Total Cost of Ownership (TCO) is an investigation of the lifetime cost for owning an asset(s). TCO shall include the software and hardware but may also bring cost for installation, implementation, product management, operations, maintenance, training and upgrades. TCO investigations can expose a significant difference between the initial purchase cost of the software and hardware and the lifetime ownership costs. TCO may include many different costs that most would not have thought of when considering new hardware or a software application.
Virtual Machines today have replaced the need for dedicated servers for contact center applications. When doing the TCO investigation adding the partition cost is required. We must also look at any future OS upgrades and their specific costs. What happens to the application if the server OS is upgraded?
- Is the application compatible?
- Does it need to be upgraded and at what cost?
- What is the corporate policy regarding OS upgrades on servers? Corporate security may have a deciding factor in this policy.
- Is there other hardware that works in conjunction with each other and how do these upgrades affect the other hardware?
There are other factors when it comes to TCO for hardware, such as installation, deployment, maintenance, replacement and operating costs. We often do not look at the entire hardware picture when considering the ownership and upgrades of hardware.
There are many factors to look at when determining the TCO for software. Hardware is just one piece of the puzzle for Software TCO. Software costs should include the main software engine, the additional options and the user licenses that come with those options, data migration (if needed), installation and implementation (there is a difference between the two), lab environment, maintenance and training.
Main software engine is the required application. Perhaps, we should look at all of the options and the user license fees that are needed to meet the target and or goals for this software application.
- Will the software be connecting to another application and is a license fee needed for this application option?
- What about the other application and the connection between the two applications; does the other application have a fee to allow this type of connection?
- Do the other applications need to be upgraded and does the upgrade affect this application connection?
Data migration is often included in the vendor proposal, but sometimes there are other costs associated with the migration of the data from one location to the next.
For example; what if there is a latency issue when data is sent from one location to the next?
- What if the latency is due to internally required hops such as routers, firewalls and servers?
- Who wins that battle of reducing the hops; the new software or the corporate security? What is the cost of reducing hops?
- If the new software wins, what is the cost?
User licenses are typically included in the vendor proposals so including them is not difficult to do; however, are there additional costs to consider for the users?
Implementation, training, hardware changes such as OS upgrades or the need for additional third party applications to ensure functionality of the user application. If the number of application users begins to decrease are there any cost reductions? Unless it is a cloud or hosted based application chances are there is no cost reductions available.
Installation and Implementation:
Installation and Implementation are two different functions. Installation is the loading and configuring of the software on the server. Installation may also include data migration and user applications. Implementation is administration of the software for the users and their specific needs.
- Will installation have to follow corporate rules and are there costs associated with these rules?
- Will the implementation bring up security issues that need to be tested prior to the final implementation of the software?
Lab environment is used for many purposes. Most often it is to test the application(s) to make certain they function as stated as well as see the ramifications to the network, other applications, hardware, etc. product patches are and should be tested in the lab prior to being loaded in production. The lab environment costs need to be added to the TCO.
Product upgrades, changes and enhancements happen with software. Some of these changes occur that affect other third party software applications. These changes could be security requirements, OS changes, business regulations, or business growth through acquisition. Has project management costs been included with these upgrade changes?
Training is needed on a few levels. Not only those that use the software but those that monitor it. There can be multiple levels of functionality for any software. This also means training for each level needs to be done. What needs to be thought about is the future training? All companies have turnover and one of the results of this turnover can be the need for additional training. Is this new training included in the software cost?
Software and Hardware Maintenance:
Maintenance coverage is needed for all applications. Understanding what is included with the maintenance is fairly easy to find out. What is not easy to determine is what is NOT included and what those costs shall be. Asking the vendor what is not included is one of the right questions to ask. But, what if maintenance is not purchased what are the costs associated with the lack of maintenance?
There are costs for not having maintenance. Future support will usually be hourly with a minimum amount of hours required. However, what if you do not have maintenance and the software application has gone end of life (EOL) and now you need support?
- Will the provider support the old software or require an upgrade?
- Will they require you to purchase previous years of no maintenance?
- What else is affected by the lack of maintenance such as training, product upgrade costs, product patches, user licenses and data migration changes?
Never forget to investigate the costs of not having maintenance.
TCO costs that have not been mentioned are failover, high availability, product depreciation, data centers, downtime and future migration to another software. If you are looking into TCO of hardware or software that you currently have you can ask the current vendor about these costs mentioned. If you are comparing multiple vendors and trying to determine what the TCO will be for each vendor be sure to compare all costs mentioned but also look at the outcome of the product features. Be sure to investigate the costs of not including options in the original or on-going yearly purchase.