A civic-minded citizen seeking the singularity

An entry

Total Cost of Ownership

Date: 2016-05-13
Status: release
Tags: innovation-accounting management IT internal

Free as in baby, or free as in beer?

If a person gives you a baby, you are also getting a liability for at least 18 years. Free beer, I can enjoy immediately without accumulating liability.

When running a business, expenses come in the form of systems, and people to create and maintain those systems.

I've often seen solutions evaluated and selected without fully considering the total cost of ownership of a system. And more sneakily, the initial assumptions that are made about a solution or its implementation drifts from the original projection, and small workarounds start occurring which add to the cost of a solution. We bought X, but didn't realize that everybody in our org would use it? Or, we chose to build Y based on the assumption that everybody would use it, but didn't realize only 100 or our 1000 employees would use it, and therefore, the solution is not providing the estimated value. Would an off-the-shelf now be preferable given what you know?

The notion of sunk costs affect teams who create solutions as well as an emotional tie to those solutions that helps prevent change from occurring. People are typically more sensitive then their software counterparts.

Total cost of ownership is often used during estimations, but rarely have I seen it in terms of actual, ongoing usage. So, when the cost of ownership of a solution rises, how quickly and effectively can the organization sense and respond?

If you run a business, keep an eye on the total cost of ownership for the functional units, such as: Departments, Teams, Software systems, and Processes/Flows/Scenarios. Understanding the value of each functional unit, as well as the cost will better enable you to account an innovation project to improve the state of things.