Monday, January 4, 2010

Eight Percent

As per Gartner, the cost involved in developing an IT application and bringing it to the live state is only 8% of the cost required in keeping it live for 15 years. And this, in a nutshell, is where most organizations do not plan properly and run into problems. The “whole life cost” or total cost of ownership (TCO) is rarely computed in a responsible manner. Rather, a knee-jerk reaction to changing market circumstances prompts the decision making process (if there is one) and a project is hastily assembled. After the project is completed, and the maintenance costs start mounting, there is “surprise” at the mounting maintenance costs. Then IT has to request more funding for its operations.

This whole sequence of events can be avoided if organizations simply add up the TCO and make responsible decisions in conjunction with business. The areas of expenditure that should be taken into account are:

  • Planning

  • Design

  • Construction/acquisition

  • Operations

  • Maintenance

  • Renewal/rehabilitation

  • Financial (depreciation and cost of finance)

  • Replacement or disposal

A great many tools and techniques for TCO exist and are readily available on the web. However, my goal here is to emphasize the importance of performing TCO and to be aware of the pitfalls involved in failing to perform this step.

The reason, in my opinion, that a lot of organizations suffer from poor TCO calculations in spite of the information being easily available and not very difficult to compute as well is because they often emotionally stake the next project as the “magic” deliverer of their present dilemmas. It is this emotion and lack of calculated analysis that leads organizations into the quicksand of wrong decisions and incorrect cost computation.

Organizations must make an accurate and well though out business and financial analysis of every proposed undertaking. If they neglect this step, they will pay for it later as 92% of the unaccounted cost is waiting to hit them where it hurts.

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