Is TCO a Metric that Matters?

Ann All

Earlier this year I suggested talking about the total cost of ownership of IT investments could help CIOs win friends in the finance department. Finance folks like hard numbers and can relate more closely to TCO than to common IT metrics like uptime and utilization.


I shared a caveat: TCO estimates should encompass all costs, including ongoing maintenance and support, staffing needs, and the cost of identifying and managing business processes.


Yet not everyone appreciates TCO. Writing on TechRepublic, Prevoyance Group President Patrick Gray, author of "Breakthrough IT: Supercharging Organizational Value through Technology," calls TCO a "useless metric."


Gray has two major peeves with TCO. First, it fails to capture intangible value. Focusing narrowly on TCO will cause organizations to use cost of a solution as their primary criteria rather than the value it offers. I think that concern should dissipate if TCO is considered along with other metrics, including the more traditional IT ones. IT also can help finance folks better appreciate metrics like uptime by crunching some numbers on the costs of downtime for them.


As an alternative to TCO -- one that works value into the equation -- Linda Hughes, CIO for courier services company BeavEx, told attendees at the CIO Midmarket Forum in March how she creates individual profit-and-loss statements for every application in her company's portfolio. Though she includes them in her calculations, Hughes said she doesn't break out costs like availability and disaster recovery "because they don't mean anything to business users." The P&L metric helps the company make good decisions by focusing their strongest efforts on the apps generating profit for BeavEx, Hughes said.


Gray's other peeve with TCO is what he calls the "who cares" factor. In a nutshell, CIOs expend too much time and resources applying TCO to non-strategic areas such as IT infrastructure. He writes:

Just as no CFO would compare the TCO of one office chair to another or attempt to calculate the ROI of that chair based on what kind of deals were made by the derriere occupying it at the time, nor should CIOs fall victim to these misguided attempts to bring what amounts to faux financial rigor to IT.

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