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Analysis / Business

TCO Calculations Should Include Value Added


We’ve all got used to the idea of factoring in the total cost of ownership (TCO) for any investment. However, it’s worth considering a couple of other numbers – one is the total value that the investment will deliver and the other is the negative cost of not taking action. This can help you allocate the appropriate budget in a way that delivers long term benefits to the business and doesn’t prove to be either a financial or logistical burden.

How Do You Calculate TCO?

The first step is to establish the TCO. Let’s take the example of colocating some new servers. The initial cost is the hardware and this will require maintenance and potentially a series of upgrades. Colocation requires an investment in space, including maintenance and support charges. In addition, you need to look at the extra costs such as the possible changes to processes, the training of staff, additional software or cloud platforms. Many businesses also add further, less obvious costs – for example, the cost of sending staff for a major repair or upgrade so aspects such as the location and ease of access to the data centre can have a demonstrable impact on the total cost.

What Is The Total Value Of The Investment?

When projecting into the future for costs, it’s worth also calculating the future value because it’s the only way to get a clear picture of whether you’re going to get a return on your investment. Let’s go back to our colocated servers. Colocation delivers immediate value in that it frees space in your office and can significantly reduce power consumption due to the combined demands of the servers and the necessary cooling. That value works in two ways – you have room to expand in your office, of course, but if your business grows to the extent of needing more servers to support your business, you’ll have room to grow there too.

In addition, with servers maintained remotely by the data centre, you can focus your IT team on developing technology and processes which directly contribute to your business. You can still keep overall control but siphoning off the everyday tasks can provide more time for creativity and innovation. Finally, colocation in a secure data centre can not only provide a powerful layer of cyber security, but also physical security and 24/7 response time to any issues. This gives value not only in ensuring compliance with various laws such as the upcoming new GDPR, but also in terms of customer service as you limit the amount of downtime from an SLA rather than costly overtime arrangements.

What Is The Cost Of Not Investing?

This is the final part of the calculation, and this factors in a range of issues from operational costs to business continuity. In the case of colocation, you’ve got the space and power required to maintain your servers onsite, and you can add on staff time. Then you add up the cost of all those additional benefits, from the free space to expand your sales or customer service teams to 24/7 support, SLA-bound reliability and legal compliance. There is a financial cost to not acting, but there’s also a potential loss of business, and a hindering of growth. When looking at the TCO, considering the cost of not investing can be a valuable metric in building a business case.

The TCO of any IT project should be measured against the delivered value, and the contrasting cost of inaction. This gives a clearer picture of the strategic and operational importance of any major IT investments you’re looking to make. It may seem on the surface like more numbers to crunch, but in the long run it gives you the best picture for allocating your budget where it is most needed.

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Gary Coates is the manager at Green Co, a low-carbon, ISO27001-certified data centre with high efficiency systems to deliver a range of services including colocation, connectivity and disaster recovery to businesses across the South East.