What is Computer Total Cost of Ownership (TCO)?

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When a company purchases an asset, more than just the sticker price is considered in terms of the impact the asset will have on the organization. Other costs, some obvious and some hidden, play an important role in the determining the Total Cost of Ownership (TCO).

Suppose a company buys a car to help run its operations. The sticker price is certainly part of the TCO calculation. However, any other costs directly associated with the car are also considered including maintenance, fuel, insurance, taxes, tags, and sometimes even the opportunity cost of buying this car and not using the money for other purposes. “Opportunity cost” is an economics term that denotes the value lost due to making a decision rather than accepting the best alternative.)

Companies with a significant investment in computer hardware are especially sensitive to the TCO of their technology infrastructure. Computers are especially susceptible to high TCO because they represent not just a tangible asset ,but also a means of productivity for employees.

Some of the costs associated with computers are software, maintenance, upgrades, power (electricity), and others. But even more importantly, computers can suck the productivity out of personnel because of long wait times for processing, network outages, failed hardware, training, threat of viruses, and even time spent on non-essentials such as gaming. (This is a reason why many companies remove copies of Solitaire from computers running Microsoft Windows.)

Home users are susceptible to costs that are usually not associated with the computer at the time of purchase. From a capabilities point of view, suppose a computer buyer decides to buy a computer with only one PCIe port. This purchase precludes the buy from the possibility of using two video cards to power graphics. It is a question of opportunity cost. Had the buyer paid a higher price for a motherboard that supports two video cards, the need to upgrade the computer later would have been eliminated. This opportunity cost, although not an outlay of money at the time of purchase, is a real cost that home users must consider.

One of the most important decisions when buying a computer is deciding which operating system to run. The operating system largely dictates the capabilities of the computer from a software standpoint. Buying a computer with meager processing power can reduce productivity when coupled with an operating system whose system requirements are at or above the computer on which it is installed.

Productivity is a major concern for companies that employ hundreds or thousands of people. Computers capable of processing information faster than slower computers can literally save thousands of man-hours. Consequently, investment in higher-priced hardware may actually reduce TCO. For the home user, the same is true but on a much smaller scale thereby making it difficult to calculate.

Another factor when considering TCO for the home computers is the cost of low-quality support. This begins with an analysis of the warranty; longer warranties make for lower TCO. In addition, customer support availability can reduce the need to take a failed computer to a third party when customer support is hard to reach or the opportunity cost of continuing to try to get technical support outweighs the cost of getting help elsewhere.

Although TCO is a concept usually associated with big companies, the home user can benefit from an analysis on a smaller scale. Often, the price paid for a computer is only about a third to a half of the total investment over the life of a computer. Obvious costs such as how much electricity a computer uses, software, and maintenance, and hidden costs such as poor support and the opportunity costs of having to upgrade make a computer’s investment for home buyers more than just the price on the box.