Nearly two-thirds of small businesses and organizations are expected to buy new IT equipment this year, replacing one in four office computers.  Vendors now offer powerful computers at discounted prices, but what will this equipment really cost you in the long run?  Whether you purchase a PC, notebook, server or other network hardware, you will likely experience sticker shock once you factor in the total cost of ownership (TCO).

Tight budgets and limited expertise often keep small organizations from making effective IT decisions.  However, understanding hidden technology costs can actually help you reduce unnecessary expenditures and reallocate resources to more important business functions.  Network Alliance has outlined current industry standards for determining TCO below.  Before you invest in new IT equipment this year, we encourage you to evaluate your spending history and implement best practices that will improve your bottom line.

Why is TCO Important?

Gartner, Inc. (www.gartner.com) defines TCO as the total cost of using and maintaining an IT investment over time.  TCO calculations include a combination of direct costs (hardware, software, operations and administration) and indirect costs (end-user operations and downtime).   TCO is often overlooked, and unbudgeted, presenting an inaccurate IT spending analysis.

Most organizations believe their direct costs end at the point of purchase.  However, research shows that a computer’s base price typically represents less than 20% of its TCO, with technical support, maintenance and labor costs accounting for the remaining 80%.  These aftermarket expenses represent the greatest piece of the TCO pie and should therefore warrant the highest levels of scrutiny.

Computers require constant configuring and maintenance.  Ongoing costs related to security measures, software updates, computer repair and general support are unavoidable.  However, simplifying your IT infrastructure and management processes will increase efficiency, expand productivity and significantly reduce your TCO.

IT Spending Benchmarks

The average SMB spends 6.4% of its annual revenue on IT expenses. AMR Research
The average trade association spends $74,000 on hardware and software every year. American Society of Association Executives
80% of total IT costs occur after the initial purchase. Gartner, Inc.
An unmanaged PC costs $5,000 per year. Gartner, Inc.
Employees spend 30 minutes per week trying to fix PC problems or helping a co-worker. Compass America
On average, firms spend $700 per user per month when all IT expenses are factored. Gartner, Inc.

How Much Do You Spend On Technology?

Probably much more than you think.

As you can see from the pie chart, an unmanaged or poorly managed desktop PC costs more than $5,000 per year.  When factoring in associated network costs, such as firewalls, storage, servers, routers, printers and internet connectivity, estimates exceed $8,500 per PC annually.

Remember that the initial purchase is just a fraction of the total cost of ownership, which means a $1,000 PC could actually cost more than $15,000 over its three-year lifespan.  If a 10 person organization upgrades its PCs every three years, it likely spends a minimum of $120,000 managing those computers AFTER the purchase.  The same logic applies to buying servers and related network hardware – the real investment begins once that equipment arrives at your door.

Even though more than 50% of TCO comes from indirect expenditures, many organizations focus solely on curbing direct costs.  Since tight budgets have already reduced IT spending to a minimum, taking measures to improve end-user operations and decrease downtime can generate significant cost savings in the long run.  In fact, Gartner recently found that a well-managed computer is 37% less expensive than the example above, often saving several thousand dollars per PC, per year.

Tips For Reducing TCO

IT spending is really a balancing act between hardware, software and services.  According to Gartner, strong PC management is the key to overall cost reduction.  The more money allocated for direct IT expenditures, such as operations and administration, the less money will be wasted on lost productivity and downtime.

Unfortunately, the reverse is also true.  Because of declining IT budgets over the last few years, organizations have been forced to hold back on new purchases and temporarily band-aid ailing IT systems. However, pinching pennies on proper infrastructure and management procedures will cost you dearly in the long run.  Here are several important ways you can reduce TCO and increase efficiency:

  1. Measure your current IT spending so you can effectively manage and control your costs.
  2. Build and maintain an accurate inventory of hardware, software and appropriate licenses.
  3. Reduce complexity by standardizing equipment, software platforms and configurations.
  4. Streamline processes for operating system patches, security updates, data back-up and maintenance.
  5. Protect against viruses, spyware, hackers and physical threats.
  6. Control user access to applications, settings, network resources, databases, and other IT assets.
  7. Outsource key IT functions, such as technical support, data storage and back-up, to trusted, experienced vendors.
  8. Provide regular training for both employees and internal IT staff.
  9. Consider implementing a “thin client” or “utility computing” model to more effectively manage and protect PCs.

How Does Your IT Spending Measure UP?

Determining your annual IT expenditures and calculating TCO can be complicated.  We recommend following these steps for a basic TCO snapshot:

Category Expense Definition How to Calculate
Hardware & software Direct Includes initial hardware and software purchases or lease costs, along with software licensing, subscriptions, maintenance contracts, extended warranties, set-up fees, supplies, materials and spare parts. Pull invoices, purchase orders and records related to hardware and software expenses over a three year period.  Divide total costs by three to get an accurate annual TCO picture. Depreciation costs should also be included.
Operations Direct Includes all labor costs for IT operations, such as tech support, database administration, website, helpdesk, etc.  Includes staff salaries (wages and benefits), as well as any outside service providers.  Also includes facilities costs used by IT staff (office space, furniture, utilities), along with network costs and internet connectivity. Many  small organizations do not have dedicated IT staff.  In that case, responsibilities typically fall to the office manager or person who knows the most about computers.  Estimate the # of hours that person (s) spends directly managing IT and multiply by their hourly wages. If you work with an IT service provider, add up all those payments, including hourly fees. If you are locked into a monthly retainer or long-term IT service contract, make sure you factor in those fees as well.
Administration Direct Includes finance, HR, administration and procurement costs spent managing internal IT staff or outsourced providers. Also includes training for staff members. Whether you have an internal IT staff or work with outside service providers, someone still spends time hiring, procuring and managing those relationships. Estimate the # of hours spent on IT oversight and multiply by the appropriate hourly wage. Any employee training expenses should also be calculated.
End-user operations Indirect Includes productivity lost to end-user frustration, troubleshooting, “futzing” and providing informal IT assistance to co-workers. This category is the most difficult to measure, yet represents the highest percentage of TCO.  Many employees try to fix problems themselves, rather than pay expensive hourly rates for outside service providers. Estimate the # of hours employees lose dealing with computer issues, along with the # of hours they spend self-training or helping others, and multiply by the average hourly wage.
Downtime Indirect Productivity and revenue lost to inoperable or inaccessible computers, servers, software, internet connectivity, etc. Estimate the # of hours computers are down due to viruses, hardware failure and planned maintenance and multiply by the average hourly wage.

And many more

Are You Ready to Experience Award-Winning Service?

STEVIE AWARDS

Stevie Awards are conferred in five programs: the Asia-Pacific Stevie Awards, The American Business Awards, The International Business Awards, the Stevie Awards for Women in Business, and the Stevie Awards for Sales & Customer Service.  Honoring organizations of all types and sizes and the people behind them, the Stevies recognize outstanding performances in the workplace worldwide.  Learn more about the Stevie Awards at www.StevieAwards.com

2018

GOLD AWARD FOR

Sales and Customer Service

2017

GOLD AWARD FOR

Sales and Customer Service

2015

GOLD AWARD FOR

Sales and Customer Service

We take Data Security to the Next Level

See Security Measures

Jamie Loving, Director and CFO

Blue Water Capital 10 year client
testimonials photo

We're no longer tied to being in the office or at our desk looking at our smartphone. Our productivity has likely doubled.

Joseph Aiken, CPA, Principal

Aiken & Company PC 13 year client
testimonials photo

In terms of vendors, working with Network Alliance is the best decision we have made.  For almost 15 years, Network Alliance has delivered the technology tools, technical support, and value of a Fortune 500-level network.  They've kept our technology completely up to date without any major disruptions.  I'm not usually passionate about most of our vendors, but my monthly fee to Network Alliance is a check I never mind signing.

Mitchell Weintraub, CPA, Managing Partner

Cordia Partners 12 year client
testimonials photo

Network Alliance has been a true partner. Over the past 10+ years, its service, expertise, and top-notch customer support have been essential to our successful growth.  They have consistently supported our company and our clients by securely hosting multiple accounting applications, and I trust Network Alliance to stay updated on everything security-related.

Tom Wimer, President & CEO

Axeo 6 year client
testimonials photo

Network Alliance has the total package available to a small business for a price you just couldn't replicate if you had to build it yourself.

Sandra Barrett, Practice Administrator

George, Strickler & Lazer, The Eye MDs 6 year client
testimonials photo

What a godsend Network Alliance has been to our ophthalmology practice! We have two practice locations and an ambulatory surgery center. Network Alliance's expertise has afforded us the opportunity to focus our efforts on quality patient care. All of our IT and communication worries are in the capable hands of Network Alliance—we've have been customers for six years and are never disappointed. They were instrumental in working with software companies on our behalf when new products were introduced in our system. I don't know how we could have done it without them. We have no IT staff in our practice—and thanks to Network Alliance, this hasn't been an issue. Our practice has grown significantly since Network Alliance took over the reins of managing our IT and they have proven time and time again that they are well-equipped to handle our growing needs (medical device integration, practice management software, phones, etc.) How refreshing it is to know that when issues do arise, Network Alliance is a phone call and a friendly, professional voice away! The capable staff at Network Alliance has always responded quickly and efficiently to any technical problems that we encounter. Frequently they go above and beyond to help us by working with software vendors, designing work stations, investigating equipment options, etc. Thank you for all you do behind the scenes to keep our systems (computer and VoIP phones) running smoothly. A medical practice is regulated by many government statutes and Network Alliance has helped us remain in compliance with issues such as HIPAA confidentiality. Many thanks and hats off to Network Alliance!

Hear more from our happy clients