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The Total Cost of Ownership (TCO) capability aims to collect, analyse, and disseminate data on all costs associated with an IT asset or IT-enabled business service throughout its life cycle, from initial acquisition, through deployment, operations, and maintenance, to its eventual removal.

• Establish a standardized method of estimating, tracking, comparing, and managing the life cycle costs of IT assets and IT-enabled business services.
• Improve IT investment decisions by systematically comparing the incremental costs (direct and indirect) of competing systems to the full costs of existing systems.
• Raise awareness in the organization of the full costs of IT, and promote strategic budgeting by collecting and disseminating data on the full life cycle costs of technology.
• Improve the accuracy of total cost of ownership forecasts based on lessons learned from comparing forecasted and actual costs incurred.

The Total Cost of Ownership (TCO) capability analyses the life cycle costs associated with IT assets and IT-enabled business services. It facilitates investment selections, drives service improvements, and helps control costs.

The total cost of owning or operating an IT asset or IT-enabled business service includes not only the initial cost of acquisition and deployment, but also ongoing recurring costs, such as those associated with operations, support, and maintenance — for example, training, upgrades, licences, replacements, consumables, retirements, and disposals. Over the lifetime of the asset or service, these costs can greatly exceed the initial cost of acquisition. When these costs are fully understood, investment decisions are better informed, and overall costs within the IT function are more easily controlled¹.

By developing an effective Total Cost of Ownership (TCO) capability, an organization can make more informed decisions on the management of legacy IT costs and the selection of new investments. For example, taking total cost of ownership into account when evaluating alternative systems leads to a more realistic assessment of their value to the business, and can lead to considerable savings over the lifetime of the chosen system.

The Total Cost of Ownership (TCO) capability is the ability to identify, compare, and control all direct and indirect costs associated with IT assets and IT-enabled business services. The Total Cost of Ownership (TCO) capability covers:

• Identifying and analysing IT costs across asset and service life cycles, from acquisition to operations, enhancements, and end of life.
• Identifying all costs that both directly and indirectly affect the bottom line — for example hardware and software acquisition, management and support, communications, training, end-user expenses, the opportunity cost of downtime, and other productivity losses.
• Establishing a common methodology for comparing costs within and across IT assets, processes, and services.

Representative POMs are described for TCO at each level of maturity.

2Basic

• Practice

  Prioritize an inventory list of IT assets and IT-enabled business services for collating life cycle costs.

  Outcome

  There is an emerging database for querying costs associated with IT assets and services.

  Metric

  Percentage of IT assets and services covered.

• Practice

  Refresh total cost of ownership models by linking into the organization’s financial system of record.

  Outcome

  Confidence is emerging that total cost of ownership models are underpinned by actual cost data.

  Metric

  Percentage of total cost of ownership models underpinned by actual (versus estimated) cost data.

• Practice

  Define a standardized total cost of ownership calculation template for proposed investments.

  Outcome

  A common total cost of ownership methodology allows prospective investments to be evaluated consistently.

  Metric

  Percentage of proposed investments for which total cost of ownership is calculated using a standard template.

• Practice

  Communicate total cost of ownership benchmarking outcomes to key business unit stakeholders.

  Outcome

  Value-for-money discussions with stakeholders are better informed.

  Metric

  Number of benchmark studies that lead to cost improvement initiatives.

3Intermediate

• Practice

  Formally initiate tracking of direct and indirect costs across all IT assets and IT-enabled business services.

  Outcome

  The cost of ownership database is expanded, enabling improved cost management of IT assets and services.

  Metric

  Percentage of IT assets and services whose total cost of ownership is tracked.

• Practice

  Automate the tracking of costs.

  Outcome

  Total cost of ownership modelling becomes timelier, less onerous and less prone to error.

  Metric

  Percentage of data that is collected via automated means.

• Practice

  Motivate and incentivize employees to meet cost management targets.

  Outcome

  Cost management goals are distributed across the wider organization.

  Metric

  Percentage of IT total cost of ownership targets realized.

• Practice

  Fully integrate total cost of ownership activities with the organization’s financial system of record, and with IT asset and software licensing databases.

  Outcome

  Data can be centrally managed and refreshed in a timely manner to calculate and track costs.

  Metric

  Percentage of total cost of ownership data that is sourced from the organization’s financial system of record.

4Advanced

• Practice

  Ensure total cost of ownership projections are within acceptable tolerance ranges — for example, in the range of 3 to 5 per cent.

  Outcome

  Decision makers are confident that total cost of ownership projections are accurate and can be used in decision-making.

  Metric

  Percentage of projections that are within tolerance limits.

• Practice

  Measure and recognize the success of business units in meeting cost management targets.

  Outcome

  Stakeholders engage more readily in cost management activities.

  Metric

  Percentage of IT total cost of ownership targets realized.

• Practice

  Ensure that total cost of ownership data is used in developing strategic plans.

  Outcome

  Systematic use of total cost of ownership data informs strategic investment choices.

  Metric

  Percentage of strategic portfolio/investment decisions supported by total cost of ownership data.

• Practice

  Promote the use of total cost of ownership data in all investment decisions organization-wide.

  Outcome

  Decisions about proposed investments consistently take both direct and indirect costs into account.

  Metric

  Percentage of investment decisions supported by total cost of ownership data.

5Optimized

• Practice

  Continually review total cost of ownership approaches.

  Outcome

  There is a high degree of confidence that the costs of IT are managed appropriately.

  Metric

  Percentage of actual costs that differ from projections by more than agreed tolerances.

• Practice

  Regularly revise and update the IT assets and IT-enabled business services list in a Configuration Management Database (CMDB).

  Outcome

  The list of assets and services reflects actual cost drivers.

  Metric

  Frequency of review of the IT assets and services list.

• Practice

  Continually refresh total cost of ownership data with actual costs.

  Outcome

  Total cost of ownership data remains accurate.

  Metric

  Frequency with which the data is refreshed.

This capability was introduced in Revision 16 as a new critical capability.

It was deprecated in Revision 18.10, being updated by Total Cost of Ownership (18.10).

The following CCs cover topics that are related to TCO in some way:

AAAccounting and Allocation

655256550927000Allocating/charging back direct and indirect costs

AAAccounting and Allocation

Insight into the processes for allocating IT costs across the business

BGMBudget Management

Input on actual costs to refresh assumptions of the total cost of ownership model

BGMBudget Management

Refining the IT spending plan based on the calculated total cost of ownership

SAIService Analytics and Intelligence

Insight into the relationships between cost drivers and IT assets and services