Total Cost of Ownership – An Overview for Information Professionals

shutterstock_89484790.jpg Two black shirts sit on a rack at the mall. A designer top on sale, and a store brand at full price. They’re both $40; both perfectly suitable work attire. At first glance, the designer shirt seems like the better deal: better fabric, workmanship and durability for the same price as the lesser brand. But the designer shirt is dry clean only, the store brand is washable — $10 per cleaning versus a few cents. Project yourself two years into the future: which one’s the better deal now?

Not many people do a multi-year total cost of ownership (TCO) analysis when buying shirts at the mall, but it’s a useful exercise when trying to make decisions about budgeting and planning over the long term. Although, one may wonder: wouldn’t the cheaper shirt need repairs sooner? Shouldn’t we factor the cost of buttons, zippers or seamstress labor? Perhaps we should, it’s a better way to understand the real implications of our purchasing habits. Let’s extrapolate this small buying decision to a bigger one: acquiring an enterprise content management system.

Deciding on a content management solution for business documents is not getting any easier for information professionals. There is an ever-growing number of licensing and delivery options from numerous vendors, making it difficult to quickly assess what the best technical and economic choice might be. These decisions have multi-year implications and the initial price for end-user seats is rarely the end of the story. There is a lot of buzz about (return on investment), but perhaps it’s time for a refresher on TCO.

TCO Basics

Total cost of ownership helps an organization measure the cost of a content management investment over a period of time, often three, five or more years. Seeing past the initial cost of software acquisition is an important step for organizations serious about making a decision to proceed with an ECM deployment, and ensuring it has ongoing funding and resource allocation.

With software-as-a-service (SaaS) and open source platforms established as credible alternatives to traditional on-premises installation and licensing models, TCO is one of the few ways to level the playing field across options. Creating an apples-to-apples comparison across very different vendor business models is an important step when developing a business case for deploying an ECM solution.

What to Include in a TCO Analysis?

The essential categories to research in a TCO analysis include the initial acquisition and/or development costs, ongoing operational costs and the required investment in training and change management. These items can be broken down into areas such as:

Software

  • Consider all software investments needed for the ECM deployment. The application software costs may be zero when looking at open source or SaaS/Cloud options, but do not overlook supporting systems that need to be acquired to run a particular product. This may mean upgrading or acquiring a new database, web server or office suite licenses. It may also mean upgrading client operating systems, browsers or authoring tools. These dependencies should factor into the software cost.
  • If looking at traditionally licensed on premises ECM products, perform due diligence on the real scope of the multi-month or multi-year rollout. Understand any discounting implications if seats are purchased as needed over a number of quarters, or if all seats must be purchased up front to get the best per-unit pricing. Unused seats (shelfware) are no bargain if support and maintenance fees need to be paid on licenses that sit unallocated.

    Also, dig into HOW the licenses are priced — per user, per repository, per site, per CPU? All of these options exist in the Enterprise CMS vendor landscape and can have very different long term cost implications. Are there different types of user licenses? Do enough homework to know how many administrator, power user or read-only licenses are needed. Do specific modules such as records management or community tools need special functional administrator licenses?

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