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Evaluating Education IT InfrastructurePurchases in the Philippines.By Nicolas V. Servino Jr. Education Solutions Manager Sapura Synergy Philippines.
IT Infrastructure in Education is a booming business sincethe day computers made a serious impact on how peoplethink and work. Schools have adapted numerous forms ofIT implementations, and numerous variations and flavorsto suite their needs.
"If someone brings a lot of newtechnology into your school district,
and doesn't provide staffdevelopment, the only thing that will
change is your electric bill."Dr David Thornburg
In the Philippines, numerous schools have fallen prey to the promise of Technology, that they fall short inevaluating what is suitable for their school and its requirements. Also since most schools have increasedexpenditure on Hardware/Software, their expenditure on maintenance and upkeep has drasticallyincreased as well.
TOTAL COST OF OWNERSHIP
Total cost of ownership (TCO) is a financial estimate designed to help consumers and enterprise managers assess
direct and indirect costs. The clear advantage of seeing a specific purchase requirement (commonly forhardware/software, mechanical/Industrial related items) holistically and defined by a particular timeframe isthat the real value of the purchase, and the underlying costs that would become imminent over time.
TCO tries to offer a statement on the financial impact of deploying information technology during its wholelife-cycle. The general idea is to look at the whole expense within a specific timeframe that the equipmentis effectively at work and what it would cost for it to continue working after it has exhausted the describedtime.
Total Cost of Ownership Analysis Sapura Synergy Philippines
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Depending on the IT deployment thefollowing elements can be included in theTotal Cost of Ownership TCO:
End-user computer Hardware purchase costs Software license purchase costs Hardware and Software Implementation / deployment costs Hardware warranties and maintenance costs Software license tracking costs Operations Infrastructure Costs Infrastructure (floor space) costs Cost for electricity and cooling. Network hardware and software costs Server hardware and software costs
Testing costs Cost to upgrade or scalability IT Personnel costs "C" Level Management Time costs Backup and Recovery Process costs Costs associated with failure or outage Diminished performance incidents (i.e. users having to wait) Costs of security breaches (in loss of reputation and recovery costs) Technology training costs of users and IT staff. Audit costs Insurance costs Replacement costs Migration costs Decommissioning costs
IT IMPLEMENTATION IN PHILIPPINE EDUCATIONAL INSTITUTIONS
A typical Philippines School IT Shopping List would include the following:
1. Workstations for Staff (Midrange Specs)2. Workstation for Labs (usually Midrange)3.Laptops for Management (Usually Mid range)4. Office Suite Software (usually MS Office)5. Adobe Productivity Software (Usually Photoshop, Illustrator or CS Suite)
6. PC Based Servers7. Microsoft Visual Basic Software8. Microsoft Server Softwares9. Anti-Virus Software10. Accounting Application Software (Usually Peachtree or Quicken)
Elementary and Secondary Schools also have specific application requirements for different subjects suchas math, music, sciences and even computer literacy.
Higher Education on the other hand require specialized applications for various courses. Their requirementsand procurements are often dictated by the industry that their graduates will be in.
Total Cost of Ownership Analysis Sapura Synergy Philippines
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...studies show thatmanagement costsand overhead actuallyaccount for themajority of the costs
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Unfortunately in the Philippines, the Department of Education (DepED) and the Commission on HigherEducation (CHED) are not in a position to provide clear guidelines on IT Implementations andProcurements. They even engage in ridiculous, overpriced purchases.
Usually a team of teachers/IT Staff of their own respective schools/universities determine which items theschool will be needing (If its a public school or a government school an IT board/council determines thelist). This list is a consolidation of requirements presented by each department and is matched with a
particular IT equipment. This is then reviewed by the Finance department during an appropriationsmeeting.
The Philippines for the longest time has anchored its IT Infrastructure investments on Microsoft Platforms.Microsoft has long been considered the ubiqiutous choice for IT implementation around the world,overtaking Apple as the leader in Personal Computing in the late eighties towards early nineties. The factthat there are considerable amount of Microsoft Certified Experts (MCE) and Microsoft CertifiedProfessionals (MCP) is proof that Microsoft has a huge footprint in the IT industry here in the Philippines.Thus, most of the recommendations prepared by IT Managers/Directors are inclined towards a Microsoftbased approach.
The emergence of new players like the open-source Linux and the renaissance of Apple has brought forthchoices for schools and Industries alike. This poses a big problem for decision makers in their respectiveschools and universities, as most of their competencies are Microsoft inclined, therefore, choices are stilllimited.
IT RELATED PROBLEMS OF EDUCATIONAL INSTITUTIONS:
Since Technology has been moving at a faster pace, requirementshave changed drastically as well. Technology that was consideredHigh Tech before are now either upgraded or updated. to suite thecurrent requirements. The proliferance of open source applicationsboth web-based and workstation-based has indeed changed thecomputing preferences and performance of people. The Microsoft era(almost everbody is using MS Office since its inception) is now beingchallenged by online office suites, as well as open source applicationsthat are comparable to the Big three ( Word, Powerpoint and Excel).Decision makers are now challenged to prepare a comprehensive, upto date and relevant list of IT Requirements.
Procurement List, inspite of these relevant changes in the IT industryare still treading towards their previous inclination. Although this isnot necessarily wrong, but they are now challenged by other solutionsthat may prove more effective for their respective schools.
The list oftentimes lack depth and detail as to:1. Who will be the target users. Who are the secondary users.2. Who will be managing the equipment. What is the extent of usage of the equipment.3. How many people are assigned to provide local support for the equipment.4. Is there a timeframe for the effectivity of the equipment?5. What will be the upkeep and maintenance plan. What happens when there is a virus infection.
Is there a downtime scenario and how will it be resolved.6. Is there a training plan for the staff? training plan for the teachers? Is there a re-training plan?
An up-training plan?7. Is there an evaluation of relevant software/hardware?8. What other emerging technologies will the school benefit from?
Total Cost of Ownership Analysis Sapura Synergy Philippines
Prepared by Nicolas V. Servino Jr. for Sapura Synergy Phiilippines. All rights reserved 2008 3
... between the years 2000and 2002, U.S. companies
spent about $130 billion onsoftware and hardware thatthey ultimately didnt need.
And Gartner says thesefigures jump to $540 billion
on a global scale.
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A comprehensive cost -benefit evaluation is commonly undertaken by schools to resolve obvious concernsabout total investment cost. at the onset but there is litt le or no cost-benefit review after the effectiveduration of the project. This leads to poor and inconclusive evaluation wether the IT purchase wassuccessful or not.
WHERE DOES THE MONEY REALLY GO?
While many people think the major contributor to the cost of owning computers is hardware and software,studies show that management costs and overhead actually account for the majority of the costs.
Reducing the cost of desktop management provides a key solution in lowering the TCO. The Gartner studybelow shows that with management tools, the cost of ownership can be reduced by 40%.
By acknowledging that the cost is not really on the hardware/software purchase but on the managementside, then great savings can be made.
0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000Hardware and Software
OperationsAdministrationEnd User IT CostsDowntime
Managed
Unmanaged
Source: Summary TCO Analysis for Windows XP. Table 1 andTable 3, Use Best Practices to Reduce Desktop PC TCO,2005-2006 Update, 8 December 2005, Michael A, Silver,Federica Troni, Gartner, Inc.
Managed computers have 40% lower TCO
Total Cost of Ownership Analysis Sapura Synergy Philippines
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THE START OF THE PROBLEM LIES ON THE PREPARATION
A typical school IT related requirement would tell the real story.
School A School B
For purposes of anonymity we are striking out the actual names of the schools. (The full document can beobtained from the internet).
The Request for Quotation ( RFQ) is coming from an entity that represents two schools. It is assumed thatcertain requirements are to be common to both schools.
Take note of the specification Locally assembled Desktop computer which indicates that there is onlyhardware warranty but not assembly warranty. (this means as well that the cost of implementation is notcomputed and is probably assumed to be covered by the school.
Also worthwhile to mention is the lack of per unit operating system for the workstations.
Overall the RFQ looks comprehensive, but leaves out the detail on implementation, After sales service andWarranties.
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Once the RFQ has been responded accordingly by Vendors, a thorough inspection of most quotations alsoreveals fatal flaws:
1.Training is being offered as a free service by vendors. This ends up becoming a selling point of somevendors. The extent of training provided is normally limited to entry point to basic know how of themachines.
2.After sales service is not detailed. What if there is downtime? Or what happens if the machines do notwork? Who is responsible for it? Does standard warranty cover it?3.Other value added products and services are limited. This would often be added as additional cost by
vendors but would often be shot down by clients. This is normal as the price is the main determinant ofany package.
According to a recent report by Morgan Stanley, between the years 2000 and 2002, U.S. companies spentabout $130 billion on software and hardware that they ultimately didnt need. And Gartner says thesefigures jump to $540 billion on a global scale. That translates into a lot of dollars sitting mostly in ITdepartment closets.
Two key reasons for this waste are: (1) The solution was not able to do what was expected at the time it waspurchased, and/or (2) Hidden costs that surfaced after the purchase did not leave any budget dollarsavailable for implementation.
HOW IS TOTAL COST OF OWNERSHIP EVALUATED
To understand the the concept of TCO, we need to provide key data on the following elements definedearlier to see how much will be spent within a particular IT investment. (We will be removing some lineitems for simplicity. Items not part of the review are grayed out)
1. End-user computer Hardware purchase costs2. Software license purchase costs3. Hardware and Software Implementation / deployment costs4. Hardware warranties and maintenance costs5. Operations Infrastructure Costs6. Infrastructure (floor space) costs7. Cost for electricity and cooling.8. Network hardware and software costs9. Server hardware and software costs10. Testing costs11. Cost to upgrade or scalability12. IT Personnel costs
13. Backup and Recovery Process costs14. Costs associated with failure or outage15. Diminished performance incidents (i.e. users having to wait)16. Costs of security breaches (in loss of reputation and recovery costs)17. Technology training costs of users and IT staff.18. Insurance costs19. Replacement costs20. Migration costs21. Decommissioning costs
Total Cost of Ownership Analysis Sapura Synergy Philippines
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The general concept ofTotal Cost of Ownershipor TCO is to providedecision makers with atool to effectivelyevaluate projects thatrequire significantamount of CAPEX.
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Here is a Typical Breakdown of IT related Costs for Schools. The case study is for a 40 unit Lab for BasicEducation School (Private School).
1.0 Hardware requirement
HardwareType
SpecifcationsOutright Cost
PriceDi erence
Typical LabConfguration (40
units)
Clone type Equivalent* 35,000.00 0 1,400,000.00
Dell/HP/IBM Equivalent* 50,000 15,000 2,000,000.00
Apple Imac 2.66GHz Intel Core 2 Duo 2GB memory320GB hard drive 8x double-layerSuperDrive NVIDIA GeForce 9400M
graphics
66,990.00 31,990 2,679,600.00
* hardware includes web camera, keyboard, mouse optical drive internal microphone
2.1 Software (Operating System Requirement)
HardwareType
Additional So tware Outright CostPrice
Di erenceTypical Lab
Confguration (40units)
Clone type OS( Windows Vista
Business)18000 0 720000.00
Linux 0 0 0
Dell/HP/IBM bundled (add 5000 to
convert to Vista Business)5000 -13000 200000.00
Linux 0 0 0
Apple Imac bundled 0 -18000 0
* Different Software licensing program may alter pricing comparison.
2.2 Software Applications (Office Suit e)
HardwareType
Additional So tware Outright CostPrice
Di erenceTypical Lab
Confguration (40units)
Clone type MS Ofce Suite 10000 0 400000.00
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HardwareType
Additional So tware Outright CostPrice
Di erenceTypical Lab
Confguration (40units)
Open Ofce 0 0 0.00
Dell/HP/IBM MS Ofce Suite 10000 0 400000.00
Open Ofce 0 0 0.00
Apple Imac MS Ofce Suite 10000 0 400000.00
Open Ofce 0 0 0.00
Iwork09 7000 3000 280000.00
* Different Software licensing program may alter pricing comparison.** anti-virus software is not included in this study.
2.3 Software Applications (Productivit y Suit e)
HardwareType
Additional So tware Outright CostPrice
Di erenceTypical Lab
Confguration (40units)
Clone type Adobe Creative Suite* 20000 0 800000.00
Corel Productivity Suite 17000 0 680000.00
Open Source Productivity
Suite (Gimp, Inkscape etc.)
0 00.00
Dell/HP/IBM Adobe Creative Suite* 20000 0 800000.00
Corel Productivity Suite 17000 0 680000.00
Open Source Productivity
Suite (Gimp, Inkscape etc.)
0 00.00
Apple Imac Bundled** 0 0 0.00
Adobe Creative Suite* 20000 0 800000.00
Corel Productivity Suite 17000 680000.00
* Different Software licensing program may alter pricing comparison.
** Apple bundles their hardware with intermediate Productivity Suite called iLife09
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3.0 Hardware and Software Implementation / Deployment costs
Stage ImplementationDescription
Duration Cost Remarks
Ingres* Machines are delivered,
tagged, arranged and
powered up.
16 man hours 1,700.00Vendors may or may not
include this service.
Ingres**
16 man hours
I IT personnel is working
on something else,
time rame can be urther
extended.
Installation,Setup andCon guration*
So tware is installed
and con gured to work
with the Hardware.
8 man hours 3,200.00Vendors may or may not
include this service.
Installation,Setup andCon guration** 16 man hours
Con guration can be
tedious i so tware is
un amiliar or no previous
training was conducted.
UserAcceptance Testing*
So tware and Hardwareis tested to meet Users
standards.
16 man hoursVendors may or may not
include this service.
UserAcceptance Testing**
8 man hours
Standards can be
lowered down since they
can always repair it
internally i errors start to
occur.
Training So tware and Hardware
Basic Training or
Technical Sta .24 man hours 24,000.00
Vendors normally spread
this out within the
proposal and normally
comes out ree.
So tware and Hardware
Intermediate Training
or Technical Sta .
36 man hours36,000 or
80,000
Cost varies depending i
its certi cation training
or up training only
Manpower alloted or this is or two (2) headcounts* it is assumed that the implementation is covered by vendor.** It is assumed that the implementatio is to be shouldered by End User
Total Cost of Ownership Analysis Sapura Synergy Philippines
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4.0 Hardware warranties and Maintenance costs
Hardware
TypeStandard Warranty Extended Warranty EW Price Remark
Clone type 1 year or parts.
Service not included
unless speci ed by
vendor or reseller
Clones do not o er extended
warranties. A workable option
is to buy extra service units
depends on
the number
o service
units
Downtime is
inevitable. Service
requirement is
increased
Dell/HP/IBM 1 year or Parts and
Service3 years parts and Services
(customizable Service Level
Agreement or SLAs)
10-12% o
per Item
Cost
Productivity and
e ectivity is
assumed to be 3
years
Apple Imac 1 year or Parts and
Service3 years parts and Services
(customizable Service Level
Agreement or SLAs)
10-12% o
per Item
Cost
Productivity and
e ectivity is
assumed to be 3
years
HardwareType
Estimated ExtendedWarranty Value
Actual ExtendedWarranty Cost
Remarks
Clone type*
4,200,000.00 4,200,000.00
Since the Clones are not covered
per item, the cost to ensure
e ectivity or three years is very
much like buying a service unit
per unit purchased.
Dell/HP/IBM
3,600,000.00 240,000.00
Established Manu acturers o er
extended warranty or their
machines very much like having
each one covered with minimal
(10-12%) additional cost.
Apple Imac
4,800,000.00 321,600.00
Established Manu acturers o er
extended warranty or their
machines very much like having
each one covered with minimal
(10-12%) additional cost.
* this is why normally clone machines that break down tend to require another set of purchase as parts and servicingare either scarce or unavailable. It would be better to invest on another set of machines. This actually increasesexpenditure on both purchase and upkeep.
Total Cost of Ownership Analysis Sapura Synergy Philippines
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5.0 Operations Infrastructure Costs
HardwareType
Tables andchairs
Electrical Wiring andPower Outlet
Installation (includingAPC and Surge
protector)
Finishing Remarks
Clone type72,000.00 10,000 5,000
The cost should be
consistent with both types
Dell/HP/IBM72,000.00 10,000 5,000
The cost should be
consistent with both types
Apple Imac
64,000.00 10,000 5,000
the only advantage is that
Macs occupy lesser space
than PC counterparts, which
means smaller tables
This does not include other installations such as Projectors, cabinets, and other room xtures.
6.0 Infrastructure (floor space) costs
HardwareType
Occupied Space(sq. m)
Development Persquare meter
Actual Cost Remarks
Clone type50-60 5000 250,000.00
The cost should be
consistent with both types
Dell/HP/IBM50-60 5000 250,000.00
The cost should be
consistent with both types
Apple Imac
40-50 5000 200,000.00
the only advantage is that
Macs occupy lesser space
than PC counterparts, which
means smaller ootprint per
unit
The cost o development includes space preparation,cement works and nishing
Total Cost of Ownership Analysis Sapura Synergy Philippines
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7.0 Cost for electricity and cooling.
Hardware Type
Occupied
Space(sq. m)
AirconditioningRequirement
Actual
Cost perday
Monthly Cost orAirconditing
Monthly Cost or
Airconditing, Lights andElectricity
Clonetype 50-60 6.25 1,250.00 125000.00 138000.00
Dell/HP/IBM 50-60 6.25 1,250.00 125000.00 138000.00
AppleImac 40-50 5 1,000.00 100000.00 113000.00
125watts (0.125kW) per square metre o oor area to be cooled in living areas
Light and Electricity is computed at a xed cost o 3000 (lighting) and 10000 (electricity)
8.0 Network hardware and software costs
For this item, we will assume that Network Hardware and Software has already been set prior to thisproject.
9.0 Server hardware and software costs
For this item, we will assume that Server Hardware and Software has already been set prior to this project.
10. IT Personnel
Position Role no. Salary per Annumincluding benefts (in
Philippine Peso)
Total InvestmentCost (in Philippine
Peso)
IT Manager Manage IT Team 1 355,000.00 355,000.00
IT Sta Resolve IT Concerns 2 202,000.00 404,000.00
IT TechnicalSupport
Repair/Maintain Equipment 1 145,000.00 145,000.00
Yearly Total Expenses 904,000.00
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Comparative Analysis of Total Cost of Ownership (TCO) for a 40 unit Lab for Basic EducationSchool (Private School) for year 1
Entryno. TCO Determinant Clone Type
Dell/HP/IBM Apple Remarks
1 End-user computerHardware purchasecosts 1,400,000.00 2,000,000.00 2,679,600.00
Total Cost o Hardware ischeapest at the Clone level
Apple price is the mostexpensive.
2 Software licensepurchase costs
2.1 Operating System720,000.00 200,000.00 0.00
Clones does not have OS, PCworkstations need to upgrade.
Apple OS is built in
2.2 Office Suite400,000.00 400,000.00 280,000.00
Apple used Iwork is used insteado MSOfce
2.3 Productivity Suite800,000.00 800,000.00 0.00
Schools opted or AdobeProductivity Suite, Apple opts or
their built in Ili e Suite
3 Hardware andSoftwareImplementation /
deployment costs
64,900.00 64,900.00 64,900.00
4 Hardwarewarranties andmaintenance costs
0.00 240,000.00 321,600.00 The actual investment to cover
or three years
5 OperationsInfrastructure Costs 87,000.00 87,000.00 79,000.00
Space requirement is smallerhence smaller expenditure
6 Infrastructure(floor space) costs 250,000.00 250,000.00 200,000.00
Space requirement is smallerhence smaller expenditure
7 Cost for electricityand cooling. 1,656,000.00 1,656,000.00 1,356,000.00 Space requirement is smallerhence smaller expenditure
8 Network hardwareand software costs N/A N/A N/A
9 Server hardwareand software costs N/A N/A N/A
10 IT Personnel costs 904,000.00 904,000.00 904,000.00 Cost is made consistent
TCO for year 1 6,281,900.00 6,601,900.0 5,885,100.00
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Entryno.
TCO Determinant Clone Type Dell/HP/IBM
Apple Remarks
TCO for year 1 6,281,900 6,601,900 5,885,100
TCO for year 2 4,747,000 2,647,000 2,339,000
Maintenance Cost or Branded
equipment are kept to aminimum as it was already
covered on the intial investment.Newer so tware is also coming
out at this year.
TCO for year 3 4,747,000 2,947,000 2,339,000
Maintenance cost increases orClones as they do not have
extended warranty packages.Setups like this o ten requirethem to purchase individual
parts to replace the items that
are busted. Downtime is also atits highest since
Total Cost ofOwnership
15,775,900 12,195,900 10,563,100
3 years is the e ective li ecycleo workstations. Although theycan still unction, maintenancecosts increases as parts are not
anymore covered underwarranty.
TCO for year 4 4,747,000 3,847,000 3,839,000
Schools o ten choose topurchase new sets o equipment
a ter year 3, and put all previousequipment to be used or
administrative work.Maintenance Costs continues to
increase as the machines getolder. Newer so tware is also
available
TCO for year 5 4,747,000 3,847,000 3,839,000
Most o ten than not, hal o theClones are alreadt
decommisioned or would bevery impractical to maintain.
Chopping into parts normallytake place at year 5 . The
problem o storage and disposalalso comes into play.
Total Cost ofOwnership
25,269,900 19,889,900 18,241,100
Clearly at year 5, equipmentreplacement is in place.
Equipment which are stillworking at this stage is reduced
to 1/4
Total Cost of Ownership in a 5 year period.
Total Cost of Ownership Analysis Sapura Synergy Philippines
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LIMITATIONS TO THE STUDY:
The analysis done previously have certain controlled factors, as well as items that can be argued to beincomparable or inconsistent.
The following items can be said about the analysis:
The office suite chosen by the Apple Vendor should have been MS Office as well.The productivity suite chosen should have been the Adobe Suite for the apple solution.Maintenance cost for the Clones should not be compared to Branded machine.
Omitted in the study are the following items as well:
Cost for Downtime (which is a pivotal factor in determining effectivity)Cost for Downtime repairs.Cost of Data Loss and RetrievalCost for Anti-Virus software for the PC sideThe productivity suite chosen does not include the following:
Audio edting softwareVideo Edit ing SoftwareUp Training and Re-Training
These items if added to the final analysis of the TCO furtheropens up the the real story about IT infrastructure.
The items discussed in the study clearly suggested thatalthough Hardware and software intially requires a largercapital expense (CAPEX), it is in the operating expense (OPEX)and other intangibles that required more amounts in theoverall picture.
CONCLUSIONS:
It can be argued that TCO cannot be measured immediatelyuntil the effective duration is reached. This is true indeed butit does not diminish the fact that with proper evaluation, ITprojects and implementation can be made more effective andefficient. The general concept of Total Cost of Ownership orTCO is to provide decision makers with a tool to effectivelyevaluate projects that require significant amount of CAPEX.
The important note here is that we can make intelligentchoices regarding the IT Infrastructures. Knowing that thereare options for us to take, we can decisively pre-assess theproposal and conduct an exit evaluation of the previousimplementation to learn from them and to continue withwhatever best practices we
Total Cost of Ownership Analysis Sapura Synergy Philippines
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Related Resources:
Outright vs. Lease Nicolas V. Servino Jr. 2008The Technology Provisioning Program Refresher Primer . Nicolas V. Servino Jr. 2008Business IT vs. Education IT.Nicolas V. Servino Jr. 2008http://www.imanet.org/pd /1927.pd http://www.abusiness ranchise.co.uk/lease-buy-business-equipment.htmlhttp://www.adeptscience.co.uk/products/mathsim/mathcad/add-ons/ ree_ebooks/pers_ n_samp.htmhttp://home.manhattan.edu/~ ona.maclachlan//leasing/one.htmhttp://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073959001http://www.comsysbi.com/o erings/technology.htmlhttp://www.oracle.com/technology/products/oem/mgmt_solutions/provisioning.html
Total Cost of Ownership Analysis Sapura Synergy Philippines
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