August 23, 2010, 12:11 am •
by Dan Corcoran
When CIOs and other like-minded executives consider the financial impact of a new technology investment, they overwhelmingly look to two metrics: total cost of ownership (TCO) and return on investment (ROI). Although these two terms are sometimes thrown together, they are actually measures of two very different things and which metric is preferable depends on the parameters of your decision.
First of all, let’s clear up the definition of these terms.
TCO or total cost of ownership is a measure of cost. This includes the capital cost to purchase equipment, deploy it, configure it or integrate it with other systems, and the operational costs (sometimes referred to as the run-rate) to operate and administer the equipment over a given period of time. Time is a key component of TCO, as most operating costs are ongoing; therefore, the longer the timeframe, the higher the TCO. If you think of a car as a metaphor for an IT investment, the TCO for your vehicle would certainly consider the price you paid for the car at the dealership, but it would also include the ongoing costs of ownership, like insurance, gas, and maintenance for as long as you owned the car. In the IT world, these ongoing operational costs can sometimes far outweigh the initial capital cost of a technology solution. Read more