By IT Brew Staff
less than 3 min read
Definition:
Total cost of ownership (TCO) is critical for IT professionals, particularly managers, who are trying to utilize short- and long-term budgets efficiently. When executed correctly, a total cost of ownership calculation will include up-front, maintenance, and replacement costs.
For example, an organization might need to decide between an on-premises hardware solution or its cloud-subscription equivalent. While the on-premises option might come with higher up-front and replacement costs, many cloud-based services charge additional fees for data transfers, idle resources and other features, which could make the latter a more expensive option, depending on the organization’s needs.
In addition to direct and indirect costs, TCO can also incorporate intangible costs such as employee productivity losses. For example, while switching to a different storage solution might result in some maintenance savings, training employees on a brand-new system can prove costly in terms of time, resources, and distractions.
Calculating TCO can quickly become complicated, which is why many companies engage in a thorough TCO analysis, particularly for sizable infrastructure purchases. Such analyses determine the scope of the product (i.e., whether it will meet the organization’s needs now and in the future), compare potential vendors, and model out costs at every stage from implementation to replacement. When done correctly, TCO calculations can help IT pros ensure they don’t break the bank while keeping their tech stack continually up-to-date.
