A Quick Guide to Calculating Total Cost of Ownership (TCO): Part 2, Time Investment

animated individual sitting on a calculated surrounded by a declining growth chart.

May 20, 2020 by Brent Earls

If you’re just joining us, make sure you stop by our first installment on how hardware/software and maintenance get calculated into your TCO.

Knowing the TCO of your business technology is a critical element to making smart decisions about when to invest in new technologies or staff or when to hang onto what you’ve got. As the esteemed late Kenny Rogers said, “You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away…”

Time is Money and that Goes into Your TCO

The next part of the TCO for a technology investment comes down to the labor. One part of this is obvious: the installation fees are a clear labor cost, one that varies drastically from vendor to vendor. Some vendors charge a flat fee, some charge per day, some charge a percentage of the total cost of the equipment, some by the hour. All of those can drastically change the installation costs and how much you’re going to have include in your TCO calculation.

Past that, there is ongoing labor when it comes to supporting and maintaining your technology, sometimes through a third party (consultants cost money), sometimes it’s DIY (do it yourself). If you’re thinking to yourself, “My time doesn’t cost anything, I’m salaried,” that’s not true. Your time is worth its opportunity cost. You are worth something! Repeat it back to yourself in the mirror in the morning before you come to work!

Yes, your salary is paid for the year — regardless of what you’re working on or how much overtime you work — but if you could be working on the new ERP project that will save the company tens of thousands, and instead you’re working on general maintenance for your SAN, that is a real cost. When your leadership team makes a request to move new initiatives forward and you push back because you have to spend your time keeping the wheels on the bus, that causes a real dollars-and-cents cost to the company.

Since that time/labor cost can be subsidized by a third party that costs money, your time should be valued as well. The simple calculation for that, of course, is to take the fully burdened cost of the employee, and divide it out by the number of “work hours” in a year – 52 weeks * 40 hours (as if anyone in IT gets to only work 40 hours) = 2080. It’s important to do the fully burdened cost — with benefits — because that IS the actual cost of your time, just like a contractor charges an hourly rate that covers all their benefits and taxes, etc. Putting that number on things can also greatly sway how much something actually costs. If you have two options, one that costs $2,000 more but requires no effort, and another that requires 30 hours of your time, it very well may be cheaper to spend more money on the first option.

See you next time for our wrap-up and to discuss if environmentals should factor into your TCO calculations.

Knowing the TCO of your technology investments is critical to making strategic decisions and budgeting: you gotta know when to hold ‘em and when to fold ‘em. We can help you make heads or tails of that. Just send us an email at info@mirazon.com or call us at 502-240-0404 to get started.

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