What’s cheaper: a £1,000 fully-refundable plane ticket, or a £500 non-refundable ticket?
Really, it depends on how likely it is that your plans will change. A £500 ticket sounds cheaper, but if you need to move your flight, you’ll be hit by an eye-watering fee for changing. At which point, it might’ve been better to part with a grand in the first place.
Now, what if you applied the revered methodology used to assess technology purchases, Total Cost of Ownership (TCO), to the equation?
Most likely, it would ignore the risk of change. You’d buy the £500 ticket, incur the future costs and end up out of pocket. All because the metrics of the TCO methodology don’t allow for future unpredictability and changes to your business environment. They take the most logical route at the time and apply it, come what may.
Unfortunately, businesses make these kinds of gambles every day with TCO informed technology purchases. Begging the question, has TCO’s time passed?
TCO was popularised in the 1980's, when PCs were displacing mainframes with lower initial costs, but higher administrative costs. In short, this meant that the pricing didn’t reflect the overall expenditure needed from the business.
The methodology was developed to normalise total costs over a given period so that different technology options could be compared. A consistent set of assumptions would be applied to all solutions to fairly evaluate the costs associated with administration, implementation, training and maintenance.
The challenge with this is that predicting the future is hard. A company might assess the TCO of a technology solution assuming a certain level of growth, or a certain headcount, or certain market conditions. But all of these metrics change over time, making TCO forecasts less reliable as they age.
At its heart, TCO is inherently static, a best guess that isn’t terribly reactive to changes in circumstance. In short, something that’s not fit for making modern technology finance decisions.
In today’s fast-changing business climate, it’s becoming clear that TCOs’ time is running out.