The 3 Costs of IT

A well-managed computer is 37% less expensive than an un-managed PC often saving several thousand dollars per PC, per year.  Whether you purchase a PC, notebook, server or other network hardware; you will likely experience sticker shock once you factor in the other 51% of the costs (the indirect costs related to productivity) into your total cost of ownership (TCO).

Understanding hidden technology costs can actually help you reduce unnecessary expenditures and reallocate resources to more important business functions.  I often simplify this conversation by explaining how there are 3 main technology costs for businesses:

1. The hardware and software you need to run your business

2. The support team to manage your hardware and software

3. Employee productivity loss due to technology issues/failures

Why do I care about TCO?
Gartner, Inc. defines TCO as the total cost of using and maintaining an IT investment over time.  TCO calculations include a combination of direct costs (hardware, software, operations and administration) and indirect costs (end-user operations and downtime).

Most organizations believe their direct costs end at the point of purchase. However, research shows that a computer’s base price typically represents less than 20% of its TCO, with technical support, maintenance and labor costs accounting for the remaining 80%.  These aftermarket expenses represent the greatest piece of the TCO pie and should therefore warrant the highest levels of scrutiny.

Computers require constant configuring and maintenance.  Ongoing costs related to security measures, software updates, computer repair and general support are unavoidable.  However, simplifying your IT infrastructure and management processes will increase efficiency, expand productivity and significantly reduce your TCO.

IT Spending Facts:

  • An un-managed PC costs $5,000 per year. (Gartner, Inc)
  • On average, firms spend $700 per user per month when all IT expenses are factored. (Gartner, Inc)
  • 80% of total IT costs occur after the initial purchase. (Gartner, Inc
  • Employees spend 30 minutes per week trying to fix PC problems or helping a co-worker. (Compass)
  • The average SMB spends 6.4% of its annual revenue on IT expenses. (AMR Research)

How Much Do You Spend On Technology? Probably much more than you think.  An un-managed or poorly managed desktop PC costs more than $5,000 per year.  When factoring in associated network costs, such as firewalls, storage, servers, routers, printers and internet connectivity, estimates exceed $8,500 per PC annually.

Remember that the initial purchase is just a fraction of the total cost of ownership, which means a $1,000 PC could actually cost more than $15,000 over its three-year lifespan.  If a 10 person organization upgrades its PCs every three years, it likely spends a minimum of $120,000 managing those computers after the purchase.  The same logic applies to buying servers and related network hardware – the real investment begins once that equipment arrives at your door.

Even though more than 50% of TCO comes from indirect expenditures, many organizations focus solely on curbing direct costs.  Since tight budgets have already reduced IT spending to a minimum, taking measures to improve end-user operations and decrease downtime can generate significant cost savings in the long run.  In fact, Gartner recently found that a well-managed computer is 37% less expensive than the example above, often saving several thousand dollars per PC, per year.

Tips For Reducing TCO
IT spending is really a balancing act between hardware, software and services.  According to Gartner, strong PC management is the key to overall cost reduction.  The more money allocated for direct IT expenditures, such as operations and administration, the less money will be wasted on lost productivity and downtime. Unfortunately, the reverse is also true.  If you try to spend less on proper infrastructure and system management procedures your costs on loss productivity and downtime will increase in the long run.

Here are several important ways you can reduce TCO and increase efficiency:

  1. Measure your current IT spending so you can effectively manage and control your costs.
  2. Build and maintain an accurate inventory of hardware, software and appropriate licenses.
  3. Reduce complexity by standardizing equipment, software platforms and configurations.
  4. Streamline processes for operating system patches, security updates, data back-up and maintenance.
  5. Protect against viruses, malware, hackers and physical threats.
  6. Control user access to applications, settings, network resources, databases, and other IT assets.
  7. Provide regular training for both employees and internal IT staff.
  8. Integrate an established managed IT support partner to more effectively manage and protect PCs, provide user support, manage backups and security and be better at all the above points.

How Does Your IT Spending Measure up?
Determining your annual IT expenditures and calculating TCO can be complicated.  We are happy to set up a call or meeting to assist in calculating your total cost of ownership.