How much does your IT environment cost? 5 tips on how to spend less on IT costs

The majority of all companies purchase new equipment every year, and replace one in four computers in the office. While the price of a new computer isn’t particularly high for many companies, most people forget to include the total cost of the computer's life and consumption. How do we calculate how much is spent on IT, and how can we reduce our costs? Read on for our top tips.

What is TCO and how do we calculate it?

TCO is an American concept and is an abbreviation for Total Cost of Ownership – in other words, the total cost of what you own. It’s important to understand that a computer or a printer costs significantly more than what the original price tag implies, especially when deciding on your IT budget. The total cost of a product includes the following costs:

Direct costs:

1. Hardware and software

Includes: The product, systems or services you buy, i.e. licences, subscriptions, SLAs, guarantees, installation etc.

Calculate the cost: Find all the invoices, orders and information related to hardware and software from the past three years. Divide the total cost by three. You should also include a reduction in value over time for technology.

2. Operation

Includes: Anything to do with operations. Most companies outsource technical support and maintenance for their IT environment. Include everything to do with support, websites, help desk, salaries, subscriptions and other contracts that relate to your IT environment.

Calculate the cost: If you work with an IT supplier, add up all your invoices from them for three years and then divide that total by three. If you don’t have an IT supplier, for example if you’re a small company or have technically knowledgeable staff who take care of the IT operation, you can try to estimate the number of hours the person in question spends on operations to see how much it costs the company.

3. Administration

Includes: Finance, HR, administration, costs for contracting external suppliers and for training your own personnel in IT.

Calculate the cost: Whether you have an internal IT department or work with external suppliers, there will still be someone who spends their time training staff, buying in external help and managing contracts and relationships. Estimate the time this takes to see how much it costs your company.

Indirect costs:

1. Use

Includes: Lack of productivity due to a problematic IT environment, regardless of whether it’s time users spend trying to solve problems themselves or lack of efficiency due to users using the technology incorrectly.

Calculate the cost: This is the most difficult category in terms of expenses to calculate and it’s often the biggest cost thief. Many people try to fix technical problems themselves instead of paying for expensive support. Although not a perfect method of measuring the cost, you can try to estimate the number of hours your employees spend on technical problems and then multiply it by an average hourly wage. You may have to spend a while to get the actual figure in terms of how much time is expended on technical problems, so try to be as comprehensive as possible when doing the calculation.

2. Downtime

Includes: Productivity and revenue lost through downtime due to servers, computers that have stopped working, internet connections playing up etc.

Calculate the cost: Estimate the number of hours you can’t work due to problems in your IT environment and multiply this by an average hourly wage.

Many people believe that direct costs only include the purchase of the equipment itself, but that isn’t usually the case. According to research by Gartner, the actual price tag represents only 20% of the TCO. The majority of the TCO consists of maintenance, technical support and labour costs. Most companies don’t have the expertise required to manage their IT environment, which means that they constantly pay for new configurations and maintenance.

Therefore, in order to get the most efficient and affordable IT environment possible, it’s important that you gain control of your TCO and start working to reduce it.

Tips for reducing costs

You probably spend more on IT than you think, and when you have worked out the actual sums involved you’ll probably realise that you spend more money than you actually want. For example, figures from Gartner show that an ordinary computer in an office that isn’t taken care of properly costs more than SEK 40,000 per year. These costs increase to over SEK 70,000 per computer if you include network costs, firewalls, storage, servers, routers and internet connections.

Here are five tips for reducing your IT budget:

1. Calculate your current IT costs so you get better control of them and can develop a plan to reduce unnecessary outlay in this area.

2. Reduce redundant technology by using fewer systems and incorporating platforms or system networks that can handle the same tasks more efficiently.

3. Get proper protection against viruses and other threats, especially if your calculations show these have proved costly in the past.

4. If you are not working with an IT supplier, it is probably a good investment to start doing so, especially from a long-term perspective.

5. Train your employees inyour systems, processes and equipment so that they aren't stuck on problems they aren't intended to solve.

Hopefully, our tips will make it easier for you to calculate your TCO and lower your IT costs in the future. Feel free to contact us if you want to talk more about your IT environment or if you are looking for an IT supplier.

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