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For Infrastructure & Operations Professionals

TCO Is Overrated

Use Relative Cost Of Operations For Most Infrastructure Investment Justifications

August 26, 2008

Authors

  • By Andrew Reichman,
  • James Staten
  • with Rachel A. Dines,
  • Stephanie Balaouras,
  • Walid Saleh,
  • Rachel Batiancila

Why Read This Report

Total cost of operations (TCO)-based financial analysis is held up as the gold standard for technology investment justification, but most firms don't have the rigor to apply the discipline to their environment. To really implement TCO-based analysis it takes a comprehensive and continuously updated catalog of asset inventory, in-service dates, agreed-upon operating cost rates for activities, and a scheme to divide shared costs among the constituent business processes that use them. For most firms, this is a pipe dream viewed either as a waste of resources in a futile quest for achievement or too intimidating to even begin. Forrester recommends a more expedient and realistic financial approach that can be just as effective but much simpler to calculate — relative cost of operations (RCO). RCO can be a middle-ground solution, moving far beyond acquisition-cost-only analysis, while being more achievable than a full-blown TCO.

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Table of Contents

  • Most Cost Analysis Is Fraught With Inaccuracies
  • To Truly Understand Financial Impact, Measure Only What Changes
  • RECOMMENDATIONS

  • You Need Three Tools In Your Cost Analysis Arsenal
  • Supplemental Material
  • Related Research Documents

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