Best Practice Report

TCO Is Overrated

Use Relative Cost Of Operations For Most Infrastructure Investment Justifications

August 26th, 2008
James Staten, null
James Staten
Andrew Reichman, null
Andrew Reichman
With contributors:
Stephanie Balaouras , Walid Saleh , Rachel Batiancila , Rachel Dines

Summary

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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