I am amazed that TCO, Total Cost of Ownership, is still trumpeted as a great metric for IT shops. Advertisements and articles admonish us to “LOWER YOUR TCO!” as if it were the holy grail of IT management. So what’s wrong with TCO? Simple, it focuses your IT decisions on the wrong metric. At the end of the day, TCO is a fancy term for cost, and attempts to track IT assets in terms of their aggregated annual cost. So if you buy a new black box that will last for two years for $10,000, and it costs $500 for an annual service contract, your TCO is $5500 per year. With a focus on TCO, you might haggle with your vendor and get the service contract down to $400, thus lowering your TCO to the thundering applause from the IT press and vendor community.
While that’s all well and good, we know nothing of what that black box is actually doing. Perhaps that $10K black box is generating $1M for the company. Rather than spending our time milking vendors to lower cost, we should be buying two more of those black boxes. What’s better, lowering TCO by 2% or generating another $2M in value?
In a similar vein, a Kia is the ultimate vehicle in terms of TCO. Cheap to buy, cheap to maintain and with a relatively long service life, a veritable grand slam through the lens of TCO. But, what if you really needed a quarter-ton pickup truck? Or what if a Porsche would have impressed the potential client and tipped that $5M sale in your favor?
TCO should be one of the last metrics you investigate when making IT spending decisions. Value to the business, jointly determined by all members of the C-suite should always be the driver. If you spend the time concretely and collaboratively determining value, TCO is a mere afterthought.