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How outsourced services reduce total cost of ownership (TCO)

By December 18, 2014Outsourcing

tcoUsing outsourced Web hosting or application services is desirable since it reduces the total cost of ownership (TCO) for business.

TCO is a calculation designed to help consumers and businesses determine both the direct and indirect costs and benefits related to the purchase of any information technology component. A TCO analysis includes a determination of total cost of acquisition and continuing operating costs.

A TCO analysis is used to gauge the viability of any capital investment. A business may use it as a product or process comparison tool. It is also used by credit markets and financing agencies. TCO directly relates to an enterprise’s asset and its related systems total costs across all projects and processes, thus giving a picture of the profitability over time.

Many different methodologies and software tools have been developed to analyze TCO. TCO tries to quantify the financial impact of deploying an information technology product over its life cycle. These technologies include software and hardware, and training.

Technology deployment can include the following as part of TCO:

Computer hardware and programs

  • Network hardware and software
  • Server hardware and software
  • Workstation hardware and software
  • Installation and integration of hardware and software
  • Purchasing research
  • Warranties and licenses
  • License tracking – compliance
  • Migration expenses
  • Risks: susceptibility to vulnerabilities, availability of upgrades, patches and future licensing policies, etc.

Operation expenses

  • Infrastructure (floor space)
  • Electricity (for related equipment, cooling, backup power)
  • Testing costs
  • Downtime, outage and failure expenses
  • Diminished performance (i.e. users having to wait, diminished money-making ability)
  • Security (including breaches, loss of reputation, recovery and prevention)
  • Backup and recovery process
  • Technology training
  • Audit (internal and external)
  • Insurance
  • Information technology personnel
  • Corporate management time

Long term expenses

  • Replacement
  • Future upgrade or scalability expenses
  • Decommissioning

In the case of comparing the TCO of existing versus proposed solutions, consideration should be put toward costs required to maintain the existing solution that may not necessarily be required for a proposed solution. Alternative methods that are able to control costs should also be considered.

Outsourcing IT requirements such as Web hosting or applications using cloud computing enables a company to reduce its TCO by freeing assets, such as cash that would be allocated to capital expenditures, including the purchase of servers, and the expense of specially trained staff to maintain them.

For many businesses, establishing their own hosting capabilities internally often is a larger investment than outsourcing. The TCO of self-managing a Web site or in-house applications is generally higher due to the costs of an in-house IT staff whose primary responsibility is to manage the IT resources. In addition, TCO also factors in the equipment, software, and initial set up costs, as well as the periodic upgrading of equipment, 24/7 help desk services and around-the-clock monitoring and management.

By leveraging a service provider’s infrastructure and expertise at fraction of the cost, businesses can achieve an estimated 20 to 40 per cent cost savings over in-house solutions. Because businesses have other important financial commitments, such as continuing office and operational costs, the elimination of such capital expenditures is a key consideration. Businesses should therefore consider outsourcing their hosting and application requirements to experienced service providers, such as Webhosting.Net.

A major advantage of using Webhosting.Net is that any other service can be added a la carte, or on an “as needed” basis. Businesses can therefore determine what value-added services they need to address Web site or application performance. Webhosting.Net offers a wide range of entry-level to enterprise-class solutions to meet user requirements, including monitoring and reporting of site traffic, disaster recovery planning, security threat monitoring, server backup and data storage and retrieval capabilities. Add-on services can substantially boost the cost for hosting or application services, but because the consumer specifically selects them, these costs can be highly controlled.

Due to the cost control factor, businesses should always undertake a basic total cost of ownership exercise before they commit to purchasing any IT infrastructure. Webhosting.Net suggests that potential customers use the myarid of IT TCO calculators online before making a purchase decision.

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