September 2, 2014
 
 
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Getting the Real Facts: How to Read an Analyst's Report

A TCO Primer

  • October 13, 2005
  • By Maria Winslow

Microsoft's "Get the Facts" advertising campaign makes the claim that Windows offers a lower total cost of ownership (TCO) than Linux, and backs it up with reports from well-known analysts. But Linux advocates claim that the TCO of Linux is lower, and some other studies back them up. It's time to clear up the confusion.

In this series of articles, we examine these analyst reports in detail, separating the truth from the hype. But first, a little background is in order.

Let's start with the basics of TCO, since most of the studies measure it. When we talk about measuring the total cost of ownership, it is important to understand what that measurement will actually tell us. TCO is defined as t he total cost of a particular item over its useful life. It includes the cost of acquisition, maintenance, support, and disposal. In short, it includes everything you will ever spend on the item, and is useful for understanding future costs that may not be apparent at the time of deployment.

In theory, calculating TCO is easy. Simply add up all the expected costs over the life of the item you are measuring. In practice, however, this can be a little tricky, which is why most organizations don't actually track TCO. A number of factors are typically included in TCO calculations, including hardware costs, software licensing, initial costs to deploy, purchased support contracts, staffing costs, and additional overhead. The following is an overview of the TCO process:

  • Plan to calculate for each class of system (file server, Internet-related server, desktop, etc.)
  • Determine hardware costs
  • Determine software licensing costs
  • Determine deployment costs (outsourced deployment, for example)
  • Determine support costs, extend to expected life of system
  • Determine staffing costs to maintain system
    • Determine number of staff supporting system
    • Determine hourly costs based on salaries
    • Determine percentage of time spent supporting system
    • Determine total number of staffing hours over expected life of system
    • Calculate dollar value of total staffing hours
  • Determine any additional costs for overhead
  • Add it all up

Some items on the list are fairly straightforward, such as hardware, software, and support contract costs. Staffing costs can be trickier, especially if your company doesn't have experience with the new technologies. If it were easy, of course, everyone would routinely calculate TCO figures. But it's important to at least have an idea of what's involved.

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