5.2 Total Cost of Ownership

5.2 Total Cost of Ownership

An important consideration to managers is the total cost of ownership (TCO) (Ellram 1994; Ellram and Siferd 1998), including provisioning and operation, facilities and personnel. In addition, TCO may include costs for an application wholly or partly developed and maintained internally. Where users perform administrative functions (like administering their own desktop computers) or provide training or help to other users, the imputed costs of these responsibilities should be included.

It is difficult to estimate TCO accurately because so many roles are included, some intangible. For facilities, the TCO includes the cost of equipment and services (like network access), consumables, maintenance contracts and repair costs, service fees, and electricity (Griffith 1998). Personnel costs include technical support and administration, user support and administration, systems management, and training and retooling (Emigh 1999).

As software applications become more widely embedded in organizations, the TCO is an increasing portion of a typical organization's budget. Estimating and minimizing the TCO has become a significant issue to managers and to suppliers sensitive to these concerns. The quest to lower the TCO has resulted in pressure on vendors to provide streamlined and automated administration and management of applications and infrastructure as well as improved usability with simplified training and helpdesk requirements (Petreley 1999).

The observation that the administration of desktop computers is costly has resulted in a trend toward greater centralization of administrative and management functions. This can be accomplished in two complementary ways: partitioning more processing and storage functions on the servers, and introducing tools that centralize the distributed administrative functions. In a sense, this harks back to the days of centralized mainframes, albeit with considerable enhancements. One enhancement is the graphical user interface of desktop computers, even where many functions are partitioned to the server. Another is that today's server software is more likely to be off-the-shelf rather than internally developed, providing greater application diversity and user choice. The application service provider model enhances this further (see chapter 6). Neither have mainframes disappeared, particularly as repositories of mission-critical information assets.

An extreme case is thin clients, where the desktop computer executes no application-specific code except that which can be dynamically loaded as mobile code (see section 4.4). An alternative is rich clients (rich in local customizability and functionality) supported by improved centralized administration and management tools. Most organizations deploy a mixture of thin and rich clients, reflecting the varying job profiles supported by the clients.

Clearly, we have a long way to go in minimizing TCO. Because of Moore's law and the increasing complexity of software, personnel costs are growing in relation to facilities cost and the cost of software acquisition. Thus, increasing effort will be devoted to reducing personnel costs, even at the expense of increased facilities or software costs. Tools that support distributed management and administration are a major opportunity for the software industry, emphasizing again that operators as well as users are important customers.

Software Ecosystems(c) Understanding an Indispensable Technology and Industry
Software Ecosystem: Understanding an Indispensable Technology and Industry
ISBN: 0262633310
EAN: 2147483647
Year: 2005
Pages: 145

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