By ComputerPlano

05/13/2010 The lowest bid might not be the lowest cost if they need more hours/visits/downtime to keep your business operational. In fact, always accepting the lower bid could end up costing you your business.

What is TCO?

TCO (Total Cost of Ownership) was originally developed in the late 1980s by the research firm Gartner to determine the cost of owning and deploying personal computers. Their initial findings, that PCs cost an enterprise nearly $10,000 per year, caused quite a stir in the technology community and among CFOs. Their methodology was carefully examined and, over the ensuing years, has been accepted as a standard way to evaluate total costs.

Simply stated, TCO consists of the costs, direct and indirect, incurred throughout the life cycle of an asset, including acquisition, deployment, operation, support and retirement.

How can it help my business?

TCO provides a framework for good financial analysis of IT investments.
TCO sets a baseline for IT costs.
TCO generates a widespread understanding that first cost isn't total cost.

Like other tools, TCO does not solve all problems. TCO is a long-term measure, reducing TCO only reduces costs over time. So it is hard to capture a TCO reduction as a specific benefit when budgets need to be cut.

Also, TCO does not assess risk or help align technology investments with strategic goals. Nevertheless, TCO is an important tool for the analysis of IT costs and for the management of those costs in an IT organization.

With a good understanding of TCO, companies can make proper IT investment decisions and develop solid improvement plans for their overall IT costs.