Gartner TCO

(Gartner) TCO - Total Cost of Ownership - was first developed in 1987 by Bill Kirwin as a means of clearly and reasonably addressing the real costs attributed to owning and managing an IT infrastructure in a business. Gartner TCO applies a rigorous and holistic methodology to the analysis of IT infrastructure related costs. The methodology is broad enough to include regional and industry variance and still retain the ability to present objective and consistent cost information to the IT department and business alike.

Gartner TCO identifies costs as being made up of two major components - direct and indirect. Direct costs traditionally forms the area that organizations find easiest to measure and as a result direct costs can often receive undue or excessive focus. Typically, direct costs are made up of labor and capital costs.

The other component in Gartner TCO is indirect costs. Indirect costs are more elusive and difficult to measure and rationalize. The 'soft' nature of indirect costs means that their impact on owning an IT infrastructure is often underestimated. Indeed, some organizations dismiss the impact of indirect costs completely. Gartner surveys, however, consistently show that despite the difficulty of measuring them, indirect costs can typically represent a substantial component - as much as 60% - of the total cost of managing and owning an IT infrastructure. Indirect costs typically reflect the factors that drive and are driven by, direct cost decisions; for example downtime or quality of service. Most importantly, indirect costs are often a result of misdirected funding in direct costs like technical support, training and help desk; therefore, making those costs look artificially low, and further, shift these costs to business units reducing available resources to perform business tasks.

For example, it might seem like a sensible “direct costs” decision to reduce costs by spending less on contract negotiations, or hardware purchases or staff development and retention programs. However, if the result of such action is to deliver services with inappropriate service level agreements, or less reliable hardware that fails more often or longer waits for less effective support, the ultimate outcome might be to shift the comparatively meager savings from the direct side into comparatively significant increased costs in the indirect side.

The Gartner TCO methodology has been applied to several different technology areas, from desktop computing to storage management, in order to allow organizations to analyze and assess the various specific cost drivers that operate in those different technology infrastructure environments. As such, Gartner TCO has been extended to help organizations deliver objective Gartner TCO supported decisions to colleagues and clients alike.

The Gartner TCO methodology has proven to be a vital and popular framework for IT and business management decision-making. The methodology has also formed the basis for thousands of Gartner Research notes and business decisions.

Many of Gartner's most prominent analysts have used TCO as part of their analytic approach to assessing some of the most pressing and critical subjects around the impact of technology change and its implementation. Bill Kirwin, who originally created the TCO model, recently published a research note for CIOs that discussed the importance and value of using TCO. The note proposed that TCO, once appropriately measured, analyzed and managed, is a critical means of controlling IT expenditure and indicating the effectiveness of IT implementation. As such, Bill presented TCO as a means of communication, relationship management and governance for business IT (“CIO Update: To Control TCO, It Must Be Measured and Managed” April 2003).

Mark Margevicius has used TCO to investigate and help analyze the decision around adopting and using thin client devices (“When Thin Clients Can Narrow Your TCO”, August 2004) while Mike Silver and Brian Gammage used TCO to offer a clear insight through the hype into the use and adoption of virtualization technologies on desktop devices (“PC Virtualisation TCO: The Best of All Worlds, or the Worst?” June 2004).

With the recent explosion around implementing wireless networking technology into homes and business, Phil Redman and Neil Rickard have used Gartner TCO methodology to cut through the hype and offer clear and valuable analysis on the potential value of implementing wireless LAN environments (“Wireless LANs Have Higher TCO, But Can Raise Productivity”, June 2004).

With the continued expansion of mobile device adoption and permeation into business, both authorized and personal, Leslie Fiering and Federica Troni used TCO as a means of assessing the true costs of adopting and deploying various mobile devices to different types of workers (“Notebook TCO Comparison: Day Extenders vs. Traveling Workers” September 2003), while Ken Dulaney, Leslie Fiering and Todd Kort used TCO to offer clarity through rumor and assumption around the real cost drivers in owning ruggedised PDA (“Ruggedised Handheld TCO Is In Line With Business PDAs”, August 2004)

Gartner has also taken the opportunity to embed the Gartner TCO methodology into a collection of tools that allow for the development and presentations of various TCO related scenarios. The tools allow organizations to apply the robust Gartner TCO methodology to their specific decisions and questions and present the possible impact of making those decisions.

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