IT BUDGETING

Server TCO: The Price Tag Is Just The Beginning

The Forrester Alternative

In a recent report, Forrester Research complained that few firms even attempt to use TCO as a basis for making IT decisions. Most organizations have only a vague idea of what TCO includes, using it as a header for anything broader than a straight comparison of acquisition costs. Those that do attempt a true TCO analysis end up relying on guesswork because they do not have adequate financial data, nor do they measure operational costs on a systematic, ongoing basis.

Forrester does not advocate gathering that data, as doing so would likely take more effort than the TCO calculation would be worth. Rather, Forrester suggests an analysis it calls Relative Costs of Operations (RCO) where only the costs that are directly associated with a proposed action are compared. You still gather costs, but you don't pretend to have a total list. The result should be a faster, more credible analysis that's less subject to guesswork.

The Forrester report uses the example of replacing several servers with a virtualized server. The hardware, licensing, power consumption, and support costs would be altered, but the other costs won't change -- for instance, the facilities remain the same, and you won't be laying off personnel because virtualization makes them marginally more efficient.

Again, there's no standard formula with RCO -- you have to rely on common sense.

Your TCO

All in all, it appears that TCO should be not be performed in isolation, but to settle a specific question -- typically, whether System A will cost more than System B.

An obvious approach is to start a spreadsheet with two columns, one for System A and the next for System B. Following Forrester's advice, you should use whatever inputs seem reasonable, as long as they are the same for both systems.

Then, you should divide the total by the number of months that you expect to keep the system. This will produce a comparison with the costs of a possible lease. But you should also try multiple life spans, since a shorter span will give more weight to the acquisition costs, and a longer span will give more weight to support costs.

TCO Resources

The analysts of Info-Tech Research Group offer insight into how business owners can use a TCO framework to improve operating efficiency and manage IT costs more effectively.

The Sizing Lounge, aimed at settling the question of how big a server is needed for a task, also includes a TCO calculator aimed at server users, although it presents the user with lists of preset, rather than arbitrary inputs.

By accurately assessing your TCO you'll have a valuable tool to measure, understand, and manage your IT costs.

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