Avoid Hidden Costs: Master Your Complex Systems Budget
Do You Have A TCO Evaluation Framework?
Calculating TCO can be a real challenge. You need to evaluate the Total Cost of Ownership of a complex system using a proven TCO Framework. You may even struggle to define the meaning of TCO. There are many cost elements to consider when determining your TCO.
Are you sure you have selected the best system based on TCO?
- Do you know what cost categories you need to track?
- Direct Cost
- Indirect Cost
When it comes to evaluating TCO, you may find that what is below the surface far exceeds the initial cost.
You need a common TCO Chart of Accounts framework to capture all the relevant value data. That's why we have developed a simple excel Total Cost of Ownership template for just this purpose. It's a simple, excel based proven TCO Calculator, that helps you project the TCO of any system out for five years. It provides a holistic approach to developing the TCO of your project in a consistent fashion.
5-Minute Guide: Calculate Total Cost of Ownership Like a Pro
The total cost of ownership formula is actually very straight forward. You simply are estimating the expected actual cost as well as expected actual revenue, over the expected life time of the system or solution you're implementing. Total cost of ownership of an IT product covers not just the initial purchase price, but costs of operating that product across its lifespan -- when it is retired by an organization. A TCO analysis includes total cost of acquisition and operating costs, as well as costs related to replacement or upgrades at the end of the life cycle. For a data center server, for example, this means initial acquisition price, repairs, maintenance costs, upgrades, service or support contracts, network integration, security, software licenses and employee training.
Other Additional Cost Considerations
- Opportunity Cost. This one is often left out of detailed TCO analysis but should be incorporated in your TCO calculations.
- Intangible Cost. A common scenario today is evaluating the cost and benefits of moving to the cloud. To accurately calculate cloud TCO, you must capture not only the purchase price of on-premises vs. cloud solutions but also the intangible costs associated with either solution including cloud services, such as providing additional servers during heavy load periods (which happens far more often than you would expect, especially given the extensive sizing efforts often undertaken to perform a full ownership analysis).
- Backup and Disaster Recover. This is one where corners are often cut, only to result in long-term pain. It involves direct and indirect cost and is often undersized and underfunded. But this author has seen the sad results of bad disaster recovery procedures - you don't want to take chances on this.
TCO Analysis Template
This TCO analysis template has been used as a total cost of ownership information technology template on both very large ERP projects and small IT projects.
TCO Evaluation
Net Margin Impact Evaluation
The TCO evaluation template provides both a TCO Chart as well as a table so you can see your expected cost, year-by-year, as well as expected revenue. The TCO Graph shows Net Margin Impact and Net Revenue Impact.
Cash Flow Analysis
The total cost of ownership excel template also includes a Cash Flow Analysis template. The TCO example comes from an actual ERP project the author delivered. When you combine Net Margin Impact, Net Revenue Impact with Cash Flow Analysis, you get a total cost of ownership graph that provides very impactful information about the project investment under evaluation.
Perfect For: Decision-Makers Who Need Accurate TCO Analysis
This Total Cost of Ownership Calculator is for procurement professionals, project managers, CIOs, CEOs, CFOs, and CMOs, and is designed to allow you to evaluate multiple, full-lifecycle IT system proposals. But it is useful in construction, real estate and any other industry where you need to evaluate different systems using consistent, constant information. Other professions where we have seen it used include:
- SAP
- Hubspot
- Salesforce
- Anywhere a project business case needs to be built
Offshoring Decision Making Support
Actual offshoring costs are often difficult to ascertain and are not fully baked into most TCO templates. With this TCO analysis template, you have the option to aggregate those costs into simple cost buckets, and take their full impact on TCO into consideration.
Complex Recapitalization Costs Scenarios
This simple TCO analysis template has also been successfully used in scenarios where a business is being recapitalized. In these fairly common business cases, existing projects will have to be reevaluated, especially when changes to previous assumptions, i.e., depreciation cost schedules, changes in WACC (Weight Average Cost of Capital), ownership structures and other factors that affect the underlying project assumptions, occur.
Download Your TCO Template Now + Bonus Implementation Guide
You can download your FREE, fully editable copy of the TCO Template by completing the form.