Total Cost of Ownership
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.
Structure
TCO is made up of the following Categories and CBBs. Maturity and Planning are described at both the CC and the CBB level.
- AModels, Tools, and Methods
- A1Cost Coverage
Identify cost drivers throughout the life cycle of the asset or IT-enabled business service, to include direct and indirect costs involved in acquisition, operations, enhancements, and end of life.
- A2Tracking Methods
Establish methods to track total cost of ownership, and integrate them into the financial accounting systems of the organization.
- A3Data Reliability
Create reliable total cost of ownership analysis for IT assets and IT-enabled business services.
- BAdoption and Impact
- B1Adoption
Promote organizational uptake of total cost of ownership models, tools, and methods.
- B2Impact on Decision-Making
Use total cost of ownership data to inform business decisions, such as decisions to invest in, retire, or replace systems, and also decisions relating to budget planning, and evaluation of competing options and business cases.
- CStakeholder Management
- C1Communication
Communicate total cost of ownership activities and outcomes with key stakeholders.
- C2Inclusion
Involve stakeholders in relevant total cost of ownership calculation decisions to support the financial management of IT.
Overview
Goal & Objectives
An effective Total Cost of Ownership (TCO) capability aims to:
- 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.
Scope
Definition
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.
Improvement Planning
Practices-Outcomes-Metrics (POM)
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 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 TCO models are underpinned by actual cost data.
- Metric
- Percentage of total cost of ownership models underpinned by actual cost data.
- Practice
- Define a standardized total cost of ownership calculation template for proposed investments.
- Outcome
- A common total cost of ownership methodology allows investments to be evaluated consistently.
- Metric
- Percentage of proposed investments for which total cost of ownership is calculated using a standard template.
- 3Intermediate
- Practice
- 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 better cost management of IT assets.
- 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
- 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 systems.
- 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
- Investment decisions consistently take both direct and indirect costs into account.
- Metric
- Percentage of investment decisions supported by total cost of ownership data.
- 5Optimized
- 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.
- Outcomes
- Total cost of ownership data remains accurate.
- There is a high degree of confidence that the costs of IT are managed appropriately.
- Metrics
- Frequency with which the data is refreshed.
- Percentage of actual costs that differ from projections by more than agreed tolerances.
Reference
History
This capability was introduced in Revision 18.10 as an update to Total Cost of Ownership (16).