Integrated Technology Education Group, LLC

Total Cost of Ownership

Total Cost of Ownership content is to often limited when considered in the context of an education technology program. The primary technology components tend to be emphasized while the cost of ancillary products and services and other necessary investments such as building modifications, teacher training and incremental energy costs are de-emphasized.

In Education, as in Business, there is a Willingness to Pay if the Goal is Clear, the Total Cost is Known, and there is Confidence in Management

The Importance of Understanding and Using Total Cost of Ownership Analysis

The application of a total cost of ownership philosophy adds quantifiable data to a difficult decision process.

Technology systems are complex. In addition to the initial determination of how and what to purchase, there is the difficult task of determining what to replace, what to add and when. Given the many variables involved each decision will have long term implications which will affect the total system configuration and its operation.

The use of TCO will aid school administrators as they attempt to build and sustain the best possible technology systems that limited budgets will support.

Education technology budgets are being cut at all levels: federal, state and local. During times of budget constraint there is an increasingly urgent need for all parties to be able to accurately forecast technology costs against various system outcomes so that the use of available funds can be optimized. Schools throughout the country are being told to make do with less. The implication is clear: a trend toward an inventory of older equipment, and/or a staff with less than adequate training.

A well organized TCO process provides all members of the school community with heightened awareness of how technology, construction, professional training, equipment procurement policy and replacement, and energy consumption (among others) impact each other, and ultimately the cost of and results obtained from the technology program.

Many school administrators and other members of the education community have not had the opportunity to apply Total Cost of Ownership analysis. As a result the multi-year cost linkage between technology, building construction, personnel training and other school functions is often over looked. The result is lower total school costs, increased financial control and more efficient integration of technology into the school facility.

The figure above represents just several of the sub-systems that are impacted by, or impact, a technology system. To ascertain the total cost of technology all of the costs associated with these items must be taken into account.

To determine the true total cost of ownership, not only must all initial costs be included, but also multi-year costs necessary for support, replacement, and servicing. Quantitative analysis has concluded that those items usually defined as "technology" will account for only about 50% of the total system cost, and the computers, which are often considered the core of the system will account for less than 25% of the total over 5 years. It has also been found that the total cost to obtain and support all the systems necessary for a fully equipped education technology program can be in excess of $500 per student per year. It needs to be recognized however, that this figure is for the "ideal" configuration. In reality, an adequate and appropriate system can be obtained and supported for a cost of $300 to $350 per student per year. Multi-year budgeting needs to take into account the cost of product life-cycle replacement.

A FREE TCO calculator can be found at http://www.iaete.org/tco. (Version 2.0 ) The calculator was developed by ITEG and AEL, with the sponsorship of the Department of Education.

This calculator has a high degree of customization available to the user such as pricing for multiple schools in a district, the ability to modify product prices, and the ability to define student/equipment ratios, and more. It also addresses the goals of NCLB and the new National Education Technology Plan.

If additional customization is desired such as changes in the assumption set, or the addition of special products or services contact: ITEG at azee@iteg.com. Capabilities that ITEG can offer include the ability to address unique school district needs, support the modification of output data to enhance presentations, and lend assistance to the technology team in developing a total system view of the edtech program. TCO guidance for school administrators is also offered. There will be a nominal fee for this additional support.

TCO References:

Turbo-charge TCO analysis to get more bang for your technology buck by Al Zeisler and John Ross
August 1, 2005 - eSchool News (free registration required) http://www.eschoolnews.com/news/showStory.cfm?ArticleID=5810

Total Cost of Ownership information developed by Compaq http://h18000.www1.hp.com/tco/

Taking TCO to the Classroom developed by COSN http://classroomtco.cosn.org/

Why is TCO important – Darwin Magazine http://www.darwinmag.com/read/110103/question74.html

Total Cost of Ownership developed by TRANE (concentration on HVAC) http://www.trane.com/commercial/financing/tco.asp

Why TCO matters by the Gartner Group https://k12tco.gartner.com/home/homepagepromo/files/TCO_Overview.pdf

Total Cost of Ownership by Dell Computer http://www1.us.dell.com/content/topics/global.aspx/tco/en/tco?c=us&cs=28&l=en&s=dfb

TCO developed by British Communications Educational and Technology Agency http://www.becta.org.uk/research/research.cfm?section=1&id=544

Computing for Lower Total Cost of Ownership (TCO) Technical White Paper by Sun Microsystems, http://whitepaper.informationweek.com/cmpinformationweek/search/viewabstract/62644/index.jsp

Total Cost of Ownership: Why the price of the computer means so little http://www.thebusinessmac.com/features/tco_hardware.shtml

TCO additional sources of information offered by Tech-Learning http://www.techlearning.com/story/showArticle.jhtml?articleID=60402206

Wireless LAN TCO http://www.cisco.com/en/US/products/hw/wireless/ps430/products_white_paper0900aecd801bb7d4.shtml

Investing in Palm handhelds: understanding total cost of ownership http://www.palmpowerenterprise.com/issuesprint/issue200109/tco.html

The strengths and weaknesses of Total Cost of Ownership http://www.nucleusresearch.com/research/a21.pdf

Technology’s real costs by Sara Fitzgerald writing for Electronic-School http://www.electronic-school.com/199909/0999sbot.html

American School and University: the total cost of ownership http://asumag.com/mag/university_total_cost_ownership/

State of Colorado: An introduction to Information Technology Total Cost of Ownership http://www.oit.state.co.us/resources/docs/TCO_an_introduction.pdf

Follow the money: Understanding the total cost of ownership can prevent districts from blowing their tech budgets http://www.scholastic.com/administrator/feb05/articles.asp?article=tco (note: search on term 'TCO' if page does not appear)

ITEG, LLC makes extensive use of the capabilities of Microsoft Excel, and can apply these capabilities to financial studies of all kinds. We look forward to discussing your needs.