Total Cost of Ownership for Enterprise Technology Projects

What total cost of ownership covers

Building the model

1. Define the scope and period, for example five years aligned with the hardware lifecycle.
2. List cost categories for each option using the table above.
3. Gather quotations and internal estimates, and record their source.
4. Include staff time at a loaded cost that finance agrees with.
5. Model growth in users, data, sites and transactions.
6. State assumptions about price increases and exchange rates; many subscriptions and cloud services are priced in US dollars while budgets are in pesos.
7. Calculate yearly and cumulative totals for each option.
8. Present ranges for uncertain items, and a best, expected and worst case.

Costs that are often missed

• Internal staff time for implementation, administration and support.
• Training and change management.
• Maintaining integrations when connected systems change.
• Data transfer and storage growth in cloud services.
• Licence true-ups after audits.
• Support renewals that cost more after the first contract term.
• Upgrades forced by end of support.
• Downtime and productivity loss during migration.
• Exit costs when changing providers.

Comparing options fairly

• Compare equivalent service levels. An on-premises option without disaster recovery is not equivalent to a cloud option deployed across multiple zones.
• Use the same period and assumptions for every option.
• Show one-time and recurring costs separately.
• Use net present value if finance requires it, with the discount rate finance provides.
• Run a sensitivity analysis to show which assumptions change the answer.

Risk-adjusted costs

• Estimate the cost of an hour of downtime from a business impact analysis, and multiply by expected downtime for each option.
• Consider the likelihood and impact of security incidents under each design.
• Estimate the cost of switching away later, which reflects dependence on a vendor.
• Include the effort needed to meet compliance requirements.

The benefits side

• Productivity gains and time saved.
• Revenue enabled or protected.
• Fewer errors and less rework.
• Costs avoided, such as a refresh no longer needed.
• Risk reduced.

Agree how benefits will be measured and review them after implementation.

Presenting the result

• A summary table with total cost per option over the period, as ranges.
• The key assumptions and their sources.
• The sensitivity analysis.
• Non-financial factors: fit with requirements, risk, skills and strategic direction.
• A recommendation, and the conditions that would change it.

Keep the model alive

Track actual costs against the estimate, and revisit the model at renewals, refresh points and major changes. The FinOps Foundation's practices are useful for keeping cloud costs visible after the decision is made.