Total Cost of Ownership

Car owners know that the ownership costs don’t stop with the initial purchase: there are preventative maintenance costs – oil changes, tune-ups, transmission flushes, and more; there are repair costs for issues like flat tires, oil leaks, and malfunctioning engines; and finally there are other costs like fuel costs and insurance. Over time, the cost of owning a car can exceed the initial purchase price itself.

In corporate IT environments, where the equipment purchase costs are only a fraction of the overall technology costs, professional IT managers are well aware of the total cost of ownership (TCO) and factor in the additional costs when making purchase decisions.

When evaluating network equipment for use in AV networks, one must take the same approach and consider the costs over the entire equipment lifecycle. Five phases of ownership factor into a product’s overall long-term cost: acquisition, setup, maintenance, upgrades, and decommission.

TCO-graphic

Acquisition

The initial purchase cost is often the most visible part of the total ownership cost. It usually includes the product costs, associated software, licensing fees (if applicable), corresponding accessories, delivery costs, taxes and any financing costs.

The cost of the product is based on a number of factors – the features, performance, components, quality, support, warranty and brand name. This initial cost is only a small portion of the total cost of ownership.

The planned service life is also a contributor to the initial product cost. Equipment in use for three to five years should be futureproofed – either through latest technologies or scalability features (e.g. number of ports, PoE, etc.). These considerations could increase the initial acquisition costs.

Setup

The cost of setup is often underestimated during the purchase consideration process. It comprises of the equipment installation at the project site, as well as configuration, integration and testing. Whether the costs are manifested in the form of billing hours or a service charge, three factors impact the final setup costs – the product configuration time, equipment vendor technical support and installer expertise.

Some equipment, like unmanaged (“plug and play”) switches, is so easy to install that it doesn’t require any setup. More advanced equipment requires technical knowledge and access through the unit’s internal management interface for configuration purposes.

Vendor technical support is critical when the installer is on the project site and needs help. Some manufacturers only offer online/web support—causing your work to stall for days at a time. Other manufacturers make you pay an additional service fee for around-the-clock/after-hours support. Still others have outsourced support services to individuals who simply read from a script and have no real problem-solving abilities. These costs, whether time or financial, are ultimately passed onto the buyer.

Maintenance

Over the lifetime of the network, periodic maintenance tasks are often required for proper operation, maximum performance and reliability. Some of these tasks include firmware updates, bug fixes, configuration setting adjustments based on updated network conditions, operational log reviews, performance tests, troubleshooting, warranty services (including replacements), and other physical inspections. These activities can be done as part of a service contract with the manufacturer (extended warranty/service contracts) or on an as-needed basis.

Maintenance costs will vary based on a variety of factors: some network equipment requires more maintenance than others, some activities can be done remotely instead of on-site, some tasks can be automated, some manufacturers offer free lifetime firmware updates while others charge fees after a certain period of time, and some manufacturers offer longer warranties than others.

Upgrades

In order for the network to function smoothly over its operational lifetime, the integrator must make sure it continuously meets the user’s needs. This may mean upgrading memory, adding more network ports, replacing obsolete devices, or adding new software modules. Not all products can be updated – the product could have reached “end of life” so that the integrator would have to go with a completely different platform. In other cases, the underlying standard has become functionally obsolete and cannot work with new products in the marketplace. Upgrade costs vary based on a variety of factors – system modularity, availability of software updates, ease of replacement, set up and integration of the new units, as well as the cost of the upgraded units.

Decommission

An often overlooked expense is the cost of taking network equipment out of service. In smaller networks, it is relatively easy to do. In large commercial networks that are running continuously, decommissioning equipment requires coordination and advanced planning. Once removed from service, information stored on board the equipment must be removed. These include login names and passwords, IP addresses, log information, and other sensitive network data.  Finally, there may be costs with recycling, disposal, documentation and compliance with applicable environmental regulations.  These costs may be offset partially through vendor trade-in and trade-up programs.

Putting Theory into Practice

With so many variables in place, it is not at all uncommon for products with a low initial cost to mask hidden expenses that only appear in the long run. On the other hand, products with an initial high cost may save you money in the long run in their quality and services.

In order to properly assess the network costs over its operational lifecycle, ask yourself the following questions:

  • How long will I use this device in my network?
  • What if my needs change and I need to upgrade?
  • What may cause my network to become obsolete early?
  • What software upgrades are available?
  • What happens if something is wrong with the product?
  • What happens if I need technical assistance?
  • How do I learn to set up and install the products?
  • How easy is it to train new team members to setup, install and operate?
  • What other hidden costs are there?
  • What are the vendor refund policies?

Consider the following checklist:

Lifecycle Stage   Areas of Cost   Cost Reduction Items
Acquisition
  • Product cost
  • Software costs
  • Delivery costs
  • Taxes
  • Extended warranties
  • Realistic user requirements
  • Vendor trade-in/buy-up programs
  • Leveraging existing promotions
  • Modularity/scalability features
  • High product quality and reputation
  • Long product warranties
  • Consistent pricing/products
Setup
  • Labor – installation, setup, configuration
  • Technical support fees
  • Product/technology training fees
  • Ease of equipment setup
  • Setup automation and installation tools
  • Technical support
  • Technical support responsiveness
  • Vendor training costs
Maintain
  • Extended warranty contracts
  • Technical support fees
  • Software/firmware upgrade costs
  • Reconfiguration costs
  • Utility costs for operating – electricity
  • Training/re-training installers and new installers
  • Problem resolution timeframe
  • Personnel
  • Systems programmers
  • Network administrator
  • Troubleshooting labor
  • Continuing contract labor
  • Longer warranties
  • Lifetime technical support
  • Lifetime firmware upgrades
  • Automated network maintenance
  • Remote management and service
  • Ease of operation – automation, GUIs
  • Manufacturer trade-in programs to replace outdated gear.
  • Energy-saving equipment
Upgrade
  • Firmware upgrades
  • Equipment replacement
  • Rewiring of cables
  • Free firmware upgrades
  • Modular/scalability features
  • Backwards-compatible products to simplify usage
Decommission
  • Removal from service/rack
  • Stored information and configuration settings removal
  • Equipment disposal
  • Vendor trade-in and disposal programs

Next Steps:

Now that you know what goes into calculating the total cost of ownership, how can you apply it? Here are some steps we recommend:

  1. Create a table by listing out the additional expenses, organized by the 5 categories listed above, required to set up the network. Use the examples listed above as a starting point. Have a table for each prospective vendor being considered.
  2. Talk to multiple vendors and present them with the proposal for your project. Ask them:
    • What product features will reduce long-term costs?
    • Which of your programs and services reduce long-term costs and how?
    • What other benefits do you have over other vendors in terms of long-term costs?
  3. Cross off any expenses that the vendor can provide a solution for (ex: if the manufacturer offers free technical support, you will not have to pay additional tech support fees and can cross that off your list).
  4. Sum up the expenses to get the estimated expected TCO. Include this cost as part of the overall consideration and decision process.

Like cars, networks involve a lot of tune-ups, and there is far more to maintaining a network than what is on the surface.  With a little research and planning, integrators can potentially save themselves thousands of dollars in the long run.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s