They say money doesn’t grow on trees, but in a small fishing village located off the coast … Just kidding! Money still doesn’t grow on trees, but wouldn’t it be nice for your IT budget if it did? For most IT managers, making purchase decisions is a delicate balancing act that requires careful consideration.
Project managers often find themselves grappling with several questions before pulling the trigger: Is this the best solution for us right now and long term? What is the total cost of ownership (TCO)? And how can we best project its return on investment (ROI)?
Of course, everyone wants to get the best value for their money. Such considerations become even more relevant when you realize IT purchases often come with hidden costs.
This post will examine six expenses hidden “under the hood” of IT products and services, and also explores the factors to consider to avoid buyer’s remorse.
Factors That Influence IT Total Cost of Ownership
TCO is a metric that analyzes the financial impact of a purchase decision. It identifies all of the costs associated with owning and using a product or service over its lifetime.
TCO includes direct and indirect costs, such as acquisition, installation, operation, support, and disposal costs. TCO analysis is instrumental when evaluating high-value systems with a long lifespan and ongoing costs, such as security systems or workspace collaboration tools.
In recent times, IT managers have needed to calculate the TCO of running on-site systems versus that of cloud-based ones. As evidenced by a Microsoft Insight, they’ve often found that cloud-based infrastructure is less expensive than their on-premise counterparts.
Let’s examine the six elements that contribute to both model’s TCO:
1. Infrastructure Equipment
Organizations that prefer to operate an on-prem infrastructure have to spend more money than those that employ cloud-based solutions.
Servers, storage devices, and networking equipment don’t come cheap. They also ramp up operating costs without always optimizing value.
For instance, Company X may choose to operate an on-prem infrastructure, sparing no expense in acquiring the required equipment. For some time, its data needs would be less than its data capacity. Yet, Company X would continue to expend costs for maintaining both the functioning and non-functioning servers.
Not to mention that when the organization’s data needs eventually exceed its capacity, it will need to invest in acquiring more servers and integrating them with the existing system.
Cloud alternatives offer a more economical option as organizations only pay for what they use. They also don’t need to worry about acquiring and maintaining expensive hardware other than networking equipment.
Better still, cloud-based solutions are more scalable than on-premise options, making them cost-effective and more flexible than on-premise solutions.
While some IT admins often cite security concerns over cloud-based solutions, a Gartner study indicated that at least 60% fewer security issues will occur in public cloud service workloads than in traditional data centers.
2. Data Center/Hosting Costs
Data collected and used by organizations has to be stored somewhere. Those who run on-prem solutions spend lots more hosting their data in-house than those that employ cloud infrastructure.
For instance, If Company X chooses to operate an on-prem infrastructure, it would need to expend resources to get floor space either on-site or in leased areas in a commercial data center.
Throw in the variable costs of physical security, HVAC systems, and backup solutions, and you can see how the organization pays significantly more than the sticker price long term.
3. Software and Tooling
Both on-prem and cloud-based organizations rely on software to provide the tools they need to run their business effectively. Hence, they tend to invest in several software solutions that meet different needs.
The assortment of software can quickly increase cumulative cost, and organizations would spend less if they invested in a solution that provides more than one tool.
For example, Company X, running on-prem infrastructure, may invest in mobile device management (MDM), single sign-on (SSO), file sharing, and password management software individually. In contrast, Company Y may invest in a cloud operator integrating some of these technologies into its offerings.
In the long run, Company Y is likely to enjoy more services than Company X while benefiting from the integrated ecosystem that the cloud vendor offers from a single dashboard, and with fewer costs too.
4. Employee Devices
Whether operating cloud infrastructure or an on-premise one, employees need to use company-provided or employee-owned devices.
From smartphones to laptops and everything in between, employee-owned devices, or bring your own devices (BYOD), have become ubiquitous in the modern workplace.
While this trend has led to increased flexibility and reduced costs as organizations spend less on acquiring work devices, it can increase costs in other areas.
For example, if employees use their own devices for work purposes, the organization may need to purchase additional licenses for some software applications.
Furthermore, devices of different platforms like Android, iOS, etc., need to be configured to work with the organization’s network and security settings, which can add to increased MDM costs.
Fortunately, there are many ways to reduce the TCO of employee devices. One is to select the right mix of devices for your workforce carefully.
Another is to invest in cloud-vendor solutions like JumpCloud that provide mobile device management (MDM) and security solutions that streamline support and security operations.
As an example, consider two IT companies, ABC and XYZ:
ABC operates a BYOD policy and utilizes the services of a cloud operator that offers security and MDM capabilities across different device platforms. On the other hand, XYZ provides employees with company devices and operates on-site infrastructure while acquiring disparate security and MDM solutions.
Company ABC is likely to operate well on a lower budget than Company XYZ, which spends more on different cost headings.
5. Support, Labor, and Personnel
On-premise IT equipment is not particularly plug, play, and forget. They require constant monitoring and maintenance that is distinct from their day-to-day use. Hence, organizations need to hire new staff or train existing personnel to support their systems and keep them in good shape.
Ultimately, this increases the TCO of the system as organizations need to pay more salaries and training fees. The time spent in maintaining this infrastructure also amounts to cost as the IT staff could have put the time to other purposes.
By contrast, cloud-based infrastructures don’t require extensive maintenance, and they often include support services as part of their package.
6. Data Onboarding and Migration
Data onboarding and migration from on-premise infrastructure to a cloud-based platform can be disruptive to business operations. This is due to systems being taken temporarily offline for the transfer to take place.
However, cloud-based solutions are often more reliable in the long term and offer better uptime than on-premise infrastructure.
The increased uptime is because these solutions are not reliant on a single point of failure. In other words, if one component of the system goes down, the others can pick up the slack.
This redundancy ensures that businesses can remain operational even in an unforeseen outage. Moreover, cloud providers often have experts dedicated to guaranteeing that their systems are always up and running.
Hence, the minor hiccups encountered during migration to a cloud platform would amount to a lower TCO and a small price to avoid the costly downtime attendant with on-prem infrastructure.
Understand Your TCO and Reduce IT Costs With Tool Consolidation
IT consolidation is a crucial strategy for reducing costs within an organization.
It eliminates redundancies, improves efficiencies, and reduces the need for duplicate hardware, software licenses, and support staff. In addition, centralizing IT tools can enhance data quality by reducing the risk of data duplication and inconsistency.
The IT Professional’s Complete Guide to Calculating TCO helps you assess the various costs associated with your prospective or existing infrastructure and enables you to identify possible points of tool consolidation.
Get it today to learn how you can make the best decisions and provide cost-effective solutions for your IT needs.