Total of Ownership for IT Investments

  • Definition: the systematic quantification of all costs generated over the lifetime of a project.

  • Attempts to answer: What is the effective cost of the investment including one time purchases and recurring costs as oppose to just the initial startup cost?

  • Useful for:

    One time costs:

    The one time costs are usually incurred in the beginning of the project in the form of software licenses and hardware, or at the end of the project in the form of decommissioning costs to retire the application.

    Recurring Costs:

    These costs are incurred on a periodic basis and originate from the maintenance, upgrades, annual licensing fees as well as support of the application or investment.

    Project Duration:

    The project duration is usually defined as the expected lifespan of the investment.

    Example: HR Application (Expected Lifespan: 4 years)

    Year 1

    Planning: $200K
    Design: $150K
    Installation: $50K
    Integration: $200K
    License fee: $100K

    Total Year 1: $700K

    Year 2

    Operations: $60K
    Training: $30K
    Support: $30K
    Management: $40K
    License fee: $10K

    Total Year 2: $140K

    Year 3

    Support $30K
    Upgrades: $60K
    Management: $40K
    License fee: $10K

    Total Year 3: $140K

    Year 4

    Support: $30K
    Management: $40K
    License fee: $10K
    Decommission: $80K

    Total Year 4: $160K

    TCO = $1.14M/4years = $285K/year