Nearly two-thirds of small businesses and organizations are expected to purchase new IT assets this year. On average, one in four office computers will need to be replaced. Old and outdated network and server equipment will need to be refreshed. Staffing needs will change. When analyzing your TCO, you are likely to experience a bit of sticker shock.
Tight budgets and limited expertise often keeps small to medium-sized businesses from making effective IT decisions. However, understanding hidden technology costs can actually help you reduce unnecessary expenditures and reallocate resources to more important business functions. IT Solutions Network has outlined current industry standards for determining TCO below - before you invest in new IT assets this year, we encourage you to take this information back to the C-Suite to analyze your spending history and implement best practices that will improve your bottom line.
Gartner, Inc. defines TCO as “the total cost of using and maintaining an IT investment over time.” TCO calculations include a combination of direct costs (hardware, software, operations and administration) as well as indirect costs (end-user operations and downtime). TCO is often overlooked and unbudgeted, presenting an inaccurate IT spending analysis and poor IT decisions.
Most organizations believe their direct costs end at the point of purchase. However, research shows that a computer’s base price typically represents less than 20% of its TCO, with technical support, maintenance, and labor costs accounting for the remaining 80%. These aftermarket expenses represent the greatest piece of the TCO pie and should, therefore, warrant the highest levels of scrutiny.
Computers require constant configuring and maintenance. Ongoing costs related to security measures, software updates, computer repair and general support are unavoidable. However, simplifying your IT infrastructure and management processes will increase efficiency, expand productivity, and significantly reduce your TCO.
Probably much more than you think.
Take a look at the pie chart below—an unmanaged or poorly managed desktop PC costs more than $5,000 per year. When factoring in associated network costs, such as firewalls, storage, servers, routers, printers, and internet connectivity, estimates exceed $8,500 per PC annually.
Remember that the initial purchase is just a fraction of the total cost of ownership, which means a $1,000 PC could actually cost more than $15,000 over its three-year lifespan. If a 10-person organization upgrades its PCs every three years, it likely spends a minimum of $120,000 managing those computers AFTER the purchase. The same logic applies to buying servers and related network hardware – the real investment begins once that equipment arrives at your door.
Even though more than 50% of TCO comes from indirect expenditures, many organizations focus solely on curbing direct costs. Since tight budgets have already reduced IT spending to a minimum, taking measures to improve end-user operations and decrease downtime can generate significant cost savings in the long run. In fact, Gartner recently found that a well-managed computer is 37% less expensive than the example above, often saving several thousand dollars per PC, per year.
IT spending is really a balancing act between hardware, software and services. According to Gartner, strong PC management is the key to overall cost reduction. The more money allocated for direct IT expenditures, such as operations and administration, the less money will be wasted on lost productivity and downtime.
Unfortunately, the reverse is also true. Because of declining IT budgets over the last few years, organizations have been forced to hold back on new purchases and temporarily Band-Aid ailing IT systems.
However, pinching pennies on proper infrastructure and management procedures will cost you dearly in the long run. Here are several important ways you can reduce TCO and increase efficiency:
As you can see from the above information, a majority of the expense comes from unmanaged or poorly managed IT systems. IT Solutions Network recommends considering the following:
Sources: Gartner, Inc., Compass America, AMR Research, allieditpartners, American Society of Association Executives, Salesforce