The argument against TCO

I’m not a big fan of the total cost of ownership calculation. It was a reasonable idea many years ago, but I’m not sure it’s relevant today. The TCO trend was born out of a problem with initial and ongoing costs. In an effort to win deals, many vendors reduced the initial cost of software and increase the later maintenance and consulting fees. Customers that only evaluated the initial costs were in for a surprise in later years as the ongoing costs took hold. We did see average maintenance move up from 15% to low 20’s, and we saw a few cases of maintenance fees escalating in later years to provide for a more attractive initial ROI. Not only did this skew the value assessment ,but it provided room for third party maintenance suppliers such as Rimini Street to gain traction. So the argument for TCO was simply to make sure you understand all of the cost associated with the project. Seems obvious, and I expect any financial professional would roll their eyes at an IT professional offering this sage advice. The real problem with TCO is that it’s a metric that can’t be used to make a buying decision. TCO assesses costs without regard for the benefits. We buy based on value, and I’d challenge you to think of an item you purchase in your daily lives based solely on lowest costs. Ignoring gas for rental cars and financial items, everything else is a balancing act that maximizes the utility of the item against its cost. Within budget constraints, maximizing ROI is the objective, not minimizing cost.