numbers and the dynamics of the costs within your own organisation," said Kirwin, who has been conducting TCO analyses for 18 years. "Companies are like snowflakes - no two are alike."

IT managers also commonly make the mistake of purchasing hardware and software platforms which offer the lowest TCO. The questions an IT manager should ask, said Kirwin, are whether a platform can run the company's existing applications, whether the company has the skills in-house to develop and maintain that platform and whether the company has the computing capacity needed to support that platform.

When calculating TCO, companies also have to be sure to factor in soft costs, said Kirwin. For instance, "for every tech support person on your staff, there are three or four [end users] in the business units who are helping with support", and those costs - plus peer support, casual learning and self-support - should also be calculated into TCO models.

Those are some of the reasons why Gartner believes that indirect costs account for up to 60% of an organisation's total outlay on IT. That usually works out to $4,000 to $6,000 per end user, said Kirwin.

Some attendees said that although they agreed with Kirwin, they came to the conference to further explore their own TCO strategies.

"I'd like to find out whether it's best to take a broad approach across the enterprise or go deep into a couple of different categories," said Pat Kitchen, director of administration and co-ordination in the IT department at Pactiv, a maker of packaging products.

"I agree with Kirwin's points not to focus on TCO itself, but to manage costs the best way you can," said Paul Jensen, an asset resource manager at Georgia-Pacific.

Thomas Hoffman writes for Computerworld

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