Wednesday, August 26, 2015

TCO is So 1990: Why TCS is the new TCO!

Think back to the 90's: Bill Clinton and the Bull market, Flip phones and the Internet, Forrest Gump and Pulp Fiction, Boy Bands and Nirvana, Friends and Seinfeld... and if you were in IT, the rage was TCO – Total Cost of Ownership.

TCO was first developed in 1987, to help compare the costs of different compute infrastructure. At the time, it was a battle between big iron vs. PCs and networked computing. TCO was vital in helping CIOs understand the true costs of not just buying the infrastructure, but owning and managing the systems over their useful lifecycle. The on going costs of administration, support were 3 to 5x more expensive than the original purchase price –– a real eye opener for many.

TCO was valuable as a financial model, to analyze the true and complete cost of IT across the enterprise and over time. The model was asset based, CAPEX focused and for the most part, isolated to the datacenter, network and desktop. At the time, the activities and costs associated with 90s IT were relatively easy to codify – a chart of accounts with a handful of easily defined capital and operating expense categories.  You could examine internal spending and tally a handful of consultants and services providers to understand your true cost of computing or compare different solutions using the TCO model.

Today, enterprise IT is all about the Cloud, Big Data, Internet of Things, Mobility and BYOD. The business spends more on technology than central IT, compute services are sourced by business groups and users as a service, and new levels of technical and financial abstraction have emerged.  
To go along with the benefits of flexibility, scalability and agility with this new model, IT struggles with a loss of central control, compliance and security, way more configuration and services options, and more hidden costs and risks.

In a more complex and vital environment, the need for technology financial analysis is more important now than in the 90s. Public, Private and hybrid decisions abound, and having a financial model that can help organizations make the right choices is key. However good it was in the past, the old asset-centric TCO approach is difficult if not impossible to apply to the 2015 IT world.  

At the IT Financial Management conference in April, Bill Kirwin, well known as the “Father” of the original TCO models at Gartner, discussed the idea of Total Cost of Services (TCS), an evolved approach to determine the true costs of these new compute options and services.
Just like in the original TCO model, research shows us that it’s not just the initial Cloud service fees that have a cost, and that BYOD may not be the free lunch IT expected. There is a complex web of additional expenses, both internal and external to not just procure but manage, support and secure the business compute services.

Kirwin defines TCS as “the full life-cycle cost of the entirety of activities – driven by market forces and directed by policies organized with supporting processes and procedures - that are performed by an organization or part of an organization to source, plan, provision, operate, control and refresh IT services offered to consumers of those services.”

Here’s a quick comparison of how the TCS model can evolve the concepts of TCO and help create a better view of IT decisions and finance:

Asset based
Business Service Demands
Resource based
Consumption based
Cap-Ex focused with defined refresh cycles
Op-Ex centric and continuous
Management and support
Centralized IT+ a few outsourced services
External services + Internal IT + Business + End users
Labor Drivers
Keeping the Lights-On vs. Innovation
Security and Compliance
End User Operations
Futz-factor and Peer support
BYOD and Shadow services
Indirect costs
SLAs, Velocity, Flexibility, Scalability, Elasticity, Agility and Risk

Technology needs a common costing model that will enable IT to compare different options and measure the true cost of these new service models.

For 30 years, TCO has been a useful metric to understand the cost of the old IT world.  But times have changed, and with it, the entire delivery model for IT services. As a result, we need a better financial model to help optimize service decision-making, and illuminate hidden costs and risks. TCS could be that new model.

When the “Father of TCO” says it’s time for TCO to grow up, perhaps it’s time to listen? 
TCS is the new TCO.

Bill Kirwin , CEO and Founder of IIIE, will be one of our featured presenters at the Value Selling and Realization Conference in Dallas TX on Feb 29/March 1 2016, discussing TCO and presenting the TCS model and it’s potential impact on technology decision making and optimization. Mark your calendars and stay tuned for this inaugural event.

Comparing and Selecting Solutions Using TCO -

The Frugalnomics Survival Guide - How to Use Your Unique Value to Market Better, Stand Out and Sell More -

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