Total Cost of Ownership Archives

What are “soft costs,” really? The term actually originated within the construction industry and describes expenses not tied to the direct construction costs. Examples of construction soft costs include pre-planning, legal, engineering, financing and design. These ideas have been easily translated to IT operations; examples of technology hard costs are servers, storage, networking and software. Examples of technology soft costs include monitoring, planning, designing, training, maintaining and migrating those systems to deliver consumable services (email, voice, desktops, etc.) to clients and coworkers. Calculating traditional Total Cost of Ownership (TCO) on the cloud can be hard to do and, more important, many times is not helpful. Measurements like this look very closely at hard costs and try to take into consideration some soft costs. What cost models do not look at are some of the primary reasons it makes sense for the business to move to the cloud. Additional flexibility, increased physical security, making administration easier, focusing on customer service, driving applications to market faster and greater agility in specific markets are some of the business reasons to move to the cloud not captured in TCO models. A holistic view needs to include both hard (capital) and soft (operational) costs and be applied to a larger cost-benefit analysis. Let’s consider one big soft cost: time. A company whose primary revenue comes from e-commerce might see top- and bottom-line numbers increase with the ability to spend more time developing their platform and focusing on the customer experience – rather than building and maintaining a data center. Another company that focuses on manufacturing might need to keep processes in-house for their core platform as it is the lifeblood of their organization. Email and some file storage could go down, but the production line can’t. Great – cloud offers a perfect way to reduce soft costs by moving email and file storage offsite so that IT can focus on the systems critical to the business. Most organizations have some form of voice system, so we’ll delve a little deeper on that subject. If they were looking to upgrade that system they would probably look at the hard costs associated with it. Let’s say those are $250,000 for hardware and $50,000 for software. That sounds reasonable: $300,000 and a new system is in place, right? Not so fast – those are just the up-front capital (hard) costs. If we look at the soft costs for maintaining the infrastructure ($10,000/month), planning services ($500/month), actual footprint costs ($2,000/month), one-time training ($5,000) and consulting and monitoring costs ($2,000/month), we see a bigger picture. We then have to take into account the annual maintenance fees for licensing – $50,000! That $300,000 turns into more than $850,000 in three years! When taking a look at something like an email platform, anyone who has done a platform upgrade will agree that it is not as simple as clicking the “upgrade” button for software .If only it were that easy! We all know that it is really a migration. Doing this in-house takes time and paying someone to do it costs money. With that said, there is often a cost-benefit argument of executing it in-house versus paying someone to do it. That can go either way based on the skills you have in-house. The soft cost of moving to a SaaS delivery platform means you don’t have to deal with migrations any more. Whether it’s a three-year, five-year or longer lifecycle, it is a big deal when you do have to migrate. Now, that soft cost is gone. It is a very large part of the TCO of a service, but most organizations are used to billing it off as a one-time large expense for the project. This is all about evaluating options. Cloud is not the right fit for everything. The question that needs to be asked is: Does one build it, buy it or continue to buy multiple components, manage them and maintain them to deliver a service? Sometimes yes, sometimes no. The answer and art lie in the evaluation of soft costs, which need to be examined any time you are looking at upgrading, migrating or replacing any existing system or service. Check out CDW’s large collection of cloud-related white papers, case studies and data sheets to see if migrating to the cloud makes sense for your business.

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