{"id":66491,"date":"2023-07-21T09:28:32","date_gmt":"2023-07-21T13:28:32","guid":{"rendered":"https:\/\/jumpcloud.com\/?p=66491"},"modified":"2023-08-30T08:39:42","modified_gmt":"2023-08-30T12:39:42","slug":"calculate-it-tco-5-things-to-consider","status":"publish","type":"post","link":"https:\/\/jumpcloud.com\/blog\/calculate-it-tco-5-things-to-consider","title":{"rendered":"5 Things to Consider When Calculating IT TCO"},"content":{"rendered":"\n
Though IT total cost of ownership (TCO) seems straightforward at first glance, many feel stuck wondering where to begin or what to include once they actually start calculating costs. <\/p>\n\n\n\n
At a high level, TCO includes a tool or solution\u2019s upfront costs plus all the expenses associated with supporting, hosting, and maintaining it. But getting into all those expenses can make things a little murky. For instance, if you\u2019re calculating the TCO of a server, do you have to account for the upgrade you did two years ago? What about the power and labor that keep it running? Or the risks of it incurring downtime? (Yes, yes, and not necessarily.) Where does it start and end?<\/p>\n\n\n\n
To make your IT TCO analysis easier, we\u2019ve put together the top five things you should consider in your calculations, including all the main components and parameters to include, separated by category, and suggestions for additional considerations to contextualize your findings. These components should help you calculate TCO easily, thoroughly, and accurately.<\/p>\n\n\n\n
Note: This blog provides some guidelines to calculating your IT TCO; for more complete guidance, download <\/em>The IT Professional\u2019s Complete Guide to Calculating TCO<\/em><\/a>. Prefer to follow along with an example? Download our <\/em>example TCO calculation template<\/em><\/a>. <\/p>\n\n\n\n Start any TCO exercise by identifying your main intent: what do you want to find out? This primary goal will guide you through the rest of your TCO calculation exercise. <\/p>\n\n\n\n Primary goal example:<\/strong><\/p>\n\n\n\n Find out whether we could save money by switching to a different <\/em>mobile device management (MDM)<\/em><\/a> solution.<\/em><\/p>\n\n\n\n Identifying your goal \u2014 what you want to know \u2014 will help you determine the best analysis format. Some situations, like wanting to know the lifetime TCO of a tool, call for a straightforward TCO figure. Others, like wanting to know if an alternative tool would be cheaper, require comparisons, future projections, or other figures. <\/p>\n\n\n\n Format example:<\/strong><\/p>\n\n\n\n We will need to compare our current MDM costs with the costs of an MDM alternative. Because we don\u2019t have past costs to associate with the proposed alternative, we will only compare the projected future TCO of each. <\/em><\/p>\n\n\n\n Understanding the goal and format will help you think about the parameters you want to set (i.e., how far out you want to project), and which components to include in your calculation. <\/p>\n\n\n\n Once you have your initial goal and format set, you\u2019ll need to define the following three parameters for your calculation. <\/p>\n\n\n\n Tip: <\/em><\/strong>Not sure how long to set your time period? Five years is a fairly standard length of time, but if your company is more agile or growing fast, three years may be better suited. <\/em><\/p>\n\n\n\n To calculate the future cost of something based on regular recurring growth, use the following formula:<\/p>\n\n\n\n (Future Value) = (Present Value)*((<\/em>1 +(Growth Rate)*(Years))<\/em><\/p>\n\n\n\n To calculate a future inflation-adjusted cost, use the following formula:<\/em> <\/p>\n\n\n\n (Future Value<\/em>) = (Present Value<\/em>)*(1+(Inflation Rate)<\/em>)(<\/sup>Years)<\/sup><\/em><\/p>\n\n\n\n To account for both growth and inflation at the same time, use the following formula: <\/em><\/p>\n\n\n\n (Future Value<\/em>) = (Present Value<\/em>)*(1+(Inflation Rate)<\/em>)(<\/sup>Years)(Growth Rate)<\/sup><\/em><\/p>\n\n\n\n All TCO calculations should define the above three parameters. Depending on your TCO goal, you may want to include additional parameters, like the effects of an anticipated merger or uncertainty levels in far-off projections.<\/p>\n\n\n\n While calculating the TCO of a single tool is usually fairly straightforward, it quickly becomes more complicated when calculating the TCO of a set of tools or comparing the TCO of different solutions. For example, how many expenses go into hosting and maintaining a server? Do the features in a side-by-side tool comparison perfectly align, or would you need to pay for separate tools to match another tool\u2019s feature set? <\/p>\n\n\n\n The reality is that many tools and solutions have several individual expenses that contribute to their TCO. In IT, these expenses generally fall under the following six categories. <\/p>\n\n\n\n A. Infrastructure and equipment. <\/strong>This category typically applies to on-premises equipment, whether you host it at your location, in a colocation center, or in a data center. Common elements of infrastructure equipment include (but may not be limited to): <\/p>\n\n\n\n C. Software and tooling.<\/strong> This category accounts for the costs of software and its licensing. These are often recurring, and are typically closely affected by headcount changes. <\/p>\n\n\n\n D. Employee devices.<\/strong> This category includes any physical hardware and associated connectivity plans purchased by your company and issued to employees. Device costs may include: <\/p>\n\n\n\n E. Support, labor, and personnel. <\/strong>These are the costs associated with having personnel support and manage IT. Typical support and labor costs include: <\/p>\n\n\n\n Typically, these are the labor costs associated directly with the tool or stack\u2019s support rather than the costs associated with day-to-day activities and job function. These costs are usually calculated by determining the hourly wage of the person responsible for the task and multiplying it by the number of hours dedicated to supporting the tool or solution. (For salaried workers in the U.S., divide their yearly salary by the number of hours in a typical work week, and multiply the result by the number of working weeks in a year; a standard 40-hour work week equates to 2,080 total working hours. Multiply the resulting hourly rate by the number of hours spent on the task.) <\/p>\n\n\n\n F. Rollout.<\/strong> Introducing a new tool or stack requires time and money for implementation and configuration. Its implementation and rollout can also result in downtime and productivity loss. Tool or stack rollout could incur the following expenses: <\/p>\n\n\n\n The components above should account for everything typically included in typical IT TCO. However, additional factors can influence an item\u2019s value to your organization. Consider including the following factors in your analysis for additional context. <\/p>\n\n\n\n1. Primary Goal<\/h2>\n\n\n\n
2. Format<\/h2>\n\n\n\n
3. Parameters<\/h2>\n\n\n\n
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Further, making an informed inflation estimate (like using a historic average) usually yields more realistic projections than ignoring inflation entirely. For example, in most cases, it would be less realistic to imagine that no employee\u2019s salary will go up in the next five years than to estimate that they may rise at the rate of average U.S. inflation. For reference, the national U.S. inflation average over the last 10 years was about 2.1%<\/a>, but it varies and is currently trending higher<\/a>. You may use your own inflation estimate instead.<\/em><\/li>\n<\/ol>\n\n\n\n4. Components<\/h2>\n\n\n\n
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B. Data center\/hosting costs. <\/strong>This category includes all the costs of housing and powering infrastructure equipment, whether hosted on premises or in a colocation center. Cloud technology typically does not have data center\/hosting costs. Typical costs in this category may include: <\/p>\n\n\n\n\n
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5. Additional Costs Outside Traditional Scope<\/h2>\n\n\n\n
Downtime<\/h3>\n\n\n\n