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TCO: It’s just a number, and not a useful one, either (first appeared in InfoWorld)

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My first professional contact with InfoWorld was in 1993. I’d just installed a user-friendly front end to CompuServe when along came the Gartner Group’s total cost of ownership (TCO) model — at the time, well over $8,000 per year for a single PC.

Inflamed with righteous anger and (more to the point) itching to use my new CompuServe software, I wrote a less-than-diplomatic guest column for InfoWorld that began, “Does anyone else find the Gartner Group annoying?” and finished, “The definition of an expert here in Minnesota is `a guy from the East Coast with slides’. So I’m expecting Gartner to win without even a chance to debate the issues.”

InfoWorld Opinions Editor Rachel Parker added a thoroughly inflammatory headline, and a few weeks later, the Gartner Group offered me, manager of a 1,000-node network, a chance to debate the issues after all — at its annual symposium, in front of about 600 CIOs and other assorted dignitaries.

Modesty forbids my reporting the one-sided results. Oh, OK. I used Gartner’s accounting methods to calculate the TCO for a day planner. As I recall, it came to well over $4,000 per year. The whole thing was hilarious and left no doubt in the minds of the 600 attendees who was on the side of truth and the American Way.

A week later our chief financial officer, unaware of my newfound status as industry pundit, asked if I’d seen the Wall Street Journal article showing that PCs really cost more than $8,000 per year.

A lot has changed since then. Rachel has become a good friend. I’m writing regularly for InfoWorld and have moved to the consulting side of the industry. And the TCO estimates have inflated even further. Earlier this year I promised to provide an alternative. Starting this week I’m going to do just that.

The most important step in arriving at the right answer, Albert Einstein once pointed out, is asking the right question. Most sources describe Einstein as a pretty bright guy, so we’re going to take his advice.

The question answered by TCO is the aggregate PC/LAN cost to an average company. Not only is this the wrong question, it’s wrong in two different dimensions.

Here’s the first: It measures cost. That’s not a very intelligent thing to measure, as you know if you invest. Do you worry about the cost? No, you worry about the avoidable costs.

Businesses don’t spend, they invest. They invest in salaries, benefits, office space, raw materials, and, yes, personal computers and LANs. Businesses expect a return on all of these investments better than what they’d earn by putting the same money in an indexed mutual fund (or some similar measure).

Companies — smart ones at least — don’t cut costs. They cut avoidable costs, just as you do. They cut costs that don’t deliver enough return, just as you sell stocks that don’t perform. And they find lower-cost methods, just like you move to a discount brokerage to reduce trading fees.

The other problem with the TCO question is more subtle. PCs and LANs are a means to multiple ends, and an incomplete means to most of them. TCO lumps together some, but not all, of the costs of three very different kinds of process:

  • Personal productivity and effectiveness: You use your PC to write memos, letters, and reports; develop financial models; do research; maintain your calendar; keep track of contacts; and file and retrieve all kinds of documents.
  • Communications: You use your PC to send and receive information to people both inside and outside your company.
  • Company core processes: PCs and LANs are part (but not all) of the computing platform on which you run production systems. These production systems define the work of many employees. This distinguishes them from word processors and spreadsheets – tools for which employees define the work.

The result of adding three partial costs isn’t a useful insight.

It’s just a number.

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