I vividly remember the song “If I Had a Hammer” from Peter, Paul & Mary. Having been in IT for some 30 years, a hammer was not always the furthest thing from my mind. A hammer actually has a use in IT, but you’ll need to read a bit further before I tell you what for and why. The point I want to make is that technology is huge, not only in pushing the production possibilities curve and increasing efficiency, but in adding complexity as well. This complexity can become a source of frustration, but being careful not to add unnecessary complexity is a key factor in not only implementation, but also in keeping support costs down.
Understanding the Iceberg.
Take a close look at the drawing to the left. Take special notice that the vast majority of the iceberg is under water. The point here is that the entire iceberg represents TCO, or Total Cost of Ownership. First, there are tangible items, like cost of hardware, software, some labor, and the like. Taking a closer look, there’s the cost of maintaining, administering, training, shortened useful life, replacement strategy, annual support costs, downtime or slowness affecting productivity. In other words, before embarking on this voyage, perform a thorough analysis to understand all aspect and most importantly, understand useful life.
You end up with two product prospects. Solution A has cost of $100,000 and Solution B is $125,000. Solution A has 30% headroom in capacity and Solution B for $125,000 has 100% headroom.
You may try to save money and opt for the item costing $100,000. Say it costs $25,000 to deploy and it won’t include any other costs for the sake of simplicity. So if the item lasts 5 years, your cost is $100,000 + $25,000 for a total of $125,000. Dividing this into 5 years it will cost you $25,000 per year.
By far the biggest mistake folks make is in under buying which ends up affecting useful life. That is, they sign up for a solution, thinking they are getting a bargain and not considering the needs won’t be met based on current company growth. Folks, a 5-year lease payment will always be infinitely more attractive than a 3-year payment, but it’s important to understand the true TCO. Let’s review this from a 10-year business cycle perspective.
Alas, Solution A was undersized and it only lasted 3-years and had to be replaced prematurely, then replaced a second time for 5 years, and a third time within the ten year period. Costs were $100,000 x 3 = $300,000 for the equipment plus 25,000 X 3 = $75,000 for the deployments. TOTAL COST $375,000 over ten years or $37,500 annually.
Had Solution B been selected, you could have saved some serious coin as it was replaced twice in the same ten-year period. Costs would have been $125,000 x 2 = $250,000 for the equipment plus $25,000 x 2 for the deployments. TOTAL COST $300,000 or $30,000 annually.
In the end, Solution B wins out, as there were only two implementations in the ten-year period. It happens more often than you know. We’re not including support costs and the business disruptions, disposal costs, and other associated costs, so the real TCO is likely somewhat higher.
Now, about that hammer reference at the beginning of the eNewsletter. Once upon a time yours truly worked for a company called Yamaha Corporation of America. I was largely responsible for IT Operations in North America. When reviewing the operations of the PC group, I found a guy that was running a routine on hard drives. He would sit and monitor this program for hours to ensure all data had been written over. I came over and showed that him that with a couple swipes of the hammer (with safety goggles of course) he could do 60 of these hard drive destructions per hour.