The Total Cost of Ownership (TCO) is a key component when calculating Return on Investment (ROI) on any organization’s IT spend. Unfortunately, it is also often being underestimated, especially by SMBs when making decisions with their IT budget.
Price vs Cost
Whenever we are looking to make a purchase, the first thing that we look out for is the price. We check the price tag in the mall when shopping for clothes, in a restaurant, we look at the price of the dish on the menu, we scour the internet looking for the best deal we can find on gadgets and appliances. But does that mean that we are getting the best deal by going for the lowest price offering?
When it comes to business technology, unfortunately, the answer usually is a resounding - NO. For any IT solutions or services, the lowest purchase price does not equivalate to best value long-term or overall ROI. While that might work for a pair of jeans or a meal, when considering a business investment, calculating TCO is a lot more important than just making decisions based on the initial investment.
We have seen our fair share of businesses opting for cheaper solutions, totally underestimating the on-going cost and in some cases, not even addressing the intended issue they were trying to solve in the first place.
Potential Cost of an IT Solution
The obvious cost when it comes to implementing an IT solution is hardware, software, and professional services to implement (installation, configuration, integration, etc.) - but there are at least 10 other cost factors that would impact TCO in the long run.
Most of the cost factors come from operating cost and while some solutions may require more or less attention than others, almost everything is connected to the internet these days and with technology advancing, so does cybercrimes. Software and firmware need to be patched and updated regularly to ensure that your systems can run smoothly and reduce/mitigate any potential cyber risk.
One of the most overlooked cost factors is the cost of system downtime. Downtime can incur a significant cost not just to recover/replace the solution, but also the cost to the business as a consequence of the downtime.
What to Consider for TCO
One of the biggest struggle businesses face is the ever-changing threat landscape. It feels as though every time you turn to look, there are new cyber threats and new solutions to invest in. Many vendors offer different solutions that may seem to solve your issues in different ways, but what is the best investment for you to make?
Rather than buying point solutions that solve a specific issue, look at a holistic service that does not just solve the immediate issue presented to you, but also address the underlying problem that you may have.
For example, if you are looking for a backup solution, don’t just consider how it backs up, look at how would you recover from the backup when you need to. How long does it take for you to recover? What is the cost associated with recovery? What are the cost impacts to your business if it takes too long for you to recover? If there is an alternative that has a slightly higher acquisition cost but could save you more money whenever you need to recover, would that have been a better option?
Secondly, to understand the cost of managing the solution internally versus having it managed by someone else. While managing the solution internally often seem to be the cheaper option, what many fail to account for is the cost associated with not having it responsibly managed. To fix something that is broken is typically a lot harder and expensive than having it properly maintained in the first place.
Next, is to look at the longevity of the solution. Is the solution "future proof"? Would it be obsolete in 3 years when you have accounted for 5 years when calculating the TCO? Technology is evolving at a rapid pace, there are always going to be innovations and new technology that surfaces every day. Almost every piece of IT hardware that you own has an End-of-Support and End-of-Life date by the manufacturer.
In this case, would owning the solution be sensible? Or would it have been better if you were to purchase it as a service, having the service provider be responsible for upgrading and maintaining the solution? After all, if the service provider does a bad job at it, you can simply switch service providers.
Just like consuming electricity, must we own the generator, employ an engineer to operate the generator and maintenance? It may have been more cost-effective for us to switch on when we need it and off when we don't. We can change the energy provider if the service is not up to our standard.
If you wish to learn more about how you can lower the TCO and get the best ROI on your IT spend, contact us for a free consultation today.