From the October 1997 issue of Entrepreneur

The price tag on that brand-new Pentium II PC looks pretty tempting. In fact, you decide, you can fit the expense into your business's budget rather easily. But before you buy, answer this question: Have you considered its total cost of ownership (TCO)?

More than just the equipment's original cost, TCO looks at the big picture, taking into consideration information technology (IT) costs incurred throughout the life of your business. These costs include everything from technical support to training--even administrative expenses for procuring technology. Analyzing your equipment's TCO has become increasingly important because the additional costs you incur throughout the equipment's lifetime, especially when it comes to PCs, can add up to much more than the cash you laid out upfront.

Where The Money Goes

In the majority of cases, PCs make up the lion's share of a company's IT expenses. Years ago, when equipment was more centralized in the MIS department, it was easier to track and control these costs. But as computers migrated to the desktop, costs have decentralized, making it more difficult to get a handle on a business's TCO.

Where does all the money go? Surprisingly, capital costs for your business's hardware and software make up a fairly modest portion of your investment over time, says Bill Kirwin, vice president and research director for the Gartner Group, an IT research firm in Stamford, Connecticut. While it's always a good idea to negotiate the best deal you can with retailers and resellers, this isn't where the bulk of your IT costs come from. And even though businesses could be taking advantage of the savings from today's falling computer prices, many are choosing to spend more money in this area, buying bigger and faster PCs to stay on the cutting edge.

Technical support costs make up a substantial portion of TCO. According to the Gartner Group, the annual cost for software training, technical support and repair on a Windows 95 PC adds up to about $1,300 per user. Then there are administrative costs, which include purchasing technology, the labor costs of managing IT assets and developing policies for equipment usage.

But it's user operations that eat up the largest amount of your IT budget by far. What's even trickier is that these costs are difficult to quantify. They're those things that all employees do while sitting in front of a PC that sap their time, indirectly costing you money in lost productivity. These activities include time spent on PC management tasks, such as installing software, creating and moving files, and learning new technology. A big chunk of TCO comes from time wasted when the office's unofficial techie stands over an employee's shoulder offering PC advice. Plus, there's always the "futz factor," in which employees spend time on nonbusiness-related tasks, such as creating screen savers, sending personal e-mail and checking their horoscopes on the Web.

Beyond hardware and software, there's a number of additional costs associated with computer and high-tech equipment, which add to your TCO. These include expenses for printer ink and paper, software upgrades, fax transmission costs--even the electricity it takes to run PCs and keep your office cool, since they generate a fair amount of heat.

Trimming The Fat

While all these expenses may seem staggering, take heart. Many vendors are placing added emphasis on TCO and the ways their technologies can reduce it. Lexmark International, for instance, has printer management software that remotely identifies problems like low toner, which they claim can save companies an average of $734 per printer annually. Features like the Registry in Microsoft's Windows 95 operating system hope to reduce administrative costs by offering easy, centralized access to hardware and software configuration files. There are also new, inexpensive devices such as Net PCs aimed at shrinking your capital and system management costs, just as network computers do. (See September "Business Bytes.")

There are several other strategies you can implement to put a dent in your TCO. Since most technical support budgets are seriously underfunded, this is often a good place to start. First, look into system management tools that help your tech support staff do their jobs more efficiently, says Kirwin. These might include inventory configuration management software to easily gather detailed information about networked PCs or electronic software distribution products that allow you to install software over the entire network rather than on each individual PC. Remote system management tools can also drive down your tech support costs, allowing internal staff to diagnose PC problems from a central location or outside vendors to dial into a PC (with your permission), assess its condition and then fix the problem from afar.

You should also find ways to get the most use out of your tech support staff. Because most small businesses can't afford more than one, or even just one, full-time tech support person, consider hiring part-time help. In many small organizations that lack in-house staff, outsourcing certain technical support functions, such as remote tape backup or custom software development, may also make sense.

Take a closer look at your costs for procuring technology, as well. One way to decrease them is through electronic commerce. Technology vendors can lower your costs for procurement by setting up a system to handle purchasing and inventory management electronically. The downside is that this strategy locks you into using the same vendors. Keep in mind, however, that it's not very cost-efficient to always be calling around for the best price; the best strategy may be to choose one vendor and work with them to find ways to reduce your administrative costs.

When it comes to cutting costs, one of your first instincts may be to hold on to your PCs as long as you can, thinking the less money you spend on new technology, the better. In the long run, warn experts, keeping a PC too long actually raises your costs. Having several generations of hardware, software and operating systems increases the complexity of your PC environment, thus increasing your costs. Not only do you have to maintain technical expertise in older technologies, but you also have to find ways for older equipment to work with the new technologies and develop all your custom applications to support multiple environments.

According to the Gartner Group, upgrading from a Windows 3.x or DOS environment to a Windows 95, Windows NT or OS/2 operating system can reduce your annual costs by about $1,000. Current operating systems have improved memory management features, and their user interfaces are easier to learn, thus reducing employee training time and tech support.

The majority of new PCs are also Desktop Management Interface (DMI)-compliant. The DMI is a standard for remote management of desktop computers and server hardware. DMI-compliant machines communicate their requirements with a DMI management application, making it easier to diagnose and avoid problems. In the near future, don't be surprised if your machine senses its hard drive is going to fail in 48 hours and notifies a systems operator, who can switch out the failing drive before it blows. Technologies like these that forecast problems before they occur can save you money in both repairs and employee downtime.

Standardization is also key. Strive to make all hardware, applications and operating systems uniform in your business. Also, develop standard procedures for buying and retiring technology.

Finally, look at ways to improve employees' technology use. Although it's costly, make sure all personnel receive some type of formal computer training, whether through classroom or computer-based instruction. Because the majority of tech support is usually supplied by co-workers--leading to frequent misdiagnoses of problems and, ultimately, wasted time--you should provide the power users in your office with the training, tools and technology they need to assist other employees. Make sure your "tech support staff" has access to help-desk information. Consider cutting back a few of their responsibilities to make their tech support role an official part of their job descriptions. Because studies show that employees waste one hour a week on personal tasks on their computers (most likely a conservative estimate), be sure to establish policies for the appropriate use of computer equipment, software and the Internet.

On The Flip Side

With all the recent emphasis on TCO, some believe the real value new technologies bring to businesses is being left behind. When considering a new technology, your first concern shouldn't be cost savings but what the equipment can bring to your business, says John MacGilvary, chief analyst with Datapro Information Services Group, an information technology research and analysis firm in Delran, New Jersey. Buy new technology because it enables you to do something you couldn't do before or because it gives your business added flexibility or a competitive edge. In fact, the best solutions may not be the cheapest. Consider the case of the notebook computer. True, they're much more expensive to implement than desktop computers. But the high initial costs often pale in comparison to the benefits companies receive: added flexibility and increased productivity.

Once you've purchased the right technology, you can truly begin to find effective ways to trim your TCO. What it all boils down to is looking beyond the typical information systems areas to find the waste. Then, chances are the opportunities to cut TCO will land right in your lap.

Contact Sources

Datapro, (800) 328-2776, http://www.datapro.com

Gartner Group, 56 Top Gallant Rd., Stamford, CT 06904, (203) 964-0096

Lexmark International Inc., 740 New Circle Rd. N.W., Lexington, KY 40550, http://www.lexmark.com