In IT Financial Management terms, Total Cost of Ownership (TCO) analysis was popularised by Gartner in 1987.

Since that time, when deciding on an investment, CIOs must consider it by assessing the total cost of ownership which includes taking a bigger picture look at what the product is and what its value is over time. The item with the lower total cost of ownership is the better value in the long run.

The total cost of ownership (TCO) is the purchase price of an asset plus the costs of operation.

The purchase of a car is one example where the cost comparison matters. The total cost of ownership of a car is not just the purchase price but also the expenses incurred through its use, such as repairs, insurance, and fuel.

The total cost of ownership analysis can be especially important when comparing a used car to a new car. A used car that appears to be a great bargain might have a total cost of ownership that is higher than that of a new car, if the used car requires numerous repairs, while the new car has a three-year warranty that could cover repair charges.

An example of an IT investment that requires a thorough analysis of the total cost of ownership, is the purchase of a new ERP/Finance software solution. The solution has an initial purchase price. Additional costs could include new or upgraded hardware, installation, implementation, transition costs, employee training, disaster recovery planning, communications expenses and the opportunity cost of downtime plus other productivity losses, ongoing support services, and future upgrades. Using these costs as a guide, the CIO compares the advantages and disadvantages of purchasing the ERP solution as well as its overall ability to create added value to the enterprise over the long term.

ClearCost provides total transparency of IT (and/or Shared Services) spend at the most granular level possible, enabling organisations to maximise the value of any investments.

Since Gartner introduced the concept of TCO in the 1990s, the focus for IT management has been less on managing components and more on managing outcomes. Using ClearCost ITFM software to calculate TCO allows you to manage outcomes and look defensively at what components create those outcomes. TCO becomes a baseline against which you can apply improvements and it is that which is the real value of TCO is to an organisation.

ClearCost has a clear and concise Technical (Internal) Service TCO and separate Business (External) Service TCO – a unique feature of the software. The true cost transparency offered by ClearCost ITFM contributes to defensible TCO. The use of the TCO number has more strategic value than simply managing the cost, it’s a financial lens into costs of each tool & delivered service within your IT organisation.

Knowing the TCO gives the CIO powerful information with which to make more intelligent and defensible decisions.

To learn more about how ClearCost ITFM software can help your enterprise calculate TCO, you can request a live demonstration of the ITFM solution here or visit the ClearCost website.