- this is the total amount of target costs that the owner is forced to bear from the moment of entry into and until the moment of loss of this right (in connection with the sale of the asset).

How to calculate total cost of ownership?

There is no universal method for calculating the total cost, because the cost structure is determined by the type of object itself. Individual methods are created, focused on a specific property and applied separately for each stage life cycle. Nevertheless, there are basic calculation principles and approaches to determining the total cost of ownership. The main approach is systemic– this research is characterized by such features as hierarchy and structuring.

To approximate the total cost of ownership, simplified methods for calculating TCO are used, giving an idea of ​​the likely losses during ownership. Although these models are considered to be quite accurate, the deviation of actual costs from forecasts can be significant.

The methodology for determining TCO assumes that there are two types of costs: straight(budget) and indirect. Direct expenses include all expenses associated with the acquisition of assets and reflected in the accounting book (they are not difficult to calculate), and indirect expenses include losses associated with the possession of assets. For example, if we are talking about IT infrastructure, paying for hosting services will be indirect costs. The authors of the TSO concept claim that indirect ones usually exceed direct ones by 3-4 times. It is appropriate to consider, as a key formula:

TCO = TCO + TSA

where TCO is the total cost of ownership, TCO is the cost of use, TCA is direct expenses.

For actual calculation, costs such as TCO in a company are classified into several categories:

• Human resource costs (people costs) – costs for wages both low-level performers and top-level management.

• Environment cost– costs for heating, light, etc. public utilities, Internet.

• Cost of support – for example, an IT company has to purchase new computers and regularly update software.

• of a different plan - This may include, for example, expenses for integrating a security system or organizing training to improve the qualifications of staff.

The lion's share of TSO-type expenses falls on staff salaries - this is especially true for companies that provide services.

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results from implementation) differ in one-time and operating costs.

In this case, it is possible to compare informatization options based on total cost of ownership (TCO). The selection criterion in this case is minimization (TCO → min) or the method of hierarchy analysis.

Total cost possessions (TSO)

For the first time the term Total Cost of Ownership

– TCO) was introduced by Paul Strassman, by TCO he understood the monetary costs of maintenance, modernization, repair, acquisition of new software products (SP) for technical means(for example, a computer), or maintaining software (for example, a database) in working order for the entire estimated or actual time of its existence.

The simplest definition of TCO for an IP is the following: it is the cost associated with acquisition, implementation and use IS. In this case, it is necessary to consider the initial and subsequent costs, collectively defining them as the single costs of the information system in the process of its creation and operation.

Any enterprise, with the help of automation, strives to improve the efficiency of its business. One of the main conditions for achieving this goal is “reasonable” (i.e., no more, but no less) IT costs, which, just like any other, require planning, accounting and control. Based on this, for domestic enterprises and IT managers, issues related to the problem of reducing the total cost of ownership of an information system are integral and require detailed consideration.

TCO was originally developed as a means of calculating the cost of ownership of a computer on the Wintel platform, and thanks to the efforts of the Gartner Group and Interpose, this methodology has become the main tool for calculating TCO in other areas of computer technology. For example, there are now methods for calculating the TCO of document flow, various hardware platforms, networks, and software. Each of the methods has its own calculation specifics, so we will only give general technology TSO calculation.

Initially, there were two models for estimating TCO.

A first example is the TCO model developed by by Microsoft in collaboration with Interpose. IT costs are divided into two categories: direct (budget) and indirect.

Direct costs are those that are usually taken into account in budget planning. Many Ukrainian enterprises do not have the ability to manage their IT budget, since often there is no budget management system as such. Direct costs are usually provided for in the budgets of the central IT department, as well as working or project groups for support and implementation information technologies inside production and administrative divisions. These include costs:

for hardware and software (purchase or rental, new installation or update, etc.);

for management (network and system administration, design);

for support (technical support service, training, support contracts and maintenance);

for development (problem setting and development of applications, documentation, testing and maintenance);

on telecommunications (communication channels and their maintenance).

Indirect costs are those that cannot be planned and are often not even taken into account. According to Interpose research, they account for over 50% of the average IT spend of organizations.

Rice. 1. Structure of enterprise IT costs

These include:

user costs (personal support, informal training, errors and miscalculations);

downtime (loss of productivity due to failure

equipment or preventive planned shutdowns). As a second example, consider the TCO model, the basis for which is the concept proposed by the Gartner Group. This model takes into account the following IT costs: fixed, or, as they are also called, capital investments, and ongoing. They are conventionally distributed along a time scale: capital investments are made at the stage of building an IS, current costs - at the stage of operation. According to the Gartner Group methodology

To The following costs should be considered fixed:

cost of development and implementation of the project;

initial purchases of major software;

initial purchases of additional software;

initial hardware purchases.

These costs are called fixed because they are usually made once, at the initial stages of creating an IP. At the same time, the choice of a particular strategy, hardware and software platforms has a very significant impact on subsequent operating costs.

In turn, current costs consist of three items:

cost of updating and upgrading the system;

costs of managing the system as a whole;

costs caused by the activity of IS users (“user activity”).

“System management costs” refer to the costs associated with the management and administration of IS components. This cost item can be divided into some subcategories:

training of administrative staff and end users;

wage;

attraction external consultants;

outsourcing;

training courses and certification;

technical and organizational administration and service.

The cost of providing a user experience is reflected in the concept of “user activity.” This cost item, according to Gartner Group, has the most significant weight in the total cost of IP. It identifies the following cost sub-items:

direct help and additional settings;

formal training;

Application Development;

working with data;

informal learning;

Futz factor (a parameter that determines the amount of costs associated with the consequences of incompetent user actions).

These costs are associated, for example, with the administrator's participation in setting up the workstation, with providing assistance to the user or with consultations. According to analytical companies, the main factors influencing the final cost of ownership of information technology are 75% due to end-user problems.

The description of these two TCO models does not claim to be complete, but shows only a general picture of a company’s IT costs and allows for the development of procedures that reduce TCO. The application of these methods at a specific enterprise, naturally, has its own specifics.

Currently, the Gartner Group (after acquiring Interpose in late February 1998) is the sole owner of all resources of the most popular TCO methodology.

We will adopt a simplified methodology for assessing TCO.

The TCO cost of ownership is generally estimated using the formula:

TCO = K+ n× C[rub.],

where C – operating costs for the IS; K – capital (one-time) costs for the IS;

n – number of planned years of operation of the IS.

When using this method The main problem is determining the correct value of n [years], since the planned and actual service life of software and hardware solutions can significantly

YURI IPATOV, YURI TSYGALOV

Cost-effectiveness of IT investments: the optimal assessment method

LATELY, THE MAIN issue when implementing IT is the effectiveness of the investment budget that enterprises allocate for these purposes. CFOs strive to put the value of information technology into numbers. But the elusive nature of the technology makes it difficult to quantify.

When organizing investments in IT, the following rules must be followed:

Decisions on investments in information technology are made in the same way as in other areas of business - based on considerations of financial gain;

IT development should be carried out in close connection with the needs in the field of company management. However, they should never be determined solely by the need to introduce technological innovations;

The information technology department must have a good understanding of the needs of the business, and business units must have a good understanding of the real capabilities of information technology.

Business informatization is a process of continuous improvement not so much of the information systems themselves, but of management as a whole. Therefore, to evaluate investments in company automation, it is important to know the success factors and risk factors of such projects, it is important

compare the costs of the information system and the benefits obtained from the point of view of financial and organizational perspectives. The level of such knowledge will ensure the effectiveness of investments in information technology and business in general.

For rate economic efficiency Investments in IT can be applied to the following models:

Assessment of the total cost of ownership of information systems (Total Cost of Ownership, TCO);

Return on Investment (ROI) assessment;

Standard methods for assessing the economic efficiency of investments (return on investment);

Return of assets;

Shareholder price;

Estimation of one-time costs for the implementation and purchase of software and hardware systems.

The concept of Total Cost of IT Ownership was introduced by the Gartner Group in the late 1980s (1986-1987). TCO is key indicator information technology and information systems(IS) in the company, as it allows you to evaluate total costs on IT, analyze them and, accordingly, manage IT costs to achieve the best return.

The total cost of IT ownership is one of the most important criteria when considering future projects, as it determines their economic feasibility.

The main purpose of calculating this indicator, in addition to identifying excess expense items, is to assess the possibility of returning funds invested in information technology.

In this case, the key point is to compare the TCO of your enterprise (for example, in terms of one user of the system) with the TCO of other companies of a similar profile. It is often quite difficult to estimate the direct economic impact of IT (that is, the profit from its implementation). By comparing the TSO indicators, the IT manager can prove to the company management that the economic indicators of the project are no worse than the industry average, or even better.

Such a comparison is usually made with industry averages of similar companies and with the “best in the group.” Even if the direct economic effect of IT implementation is determined, it must always be compared with the cost part, that is, with the TCO.

The TCO model is based on two categories of costs:

1) direct (budget);

2) indirect.

The central IT department of the company, responsible for the development and support of corporate IP, corporate network, etc. (upper corporate level);

IT support and development groups available within the company’s production and administrative divisions (local level);

Separate groups of specialists providing specialized types of services, such as communication and data services.

Direct expenses include:

Capital costs - hardware and software (JSC and software);

IT management costs;

Expenses for technical support of JSC and software;

Expenses for developing application software internally;

Outsourcing costs;

Travel expenses;

Expenses for communication services;

Other expense groups.

Based on these groups of direct expenses, the components of TCO are determined. For example, when determining capital costs for equipment, costs should include:

Costs for purchasing new equipment and replacing it,

Funds received from the sale or transfer of equipment;

Equipment depreciation;

Costs of network equipment and connections (cables, hubs, cards, which, as a rule, are not depreciated);

Expenses for the purchase of peripheral devices;

Costs for purchasing additional random access memory(depreciation of equipment should be taken into account):

Expenses for additional disk devices (equipment depreciation is taken into account);

Equipment replacement costs;

Other equipment costs.

Equipment costs are the simplest group for TCO calculations.

Other groups of direct costs (software, technical support, management, etc.) are considered similarly. There are up to ten such groups in total. Each of them has its own specific calculations.

The most labor-intensive group to calculate is management costs. This includes, but is not limited to, the costs of design, project management, network administration, and overcoming emergency situations, setting up systems and sub-systems, managing purchasing contracts and managing supplies.

Indirect costs. There are two groups of sources of indirect costs associated with the use of IT

The nature of the first lies in the fact that if the IS is poorly designed (for example, there are long server shutdowns), then this causes unproductive waste of time for users (interruptions in work) and even loss of business for the company. Typically, indirect costs are difficult to determine directly. However, they should be taken into account when designing IS and organizing technical support. It is necessary to distinguish between planned and extra-standard downtime.

The nature of the second group of indirect costs lies in the organizational side of IT and lies in the fact that due to inadequate support of its side by full-time employees! IT departments, their end users within the company themselves are forced to deal with issues of recovery, self-training, etc., and this also reduces productive work time.

Indirect costs are outside the scope of IT budgets but can play a significant role in evaluating project decisions. At the same time, their first group (“system inoperability”) can be considered using a method for determining production losses. The second group (“unproductive efforts of the end user”), associated with information technology, is determined using field and statistical research.

The total cost of ownership of IP is calculated using the formula:

TSO = Pr + Kr 1 + Kr 2 (1)

where Pr - direct costs; Kr 1 - indirect costs of the first group; Kr 2 - indirect costs of the second group. Wherein:

Pr = Pr, + Pr 2 + Pr 3 + Pr 4 + -+ Pr 5 + Pr b + Pr 7 + Pr 8 (2)

where Pr 1 - capital costs; Ex 2 IT management costs; Pr 3 - expenses for technical support of JSC and software; Pr 4 - costs of developing application software internally; Pr 5 - outsourcing costs; Pr 6 - travel expenses; Pr 7 - expenses for communication services; Ex 8 - other expense groups. TCO must not only be calculated when considering a new project, but also constantly monitored in the future.

The total cost of ownership of information technology is a qualitative key characteristic that reflects the economic aspects of the state of IT in a company and shows the effectiveness of their work.

The cost of creating an IP is determined on the basis of actual costs, and the cost of owning and operating an IP is quite difficult to calculate. To manage the costs associated with owning and using each component of an information system throughout its entire life cycle, it is customary to calculate the total cost of ownership.

Total Cost of Ownership information system (from the English Total Cost of Ownership) is the sum of direct and indirect costs borne by the owner of the system during its life cycle.

If an enterprise information system exists and it is necessary to select a new IS from among the proposed options, then the life cycle, which considers direct and indirect costs, includes:

• lifetime of the system existing at the enterprise;
• time required to design a new one alternative solution;
• time to purchase and implement elements new system;
• the service life of the new system, taking into account the depreciation of its elements and the period required for the system to reach a level of profitability at which its operation allows the return of 90% of the investments made in the system.

The total cost of ownership is assessed for each proposed option and the alternative with the shortest life cycle is preferred. The point in time at which an enterprise initiates the process of selecting a new system is individual in each case and can be determined based on the following factors:

• changes in system requirements, resulting in the need to significantly supplement or change the functions of the existing information system in order to avoid unjustified financial losses;
• achieving income from the operation of the existing system at the level of 90% of the investments made in it;
• achieving a level of operating costs for the system when they exceed the income from its use, etc.

The costs assessed in calculating the total cost of ownership include direct and indirect costs.

Direct costs. There are different total cost of ownership models, and in the most general case, direct costs include three main components:

• 1) main costs:
  • IP creation;
  • equipment - servers, client sites, peripherals, network components;
  • software;
  • applications, utilities, control software;
  • update (modernization);
• 2) operating costs:
  • task management (network, system, memory arrays);
  • support for system performance - personnel, help desk, training, procurement, preparation of contracts for system support;
  • development of infrastructure, business applications;
• 3) other costs:
  • creation of communications - global networks, interaction with service providers, remote access, Internet, client access;
  • management and support - outsourcing, maintenance. Note that the costs associated with the creation of IP are included

investments include costs for system design, programming, system testing, acquisition, installation and preparation of equipment, development and modification of manuals, user training, etc.

Equipment costs include:

• cost of system components;
• costs of replacing equipment during the life cycle;
• the cost of related furniture for peripheral devices;
• the cost of preparatory work when changing the location and adding or removing equipment;
• changes in power supply, lighting and air conditioning.

If part of the equipment is leased, then the total costs for this equipment are allocated to a separate category.

Operating costs i.e., the costs of maintaining and operating the system include:

• costs for network management(administrative personnel costs for solving problems associated with network and client management) - identifying the causes of malfunctions and repairs, measuring network traffic and planning its optimization, tuning the performance of network components and intercomponent connections, changing the composition of users, network access rights, supporting network and client operating systems, maintaining the functionality of the network and clients, etc. P.;
• system management costs (application, asset and migration management costs) - research and selection of new strategies and configurations, evaluation and purchase of new technical and software, software configuration over the network, inventory and procurement control, software version control, access control, prevention of security violations, recovery from violations, installation of additional equipment or upgrades, etc. P.;
• storage management costs (costs for tasks associated with managing and monitoring data and its storage on the network) - organizing, optimizing and restoring files on the network, monitoring stored data, providing access to data and storage devices, configuration and support archiving and backup systems, real-time management of data storage facilities and repositories, etc.

Indirect costs - These are the costs of monitoring, sending and receiving mail, telephone conversations, information entry, translations, premises costs, losses from planned and unscheduled downtime, utilities and support for administrative and clerical staff.

Let's consider another approach to estimating the total cost of ownership of an information system, developed by Microsoft and Interpose, which assumes that hardware and software costs are associated with technical support, training and downtime. The TCO model proposed by these companies allows them to measure this indicator and use it to develop plans to improve the cost structure of the information system.

The essence of the model is as follows:

• analysis of the cost structure for each type of equipment (servers, clients, printers, etc.);
• equipment classification (laptop/desktop computers, file servers, print servers, applications, OS);
• assessment of the features of each type of equipment;
• separation total costs for direct and indirect costs.

In this TCO model, direct costs include:

• hardware and software (capital investments and royalties for licenses for new systems, modernization and updates);
• administration (payment for network and system administration, storage administration, outsourcing, as well as solving reactive and proactive management problems);
• support (help desk, training, logistics, travel, service and support contracts, and overhead);
• development (creation of applications, testing and preparation of documentation, including the development of new projects, adaptation to customer requirements and maintenance);
• payment for communication tools (dedicated line and servers).

Indirect costs are associated with end users (costs of self-help, referral to colleagues, irregular study reference materials) and with losses caused by planned and unscheduled downtime.

According to Interpose, hardware and software capital expenditures account for only 26% of the total cost of IT deployment and ownership. Most of the costs are associated with administration and technical support, which are carried out by specialists, as well as the hidden costs of managing and maintaining computer systems by the users themselves. The total cost of ownership model for an information system allows you to structure these costs and opens up broad prospects for reducing them, since they are mainly associated with labor costs for process management, training and operations. instrumental means. Interpose also notes that when analyzing cost structure, many do not take into account the fact that rising costs lead to a proportional increase in employee efficiency and flexibility, and excessive savings (for example, on training), on the contrary, lead to an increase in downtime and the number of calls for service. technical support.

The article “IT budget - investments or costs?” (Intelligent Enterprise No. 15’2003) aroused interest among readers, and we decided to continue the topic of the IT budget in this issue. Since Alexander Buidov, director of the information technology department at CROC, was actively involved in the preparation of the previous material as a consultant, the editors are publishing his original material on this issue.

Portrait of TCO in the interior

From the very beginning, it should be emphasized that TCO methods do not exist on their own and make sense only when various methods and individual indicators (metrics) are already used to evaluate the business. Therefore, we will consider TCO within a certain classification along with other methods.

In some cases (see, for example, http://www.cio.com/archive/071502/value.html) business valuation methods are divided into traditional financial, qualitative and probabilistic. TSO falls into the category financial estimates. The fairly well-known method of Economic Value Added (EVA) also falls into this category.

Among the methods used in Russia qualitative assessment can be called Portfolio Management (this approach is described in sufficient detail in the previous article, see Intelligent Enterprise No. 15’2003), Balanced ScoreCard (BSC) and IT-Scorecard. Other methods, such as Real Option Valuation (ROV) or Applied Information Economics (AIE), are practically unknown in our country.

The classical principles of TCO have been and remain in demand both in Russia and in the West. Although, when comparing TSO with similar methodologies, it becomes clear that it is least connected with business objectives. If, for example, the EVA method (directly competing with TCO) operates with the concept of the excess of profit from the activities of a department or profit in a specific project (in our case in the IT field) over the cost of the operating capital allocated to it, then TCO deals only with the cost part. In other words, with the help of TCO you can answer the question posed by the business, but it is unlikely to be possible to argue for any IT initiative in terms of increasing profitability.

Gartner Group, the developer and ideologist of this methodology, recognizes that TCO is not a tool for all occasions: it is not suitable for assessing risks and for determining how IT aligns with the company’s strategic goals. Nevertheless, the use of TCO in conjunction with BSC or other methods for assessing qualitative factors can be a good basis for determining and controlling information technology costs.

TCO yesterday and today

Currently, the TCO concept is actively developing. There is a kind of core of this methodology, which is a set of the most universal items of IT costs, and methods that can conditionally be attributed to an extension of the TCO model. So, the most universal cost items according to the TCO model are as follows:

• acquisition and modernization of hardware, network and software;
• auxiliary and service systems (life support, security, control);
• Maintenance;
• education;
• operation of the system by users (self-training, irrational use of working time);
• software development;
• communication services (dedicated communication channels, Internet access).

Direct costs (for creating and maintaining systems) are quite simple to calculate; The difficulty most often arises from calculating indirect costs, such as training and user support, as well as losses associated with equipment downtime. To correctly calculate them, a system for collecting time statistics is needed (downtime of the IT system, time spent on self-learning and mutual assistance of users, etc.). Some of these statistics can be collected by analyzing requests from the HelpDesk service, the other part can be obtained from analyzing employee workload.

In some cases, you need to take into account specific cost items, such as monthly paper consumption, when calculating the TCO of operating a printer. In table 1 shows a fairly typical example of calculating the total cost of owning a personal computer, in which the proportions accepted in practice between certain types costs.

Table 1. Calculation of the total cost of ownership of a PC

This scheme now serves as the starting point for the development of the TCO concept. IT managers are faced with more complex tasks than before, dictated, in turn, by the variety of available technical and organizational solutions. After all, buying Personal Computer or server, you need to immediately think about its future modernization. And when creating information systems, you need to be able to distinguish between the problems of scalability and migration over time to a new platform. The last issue is related to adequate consideration of risks, etc. Building a user support system may require consideration of many standard organizational schemes, in particular, building a HelpDesk service. And similar examples can be continued.

In addition, modern approaches to calculating TCO are increasingly intertwined with business issues. There are attempts to divide the concept of total cost of ownership into two parts: technology-related TCO and business TCO (see, for example, http://www.sybase.com/content/1018088/iq_wp_TCO.pdf), accordingly highlighting several areas costs:

• for hardware;
• for software;
• for personnel;
• to ensure availability of services;
• to provide required level system performance;
• to ensure rapid recovery from failures.

Strange as it may seem at first glance, it is the last three areas that fall into the category of business TCO. But the fact is that they, unlike cost estimates associated with equipment, software and personnel, should take into account the business processes in the organization to the greatest extent. Assessing the benefits or losses associated with the performance and availability of a service only makes sense when the business context of access to it by certain employees is precisely defined. A constant delay of 10 seconds when accessing data for a design engineer can significantly reduce his productivity, while a store clerk, having launched the credit card authorization process, will still be busy during this time with paperwork for the product or its packaging. As a result, with adequate consideration of the business components of TCO, which quantitatively take into account possible losses as a result of deviations from a certain ideal level of availability and performance or from zero probability of downtime, it is possible to compare all proposed solutions using a single indicator, summing up individual factors.

Understanding business processes allows you to evaluate TCO under various scenarios in accordance with the “what... if” principle. After all, the various components of TCO are interconnected by a nonlinear relationship dictated by the characteristics of the business. As stated earlier, it is not a fact that a more expensive platform and correspondingly higher abstract performance and availability will provide proportional savings from these factors in a real business environment.

Thus, TCO must be calculated taking into account the unique technological development and business traditions of each enterprise. For these reasons, additional emphasis should be placed on such points as the modularity of the TCO architecture; taking into account the impact of the complexity of modern information systems; structure of personnel working with IS; control of risk factors and application of best practices of organizations.

Taking into account various factors influencing TCO allows us to identify a large number of typical situations that occur in business. Thus, in accordance with the Gartner Group classification, IT solutions can have a certain level of complexity in terms of manageability (for example, centralized, decentralized, distributed structure) or hardware and software architecture (degree of saturation with client-server technologies, etc.). IT personnel, in turn, according to Gartner, are divided into several categories, including, for example, specialists working with corporate knowledge (knowledge workers), mobile workers, or workers involved only in entering information into the system. Each of these categories is characterized by a certain qualification, potential level of return from using IT and requirements for IT infrastructure. The modularity of the software architecture allows you to select a unique configuration of the most significant TCO factors, adapting the TCO calculation methodology to the maximum extent for a specific enterprise, and calculate various scenarios using the “what... if” principle.

It can already be said that the previously widely popular industry average ready-made TCO indicators are now of less and less importance and methods that generalize the accumulated experience are coming to the fore.

Thus, relying on in-house methodologies for calculating the TCO of core enterprise products (be it a database server or a network router) is not very helpful in estimating total cost of ownership. Although the price of equipment, the cost of support, the cost of personnel training and other cost items are in most cases declared by the supplier quite correctly, in a real business environment the cost of the final solutions built on their basis and the income they generate can differ significantly.

Principles of the business game

To summarize the above, one can find a place for TCO methodologies used to calculate the cost of ownership of IT products in the company’s business as a whole. To do this, imagine business management and IT personnel as players battling on a court, with the rules of the game reminiscent of tennis.

The global initiative always belongs to business. He serves first, inviting the IT department to contribute to solving the business problem. The latter has several options. Using classical methods of calculating TCO, the IT department assigns itself the role of a defender on the back line: as already mentioned, even very competently calculating costs, you can only answer business questions, fending off blows and showing a minimum of initiative. To avoid this, you need to “go to the grid” from time to time, thereby meeting the formulation of business tasks not in the “information rear”, but closer to the territory of the business itself. This is where advanced methods for calculating TCO come to the rescue, taking into account the specifics of the business and combining, if necessary, with other tools.

Players from the business half of the field are also capable of playing on the back line and at the net. For example, Balanced ScoreCard, financial or management analysis techniques, are usually used exclusively to solve business development problems and, even with advanced application, do not concern IT issues at all. To solve problems that directly require assessing the effectiveness of IT, special metrics can be used. There are many similar parameters (see, for example, http://www.baselinemag.com/article2/0,3959,99364,00.asp). To assess the overall return on IT, you can use, for example, the following indicator, calculated, say, for the last five years of the company’s operation:

Number of completed IT projects with known financial return/total number of completed IT projects

To assess the effectiveness of the impact of IT on business (for example, in industry), the following parameter is quite applicable:

Increase in the number of products produced on production line N3/total IT costs aimed at automating the line’s operation

With these indicators, business, for its part, comes closer to the half of the field occupied by IT. Other methodological tools, discussed in detail in the previous article, are also useful for both sides when playing in the center of the field.

As a result, it turns out that in most real situations, the most effective style for both sides is “playing at the net,” when the ball does not linger for a long time in either half. In other words, this or that problem of IT support for business is alternately assessed from both sides so that the specifics of IT and issues of business efficiency are considered using uniform methodological means without separation from each other. And, thanks to the common language, mutual understanding is achieved faster. The modern view of the TCO problem is precisely the development of playing techniques in the center of the field.

Finally, it can be noted that reducing TCO is not only a generally accepted formula. It's also quality collaboration business units of the company and IT department. Some cost components associated with ownership costs (for example, costs associated with the mass development process new version corporate system) are difficult to quantify and directly regulate. Accordingly, they are trying to fight them with more creative methods, for which there are no common methods. An example would be the preliminary creation of a special section on a corporate portal dedicated to a new version of software, or the preparation of special training demo videos for each category of company employees. Here, mutual understanding between business and IT (already at the level of organizational approaches) plays a significant role.

Is it expensive to own infrastructure?

So, let's take a quick look at a number of examples of total cost of ownership calculations that demonstrate the fact that in the context of taking into account business problems they look much more coherent and convincing. Let's start with the problem of IT infrastructure, the development of which is quite difficult to justify using the “pure TCO” tool, as we have already noted.

Let's say a large industrial organization plans to implement a PDM (Product Data Management) class system in order to automate the process technical training and subsequent modernization of new products. It is estimated that $2 million in additional revenue will be generated in the first year of operation of the PDM system by reducing lead time. Improving business processes through the implementation of a new system will save about another $5 thousand per week. Implementation of the selected product, which the vendor estimates will take about 4 months, will require the work of six external consultants paid at $25 per hour and working 40 hours per week, as well as 12 enterprise specialists paid $200. in Week. It is already known that in a year the task will be to replicate the experience of implementing a PDM system in three remote product design centers. And to solve it, it will be necessary to involve, respectively, three external consultants and six customer specialists.

An analysis of the implementation scheme shows that only through the use of a network data storage platform at an enterprise can the implementation period of a PDM system be reduced from 4 to 3 months, and its deployment in branches - from 6 to 5 weeks, respectively. Moreover, the use of this platform can increase the level of data availability from 97 to 99.99% with a corresponding reduction in planned equipment downtime from 5 hours to 30 minutes per week, and unplanned downtime from 1 hour per month to 1 hour per year. It is known that 1 hour of planned downtime of the PDM system costs the company $1 thousand, and unplanned downtime costs $6 thousand.

This example shows that specifications of the implemented complex (in our case, the level of data availability provided by the storage system) is very closely “woven” into the commercial characteristics of the project. When calculating the TCO for a storage system in this situation, it seems advisable to highlight this characteristic explicitly, while at the same time not separating it from the business context of the project. The results of this attempt are summarized in table. 2.

Table 2. Calculation of total cost of ownership for a PDM system

Effect of TCO reduction

25*40*4*6 = $24 thousand savings on payments to external consultants
200*4*12 = 9.6 thousand dollars as a result of savings from internal staff workload

Efficiency in terms of business processes	Business effect	Total effect, thousand dollars
Initial implementation of a PDM system. Time savings - 1 month (4 weeks)	2000/12 = $167 thousand additional income from accelerated implementation 5*4 = 20 thousand dollars by improving business processes	167+20+24+9.6 = 220 thousand dollars
Deployment of a PDM system in branches. Time savings - 1 week	5*1 = 5 thousand dollars due to improvement of business processes	25*40*1*3 = $3 thousand savings on fees for external consultants 200*1*6 = 1.2 thousand dollars as a result of savings from internal staff workload	5+3+1.2 = 9.2 thousand dollars
Reduced planned and unplanned downtime		1000*(5-0.5)*12 = 234 thousand dollars per year savings due to planned downtime 6000*(12-1) = $66 thousand per year in savings due to unplanned downtime	$300 thousand per year
Total total savings per year	192 thousand dollars	$337.8 thousand	$529.8 thousand

The example allows us to demonstrate that individual components of TCO, calculated in the context of business problems, can have a negative value: along with the costs of purchasing and operating a product, which by definition have a negative value, the final amount includes positive terms that determine savings on the reorganization of business processes , at the speed of their execution, etc. This is often used when calculating TCO in relation to business processes. The formula for calculating TCO accordingly takes the form:

TCO = Traditional Cost Items - Amount of Savings Achieved

In our example, only the amount of savings is given, divided in advance by the overall business result and the effect obtained directly as a result of using the functionality of the storage system. By definition, having also a traditional breakdown of TCO expenditure items into initial and periodic costs (similar to that shown in Table 1), we obtain all the data for calculating the ROI indicator (see also the previous article), which, as we found out above, already acts as a tool for collaboration between business and IT. It is calculated using the following formula:

ROI = (Savings Achieved - Annual Investment)/Initial Investment

If the project pays off in less than a year (and, accordingly, there is no influence of the discount rate), this value should exactly coincide with the ROI value obtained as a result of applying the methodology described in the previous article. And thanks to the breakdown of savings, we can highlight individual components of ROI.

In general, the development of methods in which the features of the business, the traditions of using IT, the technical characteristics of the solution and, finally, economic effect are connected by a unified and carefully thought-out system of metrics, which significantly goes beyond the consideration of TCO issues. And such techniques, due to the extreme importance of the problem, are really actively developing, which we will try to talk about in upcoming publications.