Lessons Learned: Knowing How Much it Really Costs - Total Cost of Ownership

Lesson Statement
All projects with an ICT component should consider the Total Cost of Ownership (TCO) to ensure that appropriate measures are taken to 1) budget necesssary resources; and 2) maximize the benefits of technology use.

While TCO is not a new concept, it has not yet been integrated fully into project design and implementation. It is difficult to imagine buying a car without thinking about the financing costs, gas mileage and corresponding gas bill, the insurance payments and other costs that will inevitably emerge as the car ages. As you bring your old car to pick up your new care, you are happy to give it up for a symbolic cash back value so that you do not have to pay to have it disposed of. In other words, we all know that the real price tag is more than the purchase price in bold print on the car window. Thinking about a car in this way may have become routine but it is not yet routine when we think about our computers or computers within development projects.

Key Components of Total Cost of Ownership
  • Buying the right equipment - Initial capital costs
    The cost of the equipment, while a significant obstacle to the start up of operations for a school- based computer lab, telecenter or other type access point, can be relatively small compared to the total cost of ownership over a period of several years.

  • Beyond opening the box - Installation costs
    Depending on the type of equipment being installed, the complexity of the network being deployed, and the distance from major urban centers, and the availability of skilled technicians, installation costs can be significant.

  • Paying for donations
    Donations are never totally free. Donated equipment is often second hand equipment, may require repairs and upgrades, may not always be up to standards and may not easily be connected to a network or some other piece of equipment.

  • Powering IT – Energy costs
    Power outages are quite common in many developing countries, disrupting operations of all ICT equipment, unless steps have been taken to provide an alternative energy source. The regular grid supply of electricity and any alternative sources of power can add up to a significant amount over time – especially if the alternative source of power is a generator. Under certain circumstances, the choice of equipment can make a huge difference in energy consumption and energy costs.

    A related challenge is that ICT projects imbedded in existing institutions often fail to isolate energy costs associated with the ICT project itself.

  • Software and software upgrades
    While a computer is most often purchased with a package of core software included, upgrades are not. The recurring costs associated with proprietary software have given a boost to open source software but there are also costs associated with open source solutions.

    In many projects, computers procured come with a set of proprietary software that will eventually require upgrades. In some cases, private sector partners provide additional software.

  • Getting everyone ready - Cost of training
    Getting the equipment to work is only part of the challenge. Once a computer lab is operational, you need users, trained users, and trained staff. Beyond basic training, both staff and users need practice time.

  • Keeping someone at the helm - Cost of support staff
    While some projects have relied extensively on volunteers, there are costs associated with running volunteer programs. In general, at least one salaried employee is essential to run a computer lab, preferably two to ensure full time operations. Keeping trained staff is also a challenge.

  • Keeping things up and running – Maintenance costs
    There are costs associated with a regular maintenance schedule. Without regular maintenance, failures and repair costs are likely to increase.

  • Staying connected - Connectivity costs
    Most ICT projects supported by donor funds that involve the provision of internet connectivity include initial funding to cover the costs of equipment, installation and a certain period of monthly recurring connectivity costs. Eventually, the local institution needs to pay for these connectivity costs on its own.

  • Fixing IT – Repairs
    Even with the best of maintenance, some equipment will inevitably fail. The key is to have planned for that eventuality and to be ready to diagnose quickly and repair or request assistance to proceed with repairs.

  • It can’t be fixed. What do we do with it now? - Disposal costs
    Developing countries have often been the dumping ground for computer garbage because of less restrictive regulation or relaxed oversight. Projects supported by donors should have a proper disposal plan and should help local institutions budget for disposal costs.

  • Computers don’t last forever – Replacement Costs
    Very few ICT projects started with donor funding have spelled out when and how the initial equipment will need to be phased out and replaced. This failure to look beyond the initial, donor funded years of the project is going to be costly. Local institutions responsible for long-term operations of ICT must budget for such replacement costs and plan ahead of time.

    This list is not meant to be exhaustive. Other components may be relevant on a case by case basis.

  • Project designers should take TCO into account in the design stage of the project and integrate it into long-term sustainability strategies;

  • Capacity building efforts targeting technical local staff and partners should integrate TCO concepts and tools; Local project partners need to learn how to budget based on TCO;

  • Existing TCO calculation tools should be adapted for use in a variety of developing country settings.

For More Information, Contact:
Michael Tetelman
Director, dot-ORG, Academy for Educational Development
Tel: (202) 884-8856

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