Hearing about the variety of opinions about the cost of fighter jets for the Canadian Armed Forces, it got me thinking about the idea of using Total Cost of Ownership as a method for calculating the costs of a solution to an organization and comparing options. (I’m not going to address the topic of defining your needs and identifying solutions that meet those needs – which seems to be at issue here as well. Perhaps another blog on this soon…)
Before the idea of Total Cost of Ownership (TCO) became popular, businesses putting in new computer solutions didn’t understand and account for the full cost of the solution – it used to be (and still is) easy to think of the cost of a piece of technology as the amount you pay a software vendor for acquiring the product, implementing it and paying annual maintenance. These costs are clear and unambiguous, particularly when you are writing the cheques for them.
What traditionally didn’t get accounted for was a myriad of less obvious costs – the cost of your internal IT team to learn, implement and manage the new system, the costs to train and support staff who use the product, and of course additional infrastructure costs such as backup and archive, computer room footprint, power, AC and UPS (Uninterruptible Power Supply) draw. Some of these costs are fairly obscure to determine (and in fact for things like infrastructure really have to have some sort of cost allocation used).
But here’s the thing: if you don’t consider them, one day you realize that your computer room is full to capacity, or your network is working at maximum capacity or you need more storage at your hosted computer facility, and you have to make a case for why you suddenly need to spend more money. What’s worse, it’s often on items that nobody really cares about (“No new added functionality? Why should we pay for a new UPS?”) and that fall into categories that, as a CIO, your boss expects you to be on top of – so not only do you need to ask for money, you look like you aren’t doing your job.
So – back to the F-35 jets. What costs should be included? First, you want to include any cost that is incremental over what you have today. You have the cost of the planes, of course. And direct ongoing costs – maintenance, training for pilots and ground crew. You have to consider some operating costs – for example, if these planes use fuel at a faster rate that the old ones, you have to add in the extra fuel. If you need to rebuild hangars or runways to accommodate them, you have to account for that. However, if the total number of pilots doesn’t change (i.e., they are just going to stop flying old planes and start flying the new ones), you don’t have to account for them.
My opinion is that you have to be thoughtful but use common sense. What’s really important here is to be able to compare options on equal footing (so accounting for all the costs for each option to provide a fully implemented solution), and then once you make the decision of the solution to be implemented, make sure you know the resources you need to implement and run the solution – money, people’s time or use of organizational facilities. Oh yeah – and, as always, make sure your colleagues understand your decisions and your analysis so they aren’t surprised down the line. Forgetting to do that is the surest way to have support for your project disappear if suddenly the price goes from $9 billion to $16 billion.