1. Primary Goal<\/h2>\n\n\n\n![\"\"](\"https:\/\/jumpcloud.com\/\/wp-content\/uploads\/2022\/08\/target-primary-goal.jpg\")
The first step to calculating TCO is setting a primary goal. <\/figcaption><\/figure>\n\n\n\nStart 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\nFind out whether we could save money by switching to a different <\/em>mobile device management (MDM)<\/em><\/a> solution.<\/em><\/p>\n\n\n\n2. Format<\/h2>\n\n\n\n![\"Hand](\"https:\/\/jumpcloud.com\/\/wp-content\/uploads\/2022\/08\/tco-format.jpg\")
After identifying a TCO goal, decide on the best format for your calculations and analysis.<\/figcaption><\/figure>\n\n\n\nIdentifying 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\nWe 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\nUnderstanding 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
3. Parameters<\/h2>\n\n\n\n![\"Various](\"https:\/\/jumpcloud.com\/\/wp-content\/uploads\/2022\/08\/tco-parameters.jpg\")
Common TCO parameters include time, growth, and inflation.<\/figcaption><\/figure>\n\n\n\nOnce 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
\n- Time. <\/strong>Every TCO calculation should have a defined time period. Time can be segmented by past (or past to present), future, or lifetime, which includes both.<\/li>\n<\/ol>\n\n\n\n
\n- Past.<\/strong> Past calculations include everything up to (and including) the present. You can define a limit \u2014 i.e., for the past five years \u2014 or start the calculation from the time you initially acquired the tool or solution. For long-standing items like on-premises equipment that\u2019s been at the company for decades, setting a finite past time period may be more feasible to calculate.<\/li>\n\n\n\n
- Future.<\/strong> Future TCO is an estimated projection for a given time period in the future.<\/li>\n\n\n\n
- Lifetime. <\/strong>Lifetime TCO includes both past and future to understand the total lifetime costs of something.<\/li>\n<\/ul>\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\n- Growth.<\/strong> If your company grew or plans to grow, you\u2019ll need to account for it in your TCO analysis. For example, if your company plans to double over the next five years, it will likely spend significantly more on software and licensing in the coming years to account for the higher headcount. This growth will affect your TCO calculation. Similarly, a calculation of past expenses will need to account for growth history: if a medium-sized organization started out with only a few employees, its historical costs will be much lower than its current expenses. <\/li>\n<\/ol>\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\n- Inflation. <\/strong>While inflation can seem insignificant or too hard to predict, it makes a notable impact on total cost over time (especially for long time periods). In fact, 70.5% of IT professionals reported at least some concern around inflation in an April 2022 survey<\/a>.
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\nTo 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\nTo 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\nAll 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
4. Components<\/h2>\n\n\n\n![\"Person](\"https:\/\/jumpcloud.com\/\/wp-content\/uploads\/2022\/08\/tco-components.jpg\")
There are six main categories of components to account for in IT TCO.<\/figcaption><\/figure>\n\n\n\nWhile 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\n- Servers.<\/li>\n\n\n\n
- Storage.<\/li>\n\n\n\n
- Networking equipment.<\/li>\n\n\n\n
- Backup and recovery equipment.<\/li>\n<\/ul>\n\n\n\n
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- Colocation or data center fees.<\/li>\n\n\n\n
- Rent.<\/li>\n\n\n\n
- HVAC.<\/li>\n\n\n\n
- Power.<\/li>\n\n\n\n
- Security.<\/li>\n\n\n\n
- Insurance.<\/li>\n\n\n\n
- Cabling.<\/li>\n\n\n\n
- Redundant backup site costs.<\/li>\n<\/ul>\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\nD. 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\n- Laptops.<\/li>\n\n\n\n
- Tablets.<\/li>\n\n\n\n
- Phones.<\/li>\n\n\n\n
- Phone plans.<\/li>\n\n\n\n
- Accessories (e.g., monitors, keyboards, docking stations, etc.).
<\/li>\n<\/ul>\n\n\n\nE. 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\n- IT configuration.<\/li>\n\n\n\n
- IT maintenance. <\/li>\n\n\n\n
- IT monitoring and support.<\/li>\n\n\n\n
- Certifications for certain software or tools.<\/li>\n\n\n\n
- Professional services. <\/li>\n\n\n\n
- Managed service providers (MSPs) and value-added resellers (VARs).<\/li>\n<\/ul>\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\n- Configuration and implementation.<\/strong> This includes time and labor: multiply the number of hours your team will spend rolling out the new solution by their hourly rate. <\/li>\n<\/ul>\n\n\n\n
\n- Downtime. <\/strong>If a system needs to go down to facilitate implementation, factor in the labor costs associated with bringing it back up. These costs can be calculated by using the hourly wage of the personnel responsible for responding (see Support, labor, and personnel<\/a><\/em>) and multiplying it by the amount of downtime incurred. <\/li>\n<\/ul>\n\n\n\n
5. Additional Costs Outside Traditional Scope<\/h2>\n\n\n\n![\"Three](\"https:\/\/jumpcloud.com\/\/wp-content\/uploads\/2022\/08\/additional-considerations-TCO.jpg\")
Risk is one of the additional costs you may want to consider outside of traditional TCO.<\/figcaption><\/figure>\n\n\n\nThe 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\n
Downtime<\/h3>\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\n2. Format<\/h2>\n\n\n\n
3. Parameters<\/h2>\n\n\n\n
\n
\n
\n
\n
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
\n
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
\n
<\/li>\n<\/ul>\n\n\n\n\n
\n
\n
5. Additional Costs Outside Traditional Scope<\/h2>\n\n\n\n
Downtime<\/h3>\n\n\n\n
![\"JumpCloud\"](\"https:\/\/jumpcloud.com\/wp-content\/uploads\/2023\/05\/itunification-aspect-ratio-160-110.jpg\")
\n <\/div>\n ![\"\"](\"https:\/\/jumpcloud.com\/\/wp-content\/uploads\/2022\/08\/IT-TCO-guide-thumbnail-1024x575.png\")
<\/figure>\n","protected":false},"excerpt":{"rendered":"