TCO Analyst - Netvoyager · TCO Analyst A White Paper on GartnerGroup’s Next Generation Total Cost of Ownership Methodology Prepared on Behalf of Sponsors of a Multiclient Study

Entire contents © 1997 by Gartner Group, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The informationcontained herein has been obtained from sources believed to be reliable. GartnerGroup disclaims all warranties as to the accuracy, completeness or adequacy of suchinformation. Gartner Group shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumessole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

TCO AnalystA White Paper on GartnerGroup’s

Next Generation Total Cost of Ownership Methodology

Prepared on Behalf ofSponsors of a Multiclient Study on Total Cost of Ownership:

AST Computer IntelAT&T MicrosoftCirrus Logic NECCitrix NovellCompaq ToshibaIBM Wyse

by: Gartner Consulting

Stamford, CT

TCO Analyst White Paper

Gartner ConsultingCopyright 1997

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Management Summary

Total Cost of Ownership (TCO) has become an important metricfor the information technology (IT) industry. As the leadingresearch and advisory firm on this topic, GartnerGroup is enteringthe next phase in its quest to extend the TCO concepts formanagers and suppliers of IT. We are expanding the scope of ourcurrent TCO methodology and encapsulating our expertise into anew TCO model (currently in prototype form) that provides a morecomprehensive analysis of distributed computing costs.

The enhanced TCO methodology includes a broader list oftechnology platforms than is currently addressed. Themethodology is designed with a consistent architecture and chartof accounts to permit both high-level and fine-grained analysis. Inaddition, the effect of best practices is evaluated from both a basetechnology and implementation perspective.

The design also includes several new dimensions to whichGartnerGroup has already devoted years of research: complexityand worker type. We have found that a more complex ITenvironment typically leads to a higher TCO and we hope to helpenterprises lower computing costs by reducing complexity. Wealso note, however, that some highly complex environmentswarrant higher costs (for example, a stock trader) than others (adata entry clerk). Therefore, we are adding to the TCO modelquantitative information that reflects the nature of the workperformed. Many organizations have equipped workers as if theyare knowledge workers with sophisticated computingrequirements, even if they are not.

Finally, a risk factor is added as a new evaluation metric inaddition to cost. We think risk is a critical component in that apure cost management approach may actually increase risk in theIT infrastructure. For example, backing up data is a purecost/risk exercise. Without taking risk into account, backupwould be an intolerable cost; by considering risk, it becomes aprudent IT process.

The original GartnerGroup TCO model was based on a "typical"loosely managed deployment of 2,500 PCs in a campus setting.We recognize the need to easily customize the model toaccommodate the myriad types of installations worldwide, so wehave developed a powerful software prototype, the TCO Analyst,as a proof of concept. Its objective is to create a comprehensiveTCO profile of a current IT environment and enable extensive"what if" capabilities to explore the impact of new technologiesand its implementation against this profile.



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We have embarked on this effort with support from many of themost influential suppliers in the IT industry. The commonobjective is the desire to help enterprises lower computing costsby credibly evaluating more sophisticated technology and laborintensive processes, such as peer support. If best practices areused to intelligently deploy this technology and attack these highcost processes, organizations can reduce cost, risk or both.

Part of our objective in this research effort is to create acomprehensive TCO framework that can be used throughout theIT industry. To achieve consensus, we have made a consciouseffort to solicit input from other organizations that have madetheir own contributions in this area. Key contributors to thisproject include Intel, IBM, and Interpose, a Florida-based softwaredeveloper. In addition, we received suggestions from Prudential’sIT group, Intel’s IT group and CyberConsulting, an IT consultancy.Finally, each of the sponsors listed on the cover page providedvaluable commentary and insight.

The TCO multiclient project described herein was managed byGartnerConsulting and reflects the contributions ofGartnerMeasurement and GartnerAdvisory. The project hasalready produced new areas of collaboration and research bothwithin and outside of GartnerGroup. We anticipate that as wecontinue to move forward new collaborators will help us to refinethe work we have set in motion.

More important, we hope that the IT industry will accept theimplicit challenge we have created to give IT managers better toolsto lower computing costs while maintaining a high level of userfunctionality. This challenge applies not only to suppliers of basehardware technology, but also to IT vendors that provide keysystems management solutions to unlock the power of thistechnology. It also applies to developers creating next-generationproductivity and enterprisewide applications as well as serviceproviders.

So, with great expectation, we describe the TCO Analystmethodology, a client-sponsored extension of the venerable TCOmodel that GartnerGroup has developed over the past 10 years.

Additional information is available on our Web site atwww.gartner.com.



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Table of Contents

MANAGEMENT SUMMAR Y ................................................................................................................................... I

SECTION 1 ..................................................................................................................................................................1BACKGROUND AND OBJECTIVES...............................................................................................................................1

SECTION 2 ..................................................................................................................................................................2PRODUCT METHODOLOGY .........................................................................................................................................2

2.1 Summary..............................................................................................................................................................22.2 Project Sponsors .................................................................................................................................................42.3 Interpose, Inc.......................................................................................................................................................4

SECTION 3 ..................................................................................................................................................................5GARTNERGROUP TCO ANALYST—THE NEXT GENERATION TCO METHODOLOGY ...........................................5

3.1 New GartnerGroup TCO Methodology .................................................................................... 53.2 Modular TCO Architecture.................................................................................................................................63.3 Consistent Chart of Accounts—Collaboration with Interpose...........................................................................73.4 Addition of IT Complexity ..................................................................................................................................9

3.4.1 Management Complexity .............................................................................................................................................103.4.2 IT Infrastructure Complexity .......................................................................................................................................11

3.5 Addition of Worker Type..................................................................................................................................123.6 Addition of TCO Enablers and Best Practices.................................................................................................153.7. Addition of Risk as New Metric in TCO Analysis.............................................................................................17

3.7.1 Risk of Implementation................................................................................................................................................183.7.2 Operational Risk ..........................................................................................................................................................19

3.8 Compilation of Quantitative Information into TCO Analyst Software Prototype............................................213.9 Inclusion of GartnerGroup Research into TCO Analyst Software Prototype..................................................21

SECTION 4 ................................................................................................................................................................23CONCLUSION..............................................................................................................................................................23

List of Figures

Figure 1. GartnerConsulting TCO Multiclient Study Sponsor List...............................................................................4Figure 2. TCO Analyst—List of Enhancements to Current TCO Models ....................................................................5Figure 3. TCO Analyst—Architecture..........................................................................................................................7Figure 4. TCO Analyst and Technology Modules........................................................................................................7Figure 5. GartnerGroup TCO Chart of Accounts..........................................................................................................8Figure 6. Interpose TCO Chart of Accounts.................................................................................................................9Figure 7. TCO Life-Cycle Framework..........................................................................................................................9Figure 8. The Impact of Complexity on TCO.............................................................................................................10Figure 9. Management Complexity.............................................................................................................................11Figure 10. Example of Factors Determining Software Complexity ............................................................................11Figure 11. Example of Factors Determining Hardware Complexity...........................................................................12Figure 12. The “Vulcan Mind-Meld” of Technology and Job Description.................................................................13Figure 13. Applicability of PCs and Alternatives, 1997 to 2002 ................................................................................15Figure 14. TCO Enablers and Best Practices..............................................................................................................16Figure 15. TCO Amplification Effect .........................................................................................................................17Figure 16. The Relationship Among User Complexity, Probability of Achieving ROI ..............................................19Figure 17. Five Categories of Operational Risk..........................................................................................................19Figure 18. Risk/Cost Relationship ..............................................................................................................................20Figure 19. TCO Analyst Prototype—Screen View .....................................................................................................21



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Section 1

Background and Objectives

For the last 10 years, GartnerGroup has counseled its clients toconsider all costs associated with computing when makingmanagement decisions about PC acquisitions, upgrades, supportand administration. During this time, we have created andevangelized the concept of TCO to the information technology (IT)community. As corporations have begun to address the significantand rising costs devoted to their IT infrastructure, the messagehas gained wide acceptance among IT users. As technologysuppliers seek ways of meaningfully differentiating themselves,they too have turned to the TCO model as a means ofunderscoring their value to the customer.

While the basic concept of the TCO model is now well accepted,and the simplicity of the original model has been a virtue, themodel's current state lacks the ability to distinguish betweendifferent computing environments beyond operating systems. Inaddition, the model provides little in the way of quantitativeguidance as to the features or policies that may change anorganization's computing costs.

The objective of this research is to create an industry standardTCO methodology that can be implemented and customized via asoftware tool to quantify new concepts and cost-related detaildeveloped by GartnerGroup in its TCO research. Essential to thisundertaking is the simple concept of objectivity that guides allGartnerGroup research. Therefore, the TCO methodology willfavor no single IT product, supplier, group of IT suppliers orcomputing architecture, but will accurately provide enterpriseswith a credible means of evaluating options to intelligently reduceIT costs.

To prove the concept of an industry-standard TCO methodology,we have created a software prototype, described in this whitepaper. Specifically, the TCO Analyst highlights how initialimprovements to the existing GartnerGroup TCO model areaddressed and incorporated into a comprehensive software modeland how end-user assumptions could be customized to evaluateeach organization’s unique requirements. Note that the initialversion of the software prototype provides a representation of theapplication as it may ultimately appear and operate and does notprovide calculation or modeling capability. The user is able tonavigate dynamically through the application, but data entry doesnot affect the results.

The initial version of the TCO Analyst prototype is currently underevaluation by GartnerGroup and the sponsors of this project.



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Section 2

Product Methodology2.1 Summary

During the last few months, GartnerGroup conducted acompanywide review of its current TCO models (PC, LAN, Storage,etc.) to determine how they might be improved to better supportthe requirements of IT users. Initial funding was provided by Intel,who was then joined by 11 other sponsors (listed below) in amulticlient study that included GartnerMeasurement andGartnerAdvisory and was coordinated by GartnerConsulting.

The methodology followed for this study is outlined below:

Step 1. Reviewed Current TCO Methodology—Assessedobjectives, structure, content and delivery vehicles ofcurrent GartnerGroup TCO research.

Step 2. Designed Improved TCO Methodology —Determinedwhich new TCO elements were important to incorporateinto architecture; created high-level sketches ofinteraction of key elements.

Step 3. Sponsor Input—Input from project sponsors wassolicited.

Step 4. Designed Software Prototype Flow—Logic and data flowswere mapped to a new TCO software model.

Step 5. Created Software Prototype—Working with Interpose,Inc., created an initial prototype of the TCO Analyst as aproof of concept of new methodology.

Step 6. Reviewed Prototype—Sponsors reviewed the “draft”version of the TCO Analyst. Input and suggestions forrefinement were solicited.

Step 7. Revisions to Prototype—GartnerGroup used itsprofessional judgment as to which elements of theprototype were revised for the final version.

Step 8. Final Prototype—A final prototype was delivered to studyparticipants just prior to the Comdex announcement.

Step 9. Comdex Announcement—The TCO Analyst methodologyand prototype were announced at Comdex byGartnerGroup and project sponsors on November 18,1997.

Two steps remain in the GartnerConsulting multiclient project:

Step 10. Customer Feedback—A brief survey will be conducted byGartnerConsulting of firms on the usability of the TCOAnalyst.



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Step 11. Presentation to Sponsors—Survey results will bepresented to sponsors.

The research for this report was conducted between July andNovember 1997.



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2.2 Project Sponsors

This white paper and the related TCO Analyst software prototypewere sponsored by 12 leading IT suppliers in a multiclient study,sponsored by GartnerConsulting. Sponsors were invited toparticipate in discussions about the GartnerGroup TCO model asdescribed above and many provided valuable suggestions andinsights. All work discussed in this paper and the related TCOsoftware prototype, unless otherwise stated, reflects the views ofGartnerGroup and remains the property of GartnerGroup.

Figure 1. GartnerConsulting TCO Multiclient Study Sponsor List

AST Computer IntelAT&T MicrosoftCirrus Logic NECCitrix NovellCompaq ToshibaIBM Wyse

2.3 Interpose, Inc.

Interpose, a leading software developer in the area of TCO,provided valuable assistance in this research effort, particularly inthe development of the TCO Analyst software prototype. Asdiscussed in this white paper, GartnerGroup has adopted theterminology used in the Interpose TCO chart of accounts in aneffort to provide greater consistency across the GartnerGroup TCOmodules. The interface for the TCO Analyst software prototypereflects the work Interpose has done on its own TCO tool, TCOAdvisor.

Additional information on Interpose is readily available atwww.interpose.com.



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Section 3

GartnerGroup TCO Analyst—The Next Generation TCO Methodology

3.1 New GartnerGroup TCO Methodology

Today, GartnerGroup maintains half a dozen TCO modelscovering technologies including PCs, NCs, mobile computers,LANs, storage and others. While most of these models employ acommon architectural design, it has long been apparent that gapsexist in technology coverage, the model’s ability to approximate areal—not average—user’s cost and the predictive capabilities ofthe model.

In addition, GartnerMeasurement (formerly Real Decisions)conducts sophisticated benchmarks to help organizationsunderstand IT costs from a real (budget-based), not theoretical(industry-average) perspective. While there is substantialconsistency between the GartnerAdvisory TCO models and theGartnerMeasurement consensus models, many users of both areconfused by the differences, the natural result of trying to identifyand contain IT costs through two different methodologies.

The new GartnerGroup TCO Analyst methodology is designed toaddress these deficiencies while building on the rich heritage anduser acceptance of the current GartnerGroup body of research.There are eight important elements to the new model as describedbelow. While some of these items have been published previouslyby GartnerGroup, others are new. Equally important is thecomprehensive nature in which all items (new and old) are treatedin the TCO Analyst in an interactive software prototype thatillustrates the new methodology.

Figure 2. TCO Analyst—List of Enhancements to Current TCO Models

1. Modular TCO architecture

2. Consistent chart of accounts

3. Addition of environmental complexity

4. Addition of worker type

5. Addition of best practices

6. Addition of risk as output

7. Compilation of all items into a software tool

8. Inclusion of GartnerGroup research into a software tool

The reader should note the significance of the wide range ofsupport from key IT vendors for this enhanced TCO model. We arehopeful—and confident – that TCO Analyst methodology willquickly become the TCO standard for the industry. Finally, itshould be noted that we view the TCO Analyst as a work-in-progress, which we will improve over time as we receive inputfrom users of the model.



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The next sections describes each of the new elements of the TCOAnalyst methodology.

3.2 Modular TCO Architecture

The current GartnerGroup TCO model is a two-dimensionalmatrix that includes a detailed itemization of costs associatedwith ownership and operations of computer systems. It providesan industry-average TCO estimate per seat using standardassumptions, such as worker type, number of applications andcomplexity of the IT environment. There is no provision to linkmodules, account for variability in organizations or estimate theimpact of modifications to the IT infrastructure.

TCO Analyst methodology, in contrast, is a multidimensionalframework that provides end users with cost scenarios to moreclosely profile different IT environments. These scenarios may beused to compare and contrast different computing platforms,different platform usage/deployment, and various “best practices”using a wide range of assumptions.

Specifically, the TCO Analyst consists of objects that may be“snapped” together to provide as much detail on TCO as requiredby the user. Instead of creating one industry average cost figure,the user builds a custom TCO estimate by creating a morecomprehensive view of the enterprise. The TCO Analyst then“scales” cost data to provide a “tuned” TCO figure that reflects theunique characteristics of that environment. The TCO figure alsoreflects the degree to which best practices are utilized by theorganization. In addition to cost data, the TCO Analyst alsoprovides a risk profile that reflects both operational andimplementation risk. The result is a “risk-adjusted” TCO estimatewhich provides a baseline of information for investment andmanagement decisions in IT.

Multiple scenarios can then be created to compare what happensif different technologies are deployed, if complexity is reduced or ifservice levels are altered. By comparing the alternative scenariosagainst the current environment, the user can now easily quantifythe impact of various choices to optimize against statedobjectives.



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Figure 3. TCO Analyst—Architecture

TCO/Risk

ITAss ets

Com-plexity

BestPractices

Current

Scenari o 1

Scenari o 2

Source: GartnerGroup

The user may separately and independently select the technologyplatforms in the TCO Analyst. Each technology is described by a“standard” degree of functionality that may be enhanced. Theseplatforms map to the GartnerAnalytical product architecture,permitting each GartnerGroup service to contribute to acomprehensive TCO methodology and provide the user with anenormous amount of supporting research and advice.

Figure 4. TCO Analyst and Technology Modules

PCs NCs Ser-ver

Stor-age

SysMgmt

WAN AppSW

Other

TCO Overview

LAN


3.3 Consistent Chart of Accounts—Collaboration with Interpose

GartnerGroup’s current TCO models use a chart of accountswhich are based on an information systems (IS) functionalperspective of computing. Each of four categories is composed ofnumerous subcomponents as shown below.



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Figure 5. GartnerGroup TCO Chart of Accounts

1. Capital 3. Technical Support Technical Support (Cont’d)Hardware Tier 1 Help Desk Technical TrainingSoftware Documentation IS Network LearningIS Allocated Data Extract Software DistributionNetwork Configuration Review NOS MaintenanceDesktop Application Consulting Disk ManagementServer Vendor Liaison Security/Virus2. Administration Standards Development NOS ConfigurationAsset Management End-User Training NOS Performance ManagementSecurity Product Introduction 4. End-User OperationsLegal Product Review Data ManagementP&P Enforcement Newsletter Applications DevelopmentFormal Audit User Group Formal LearningInformal Audit IS Desktop Learning Casual LearningClient Purchasing Planning “Futz” FactorInstallation Utilization Review Client-Peer SupportCapacity Planning Install/Move/Upgrade Network CostsAdds, Moves and Changes Service/PM (outsourced) Network-Peer SupportUpgrades Install Network MisdiagnosisServer Purchasing Tier 2 Support Peer TrainingSecurity Administration Tier 3 Support SuppliesNOS Administration

NOS: Network Operating Systems P&P: Policy and Procedures


For the TCO Analyst methodology, GartnerGroup has decided toadopt the terminology used in the Interpose TCO chart ofaccounts (developed by Interpose in conjunction with Microsoft)for two reasons. First, it more clearly distinguishes betweenbudgeted and unbudgeted costs, and second, it explicitly includescosts associated with end-user downtime. As the Interposeapproach was built with the GartnerGroup research in mind, theunderlying subaccounts in the two models are quite similar.Firms that may have created their own TCO models usingGartnerGroup’s TCO chart of accounts will be able to easily movefrom their current model to the TCO Analyst.



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Figure 6. Interpose TCO Chart of Accounts

Direct (Budgeted) Costs� Hardware and Software—The capital expenditures and lease fees for new

installations, and upgrades of servers, clients, printers, and network communicationdevices.

� Management—The network, system, and storage management IS labor andprofessional services outsourcing fees.

� Support—The help desk support labor, training labor and fees, procurement, travel,maintenance and support contracts, and overhead labor.

� Development—The application and content development, test, and documentationincluding new developments, customizations, and maintenance of non-businessapplications.

� Communications Fees—The lease line, server access charges, and allocated WANexpenses.

Indirect (Unbudgeted) Costs

� End User IS—The cost of end users supporting themselves instead of relying on ISsupport (peer and self support), casual learning (non-formal training), and end userself-development of applications.

� Downtime—The lost productivity due to planned and unplanned network andsystem unavailability, measured as lost wages.

Source: Interpose

The TCO Analyst methodology also permits a view from atechnology life-cycle perspective, as illustrated below.

Figure 7. TCO Life-Cycle Framework

Planning

Acquisition

Deplo ymentOperation

Replacement

Labor


Finally, the TCO Analyst methodology will also permit theinclusion of deployment costs and consider a common time layoutand framework of five years.

3.4 Addition of IT Complexity

Complexity associated with IT management and infrastructure inan organization is a major factor driving TCO; it also impacts theeffectiveness of TCO enablers and best practices (e.g., systemsmanagement technologies). From a total cost of ownershipperspective, more complex organizations and/or IT installationscan expect higher planning, implementation, deployment andretirement costs associated with a wide variety of technologies(e.g., PCs, servers, applications, etc.). IT infrastructure and the



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people responsible for managing IT are all part of an intricatesystem of relationships and dependencies. The more varied thecomponents associated with the system (e.g., number of operatingsystem platforms, for example) as well as the more undefinedmanagement processes (e.g., undocumented problemmanagement process), the more resource (and therefore cost) isneeded to support the system.

However, more complex IT environments also tend to enablegreater return on investment opportunities associated with TCOenablers than less complex environments. This is primarily due tothe fact that highly complex IT infrastructures (from a laborperspective) are difficult to manage and therefore are often notcost-effective. The result is that more-complex IT infrastructuresoften offer more inherent savings opportunities to exploit. TCOenablers for this complex environment (e.g., event managementsystems) can significantly assist in both speeding the analysis andresolution of network problems, thereby allowing valuableemployees to work on higher value-added issues. (See Figure 8).The TCO Analyst methodology today measures only costs, notbenefits beyond cost savings, however.

Figure 8. The Impact of Complexity on TCO

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Overall complexity stems from two main complexity categories:management and IT infrastructure. Management refers to howoverall IT operations are managed, and IT Infrastructure definesan environment to manage as well as technologies which enablemanagement. These two categories are not always mutuallyexclusive; often, management complexity drives IT infrastructurecomplexity. Overall, we believe that management complexitydrives approximately 75 percent, and IT infrastructure 25 percent,of the factors leading to the differences between most and least-case costs associated with managing IT environments.

3.4.1 Management Complexity

Management complexity can be influenced by a range of factors,including (but not limited to): the degree of managementcentralization, budget control processes, change managementprocesses, problem management processes, planning processes,



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service availability levels, service levels, number and type of endusers, and the relative dispersion of end users (See Figure 9). Inorder to rate overall management complexity, each complexityvariable is 'scored' and weighted in importance.

Figure 9. Management Complexity

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3.4.2 IT Infrastructure Complexity

We divide an organization’s IT infrastructure complexity into twogroups: software and hardware. Software complexity is derivedfrom a number of variables including: the percentage ofapplications that are client/ server (split application logic), thetotal number of distinct operating systems, the average maturityof installed client/server applications, the percentage of totalapplications that are enterprise-critical (e.g., specific applicationsthat affect the necessary operations of multiple departmentswithin the enterprise), etc. (See Figure 10).

Figure 10. Example of Factors Determining Software Complexity

Less Complex More Complex

% of Apps. That Are C/S

20 or less 40 60 80 100

No. of DistinctOS Platforms

1 2 4 6 >6

Avg. Lengthof InstalledC/S Apps.

3 months 6 months 12 months 24 months >30 months

% of Apps. ThatAre Enterprise-Critical

20 or less 40 60 80 100

% of Apps. ThatAre PersonalProductivity

100 80 60 40 20 or less




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Hardware complexity is also influenced by a number of factorsincluding: The number of distinct hardware architectures, the PCturnover rate (the percentage of PCs or workstation bases thathave been replaced or upgraded within the past 12 months,excluding efforts to standardize on any particular platform), themobile unit adoption rate (the percentage of user devices that areportable or mobile), high-availability provisions (the percentage ofservers, hubs, routers, etc., with redundant elements), etc. (SeeFigure 11).

Figure 11. Example of Factors Determining Hardware Complexity

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In order to rate overall IT Infrastructure complexity, eachcomplexity variable is ‘scored’ and weighted in importance by theTCO Analyst. Thus, although the assumptions associated with theTCO model determine least and most costs, the degree ofmanagement and infrastructure complexity determine wherewithin this range a user can expect costs or savings to be.Likewise, each TCO enabler has a range of effectiveness inlowering TCO. Complexity helps determine what impact TCOenablers and their implementation actually have in loweringcosts.

3.5 Addition of Worker Type

The original TCO model made simple assumptions about the typeof worker using the computer systems and addressed only theknowledge worker. The knowledge worker rose out of the age ofpersonal productivity (1980 to 1990) and is exemplified by havingat least one PC, a suite of software (often personally chosen),access to corporate data and, lately, external access to theInternet and other value-added networks. We believe it isdangerous to define workers by the technology they use, since itmay not map to their job function (see Figure 12).



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Figure 12. The “Vulcan Mind-Meld” of Technology and Job Description

Job Description

TechnologyUseful

Functionality


Workers who are defined as such will be more likely to do whatthe technology will enable them to do, rather than what is optimalbased on their job description. This is particularly true when theemployee’s job description is fuzzy, poorly defined and subject tochange. The technology becomes the stabilization point for thisperson’s work environment. In a world of poorly defined workroles, a precisely defined technology environment will dominate.

To accommodate different types of users, we have added asimple—but effective—list of job functions that will complete theprofile of the enterprise. These job functions also contribute to therisk profiles. We define classes of workers as:



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High Performance—Workers who perform high-value, mission criticaltasks, like stock traders, engineers or direct contact customer serviceworkers where there is a high dependency on technology and a high costof downtime.

Mobile—Workers that are on the road and in the field, often highperformance workers with fragile mobile technology. Again, there is ahigh dependence on technology and a high cost of downtime.

Knowledge—Perhaps the most poorly defined yet most publicized classof worker. Defined as a worker who gathers, adds value to andcommunicates information in a decision support process. Cost ofdowntime is variable but highly visible.

Structured Task—Workers who perform the same tasks repetitively,typically as a link in a workflow or process. Cost of downtime varies,most workers are only partially dependent on computer availability.

Data Entry—Workers who input data into computer systems.


We believe that a typical organization is composed of only a smallnumber of knowledge workers. This means that the rest of theemployees are improperly equipped. It is almost as inappropriateto provide a worker with too much functionality as not enough.Functionality adds complexity, complexity adds cost. If most ofthe workers have too much cost and complexity, it is very difficultto make a business case for PCs—even the high payback for theknowledge workers will be difficult to justify.

We believe that it costs about $10,000 per user per year to ownand operate a personal productivity PC (Windows 95 on a LAN).For a 2,500-user installation, this represents an annual cost of$25 million. But only 10 percent (for example) of the populationreally needs all this flexibility, and at a cost of $2.5 millionprobably contributes at least that amount to the business.However, the other $22.5 million is suspect: it would seem that areduced complexity and lower cost device would be appropriatefor the rest of the workers with less functional requirements.

Enter the NetPC and other network computing solutions. We arewitnessing a blossoming of devices, many of which arearchitecturally compatible with the dominant “Wintel” platform.These devices represent a spectrum of devices that scale infunctionality, flexibility, complexity and cost (see Figure 13).



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Figure 13. Applicability of PCs and Alternatives, 1997 to 2002

1997 1998 1999 2000 2001 2002

HighPerformance

Mobile

Knowledge

StructuredTask

Data Entry

PCDumb

Terminal

PC

Technical Workstation

PC

PC

TCO

NetPC Technical

Workstation

NetPC NetTechnical Workstation

Functionality

NC-SNC-C

NC-C

NetPC NetPCNC-SNC-C

NetPCNC-SNC-C

Notebook PC NetNotebooksNetPDAs

NetPC


We are now positioned to choose how much functionality a userhas access to and where that functionality resides. We have theability to match the cost of technology with the benefits theenterprise (not necessarily the end user) derives from a computingplatform without significantly compromising on standardization,interoperability and system manageability. Everyone does nothave to be equipped as a knowledge worker or a data entry clerk.The TCO Analyst methodology will accommodate this point.

3.6 Addition of TCO Enablers and Best Practices

Best practices are the proper deployment of technology integratedwith process and management practices that deliver maximumusable functionality at minimum cost. These best practices areenabled by critical technology, or TCO enablers. Typically, thistechnology by itself has no intrinsic value, but if properly used, itcan help to reduce costs. However, the deployment of technologyhas both costs and value. Poor implementation occurs when thecosts outweigh the benefits, producing negative value. Technologyitself is seldom to blame, most often it is a poorly scopedimplementation or the failure of the organization to integratetechnology into a process that causes poor value.

We believe that best practices can lead to cost reductions of about30 percent and increase utilization of functionality as well as usersatisfaction. For example, software tools (e.g., asset discoverytools), groups or packages of functionality (asset management,technical support) used in conjunction with processes andpolicies (software compliance) can reduce both cost and risk.

We will assess the impact of a selected group of TCO enablers andbest practices as they impact the IT systems. The items listed



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below are for illustration purposes and will likely be modified overtime.

Figure 14. TCO Enablers and Best Practices

Hardware

� DMI 1.1 Compliance

� DMI 2.0 Compliance

� SNMP Compliance

� Remote New System Setup

� Remote Wakeup

� Power Management

� Universal Serial Bus

� NetPC

� Hardware Instrumentation (Sensing and Alerting)

� Physical Security

IT Management Software

� Systems Management Software

� Electronic Software Distribution

� Inventory

� Asset Management

� Backup and Recovery

� Remote Monitoring

� Help Desk Automation

� Virus Protection

� Event Management

� Capacity Planning

� Performance Monitoring

� Software Security

Training

� IS Training and Certification

�� End-User TrainingSource: GartnerGroup

To capture the incremental contribution of a number of factorsrequired to achieve the optimum benefit from the list of TCOenablers, we have developed a sliding scale of best practicesimplementation, the “TCO Amplification Effect,” to illustrate howtechnologies should be appropriately used. Used in isolation,many technological innovations contribute little to cost reduction.However, as enterprises begin to systematically use newfunctionality, such as manageability, in conjunction with systemsmanagement tools, savings mount. Savings continue to increaseas this functionality is incorporated into the organization’s ITpolicies and practices. Thus, the TCO Amplification Effect is ametric that defines and quantifies the TCO impact of technologyand best practices based on their level of implementation in anenterprise.



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Figure 15. TCO Amplification Effect

No Technology Present—The absence of any Best Practice in a specific area.

Technology Present—The raw material of an IT infrastructure. This may behardware, firmware, software, wiring, or any combination of these. Technology isalways a capital expense or a development cost. Technology is at the base of theamplification scale; an example is DMI (Desktop Management Interface)compliance.

Tools to Use Technology—A tool is a construct that takes advantage of atechnology. It may be another technology, including software. Theinstrumentation layer is a tool that makes DMI available to exploit.

Processes that Use Tools and Technology—A process is a "series of actions,changes or functions bringing about a result." When the tool is embedded in aprocess, the appropriate use of the tool is defined. A set of procedures thatmonitors the instrumentation layer and defines actions based on events recordedis a process that adds value to the tool and technology.

Policies that Implement Processes, Tools and Technology—The business rulesthat govern the conduct of employees and state the intentions of the enterprise.This is the code of operations of the business. To the degree that a policy existsthat one of the other tiers supports it becomes a factor in the impact of thatpolicy. A policy that cannot be enforced is moot. For example, a policy onsoftware license compliance is ineffective without a process, tools and technologyto enforce that policy.


The reader should note that we have consciously limited our costmodel to IT-related cost activities and do not account for businessvalue other than downtime. However, the next logical extension ofthe TCO Amplification Effect is the impact of properlyimplemented IT on core business activities. The complete analogyis the butterfly spreading its wings in Connecticut and creating atidal wave in the Pacific.

3.7. Addition of Risk as New Metric in TCO Analysis

To date, the GartnerGroup TCO models have provided users withcost as the primary metric for evaluating their computingenvironments. While this is helpful, a pure cost analysis can leadto erroneous conclusions. For example, software assetmanagement is a pure cost/risk exercise. If only direct costs wereconsidered, software compliance would be deemed impractical.However, a risk adjusted cost evaluation has merit and wouldclearly justify the expense of the asset management process.

Thus, with the TCO Analyst methodology, we add risk as a newmetric. Generally speaking, risk is the potential cost associatedwith an event. Certain events can have disastrous effects but arevery rare (e.g., millennium bug), others are more frequent withless impact (hackers). Some are frequent and have high potentialfor cost (viruses).



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We have adopted this notion of risk to address primary types ofrisk: implementation risk and operational risk. Whileimplementation risk is associated only with the deployment orimplementation of technology and has a finite duration,operational risk is an ongoing measure of the IT environment.Each is incorporated into the TCO Analyst and is described inmore detail below.

3.7.1 Risk of Implementation

Risk of implementation is important to evaluate because manyorganizations disregard the risks of implementation failure andinstead concentrate on the benefits of success. Optimism makesfor a good personal trait but not necessarily an effectiveinvestment strategy. To guard against financial loss, therefore,risk should always be factored into the analysis of a technologyinvestment. This is especially critical when consideringinvestments in TCO enablers, since often the sole reason forinvesting in these technologies and processes is to lower costs ofmanaging the IT infrastructure.

There are two main categories of risk which drive technologyimplementation failure rates: The risk introduced by the user, andthe risk introduced by the vendor.

Vendor-Introduced Risk: Vendor-introduced risk associated with arange of IT investments is the result of several main factorsincluding (but not limited to): The dynamics present in thevendor's marketplace (e.g., an immature marketplace tends todrive marketing wars between vendors, often at the expense ofresearch and development dollars which could have otherwisedriven the development of more robust technical solutions), theinherent useful life of a technical solution (the shorter the usefullife, the more risky the investment as there is less time to realize abenefit resulting from the investment), the degree of availableservice and support offered by the vendor, the version release ofthe vendor's product (i.e., early technology versions are inherentlymore risky than more stable product versions). When planningtechnology acquisitions (especially TCO enabler investments),therefore, vendor-introduced risk should be factored into theinvestment decision.

User-Introduced Risk: There are a number of technologyimplementation risk factors users introduce. The most importantand significant factor which drives technology implementationfailures (including TCO enabler technologies) hinges on thecomplexity mentioned in the previous section. The more complexthe IT management and IT infrastructure, the more probable it isfor an organization to fail in implementing a range of technologysolutions. Management complexity is especially critical in theimplementation stage, since most (if not all) technology



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implementations require significant amounts of process definitionand staff coordination (See Figure 16).

Figure 16. The Relationship Among User Complexity, Probability ofAchieving ROI

Risk of Implementation

Failure

Technology Implementation Time *

Low Complexity

Medium Complexity

High Complexity

* The time it takes for technology solutions to be capable of fulfilling predetermined functional requirements within a given end user’s environment.


Beyond complexity, there are a number of other key factors thatconsistently inhibit successful IT implementations, including:

� Too many defined goals associated with one project,� Lack of senior management justification review for the technology

project,� Inadequate Piloting and Testing,� Lack of dedicated sponsors for technology implementation,� High rates of employee turnover,� High rates of systems integrator turnover, and� Lack of alignment on internal goals.

Like a financial investor, therefore, technology investors mustalways be conscious of the risks of failing to successfullyimplement technology solutions. For if risk is not considered,projects which were designed to reduce TCO may in fact increaseTCO.

3.7.2 Operational Risk

Operational risk is risk that threatens the operation of theenterprise. To the degree that IT becomes an embedded part ofoperations, IT can mitigate or create risk.

Figure 17. Five Categories of Operational Risk

1. Performance/Downtime—Business exposure resulting from operationdisruption caused either by system outages or delays, often a consequence offaulty enterprise system planning/ design (i.e., not natural disasters).

2. Data Loss/ Corruption—Business exposure resulting from inadequatesystem controls including: data storage, back-up and data integrityprovisions.



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3. Security/Theft—Exposures to the business resulting from inadequatesecurity provisions including (but not limited to) inadequate or incomplete:authentication, authorization, system integrity, audit and confidentialitycontrols.

4. Business Recovery—Exposure resulting from the inability to effectivelyresume fundamental business operations after the occurrence ofextraordinary events, most often natural disasters.

5. Legal Compliance—Exposure resulting from enterprise inability to effectivelycomply with (and manage to) conditions which would otherwise discourage arange of legal action (e.g., non-compliance with Federal Reserve OCC andUCC4A financial regulations for financial institutions. Inadequate securityprovisions internal to the enterprise, leading to enterprise prosecution ofpotential perpetrator). Legal risk can range from individual to enterpriseliability.


The goal is to accurately describe the relationship between risk ofdowntime and cost, and minimize chance of implementationfailure. Generally speaking, we believe risk reduction requiresinvestment in IT and the job of IT management is to weigh thistradeoff and evaluate technologies from this, among other,perspectives. We are aware, however, that by investing in certaintechnologies/processes, the enterprise may be able to determinethat both cost and risk can be simultaneously reduced.

Figure 18. Risk/Cost Relationship

TCO

Risk orVariance

Low

Low




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3.8 Compilation of Quantitative Information into TCO Analyst Software Prototype

Since the inception of the TCO model in 1987, GartnerGroup hascounseled its clients to use the TCO estimates as guides tounderstand the most important actions they can take to reducecosts. Since actual savings vary among enterprises (due to uniqueenvironments and differences in labor rates, funding, accountingpractices and implementation strategies) we have suggested thatfirms build their own TCO models. To assist in this process,GartnerGroup has made its TCO research available to clients inthe form of spreadsheets and Research Notes. The TCO Analystmethodology will make this process much easier and moreaccurate.

Working with Interpose, a leading TCO software developer, wecreated a prototype as a proof-of-concept for the newGartnerGroup TCO methodology. This prototype illustrates acommon interface to all the GartnerGroup TCO models and showshow users could create custom TCO estimates using a highlystructured methodology. Included in the TCO Analyst prototype isa wide array of proprietary information on the cost elements ofTCO, ‘scalers’ to permit customization, and quantitative output oncost and risk. By combining GartnerGroup’s ground-breakingtheoretical research on TCO with Interpose’s practical adaptationof this research, we believe we have created a prototype for a trulypowerful tool to help evaluate computing technology and bestpractices. As a prototype, the TCO Analyst is today a work-in-progress which we plan to improve as we receive commentary onour efforts.

Figure 19. TCO Analyst Prototype—Screen View


3.9 Inclusion of GartnerGroup Research into TCO Analyst Software Prototype

In addition to its quantitative abilities, the TCO Analyst softwareprototype supports the delivery of relevant written GartnerGroup



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research on TCO and related topics. Built-in hyperlinks permitusers to easily review a simple definition, or find more detailedresearch on topics ranging from technology (remote wake-up) tohigher-level management issues on IT (importance of weaving theIS organization into the fabric of the enterprise.) The prototypealso supports personal annotations created by the user about keyassumptions that would otherwise be lost in unwieldyspreadsheets. Finally, by permitting rapid creation of detailedwritten reports, the TCO Analyst prototype illustrates the ease bywhich users can communicate assumptions, conclusions andrecommendations with their peers and management. Weanticipate this could lead to better decisions to lower computingcosts.



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Section 4

Conclusion

With great expectations we launch into a new era of IT costanalysis, leveraging a decade of research on the total cost ofcomputing. We are proud that we have established a leadershiprole in TCO analysis, but are humbled by the impact TCO has hadon the industry. We have coached hundreds of companiesthrough the analysis, worked with many vendors to shape theirproducts with a TCO vision, and we are gratified that we have leadthe way to establish a new industry metric.

We also know that much remains to be done on this methodologybeyond what we have outlined in this white paper. For example,we have yet to address the other side of the value scale: businessbenefits. This remains a thorny and elusive topic, yet it is oftenthe real driver of IT investment. Without a true measure ofbenefits, we have only half the picture.

In the meantime, we hope this new TCO methodology andsoftware prototype may lead to new opportunities for research andthe practical application of good ideas in IT management andsolutions creation.

Documents

TCO Analyst - Netvoyager · TCO Analyst A White Paper on GartnerGroup’s Next Generation Total Cost of Ownership Methodology Prepared on Behalf of Sponsors of a Multiclient Study