Bahria University Islamabad

Contemporary issues assignment

Sir Waqar Akbar
Total Cost of Ownership

Misbah Nousheen Ahmed

MS(SCM)

Introduction

Total Cost of Ownership (TCO) is an analysis meant to uncover all the lifetime costs
that follow from owning certain kinds of assets. For this reason, TCO is sometimes
called life cycle cost analysis.
It is used to identify and analyze the overall costs associated with ownership of
Information Technology (IT) assets, from cradle to grave. Reducing the cost of
ownership of IT investments will result in higher Return on Investment (ROI).
Through TCO study, businesses can make better strategic decisions and control
costs.
Beyond initial hardware-acquisition costs, TCO studies typically focus on those
factors that represent ongoing expenses during the life cycle of the server platform.
For example, the cost of support and maintenance of a given platform typically
represents a cradle-to-grave expense that can exceed the cost of the hardware by
several times. Controlling support costs clearly provides an effective approach to
controlling overall costs within an IT group.

Overview of TCO Factors

Total cost of ownership for an enterprise application server includes cost factors that
both directly and indirectly affect the bottom line. A realistic assessment of the
actual expenses involved in purchasing, deploying, maintaining, and upgrading the
hardware and software required for a server platform should encompass these
factors:

Purchase price of the hardware

Maintenance and service contract costs

Infrastructure costs

Fixed operating costs

Deployment costs, including database conversions and application migration

Integration expenses

Ongoing operating costs, as affected by reliability, availability, serviceability,

and manageability of the platform

Intangible Costs of Ownership

Intangible factors in any TCO evaluation impact the bottom line in a variety of ways,
but by their nature, they are more difficult to measure and interpret. Intangible
costs also have a very real impact on the bottom line, but by their nature they are
often more difficult to calculate and to factor into a comparison. For this reason,
they are sometimes referred to as "soft costs." The more effectively an organization
deals with the range of intangible costs associated with a server platform, the more
likely it is that extended cost savings and efficiency can be realized during the life of
the server platform. Intangible factors include the following:

Conversion costs

Application migration

Risk-mitigation costs

Integration costs

Operation costs associated with the reliability, availability, serviceability, and

manageability

Conversion Costs
Organizations expecting a platform change face an initial conversion cost made up
of the expenses involved in porting the required software and database content to
the new platform. The actual costs associated with porting depend on the level of
conversion required to retain as much of the earlier data and framework as possible.
For example, Java applications from one platform to another is less likely to incur
significant conversion costs than adapting an Oracle database for conversion to SQL
Server. Training costs for teaching personnel to operate unfamiliar applications or to
work in a server environment to which they are unaccustomed can accrue quickly.

Risk Mitigation Costs

Launching a new server platform is not a small exercise, and the process of moving
a substantial part of a business operation from one platform to another entails a
certain degree of risk. Solutions that mitigate risk factors can influence the total
cost of ownership, even though those risk factors may not translate into a hard set
of figures.

Integration costs
It can be significant when dealing with hardware and software components that are
not designed for maximum interoperability. To mitigate the risk of unanticipated
expenses while integrating corporate resources into a single framework, select a
standard solution with a record of success in rigorous industry deployments.
Choosing a solution that has been tested and deployed under a wide range of
conditions and situations can help minimize implementation difficulties.

Operation Costs

Over the life cycle of an enterprise platform, certain factors will have a prolonged
impact on the intangible costs associated with that platform, and the combined
effect of these operation costs can be considerable. The overall usability of a
system affects everyone who makes use of the resources and accesses data
residing on that system, but the direct financial costs aren't generally amenable to
straight-line calculations.
Organizations where downtime can adversely cut into profits consider RASM to be
an essential component of a viable application platform. In environments where a
few minutes of downtime can cost an organization tens or hundreds of thousands of
dollars, RASM can mean the difference between a thriving business operation and a
business that struggles to maintain customer confidence and integrity.

Examples:
Intangible Benefits It is important to quantify all benefits. In some cases, this may
be difficult. For example, it is difficult to quantify the benefits of reduced employee
turnover. However, you can value the effects of reduced employee turnover in terms
of recruiting expense, training costs, and productivity [Schmidt 2003]. It may be
impossible to quantify some benefits. For example, it is difficult to assign a dollar
value to employee morale and it is likely that your proposed project is only one of
many influences that impact employee morale. Benefits such as this are intangible
benefits.

Enhanced Customer Relation:

If you have an online website and the website is not up to date and it requires a lot
of time to update the required information by the customer, the customer will never
wait for the desired time and will definitely move on to the competitor. This is
another tangible cost which a company can bear due to non-availability or poor
customization done at companys end.

References:

http://spe-ed.com/papers/buscase.pdf
https://software.intel.com/en-us/articles/total-cost-of-ownership-factors-toconsider
https://www.business-case-analysis.com/total-cost-of-ownership.html
http://www.investopedia.com/terms/t/totalcostofownership.asp