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The UC TCO

The Total Cost of Ownership (TCO) calculation is an estimate, not a fixed concrete bill. I think it is a better financial measure of a Unified Communications acquisition than the Return On Investment (ROI).The ROI is an anticipated measure of the value of a project. Saving money such as reduced maintenance costs can be one value. Another can be outsourcing with fixed contract costs. But what about productivity benefits and improved business processes delivered by UC? These are benefits that have not been offered before; therefore it will be more likely that the financial benefits are a calculated guess rather than proven facts. This especially true since UC features and functions will not benefit everyone in the enterprise equally.

I have asked countless times in my seminar and conference presentations, "How many of you have performed and ROI calculation?" Almost all have raised their hands. The next question was "How many of you read the ROI 3 years later to see if you were correct?" Almost no one raised their hands. If the ROI is not reviewed 3 years later, was it ever reasonable and accurate? Very few ICT people know. I relegate the ROI to the CFO. The ICT management should be looking at the TCO.

The Total Cost of Ownership is a financial estimate of the direct and (many times) hidden/forgotten indirect costs of an ICT project. The TCO should cover the entire life cycle of the technology. The TCO calculation has three parts:

1. The acquisition, procurement installation and integration of the hardware and software.

2. The operating expenses

3. Long term expenses

You can find some free TCO calculators online. Use the lists below to ensure that these calculators are thorough and include all of the elements.

The actual costs of each of these parts will depend on the enterprise, what it already has operating, available facilities and staff and what the project is to deliver. I have detailed the elements of each of the three parts so that an enterprise will have complete list. It is possible that some of the elements can be ignored. I suggest that for those elements where there is zero cost, the elements should be listed to demonstrate to management that they have been considered. The following lists pose the considerations and questions that need to be answered when calculating the TCO.

Hardware and Software * Server hardware--Can the software operate on existing server platforms? Will there be any server expansion required? Can the software operate with virtualization? Will new servers be required? Will the hardware be purchased and capitalized, or leased?

* Network hardware--Can the present router support the bandwidth requirements? Do the routers need to be changed to support UC function and features? Will the hardware be purchased and capitalized, or leased?

* The cost of the software subscription and when it has to be paid. Some vendors require a 3 year prepayment for the subscription that must be incurred in the first year of the project.

* Software licensing fees for the UC features need to be determined. License costs may only affect the server. Other license fees may be incurred for workstation-resident software.

* Internal license tracking and compliance costs

* Workstation upgrades or replacements to implement the UC features such as memory expansion, cameras, headsets, better LCD screens etc.

* The cost for the internal staff and possible consultants for the research of products, RFP completion and distribution, and vendor selection.

* The internal costs to create, observe and report on a Proof-of-Concepts trial(s).

* The cost of the installation and integration of the hardware and software

* Warranty payment and extensions

* Implementation risk including upgrade availability, patch cost and installation, changes in licensing policies, vendor vulnerabilities....

Operating Expenses * Infrastructure changes to floor and rack space, as well as power and cooling changes.

* The cost to upgrade the network and server operations platforms. Will new software be required in addition to that provided by the UC vendor?

* The cost to power and cool the new server and network equipment. Ask the facilities staff for your present electrical rates or go to http://tonto.eia.doe.gov/state/. Rates vary from 7 cents to 20cents/kWh. Get the power requirements for the equipment in kWh. Multiply the power rating by 1.9 to include the cost of cooling. Calculate the power and cooling cost for 3 years. Assume the electrical rates increase 5% in years two and three.

* The cost of testing the operation, which may include vendor staff as well as enterprise staff. Special equipment may also be required for the tests.

* License renewals.

* Software subscription renewal.

* Expenses incurred for downtime, outages and failures.

* Will the installation and integration diminish performance? What is the financial impact?

* Security problems that will require additional software and procedure and staff changes.

* Planning and implementing backup and recovery processes.

* Staff training, certification and turnover.

* Management level time

* Internal and external audit costs to comply with regulation and legislation.

* Increased insurance premiums.

* Non IT staff training and support costs.

Long Term Expenses * Hardware upgrades or replacement due to software changes. For example, the server may not be capable of supporting new UC features.

* The cost to expand the number of users. Will hardware need to be replaced? Will new software need to be acquired?

* The cost to decommission the systems and components and the disposal fees need to be included in the TCO if the equipment is purchased, not leased.

* Will the hardware and/or software be retired by the vendor, forcing replacement during the TCO period?