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Total Cost of Ownership

By Christopher G. Mendla
July 2005

Providing computer services can be frustrating when clients are unaware of the cost of owning  computer systems, especially in the case of a business. Often we run into older machines that are virus infested and ill maintained. Cleaning everything up is time consuming and costly.

Understanding the costs of computing can make the process easier for everyone.

Gordon Moore and Moore's Law

Gordon Moore was one of the key people in the development of computers with the work he did on transistors. He postulated in the early 1970's that technology would double about every 18 months while the costs would remain the same. He theorized that this trend would continue until about 2015. At that point, we would reach some limits because the transistors would be down to the molecular level. His theory has been right on target until the present day.

One of the things to understand about Moore's law is that it deals with exponential growth. This rate of growth is difficult for most people to understand. To illustrate the concept, consider taking a penny today and doubling it every day for 30 more days. Take a guess at your answer. Then work it out on a calculator to see how close you were.

Moore's Law and obsolescence.

Since just about every aspect of computing power doubles every 18 months, that has a huge effect on the viability of your systems. What happens is that programmers and web developers like to use as much of the available power as possible. Websites and programs will eventually require more power than your systems are capable of. In today's terms, a machine for business use has a lifespan of about 3 years. At that point technology has doubled twice which means that the machines being sold are 4 times as powerful as the one you bought 3 years earlier. at 4 1/2 years old the new machines are 8 times as powerful. 

Conversion costs

There is a cost not purchase new machines. That is related to security and efficiency. However, there is also a cost to replace a machine. New machines need to be fully patched and the antivirus brought up to date before being used. Quite often, some of your older programs and equipment will be incompatible. In many cases, you will find that there is little or no vendor support. This necessitates hiring a consultant in most cases. 

You will also have to transfer all of your data. In many cases, the migration wizard included with XP makes this task easier. However, there are some things that the wizard can't handle that you will have to do manually. Again, this can require some specialized experience.

Some Hypothetical Numbers

Suppose we have a small office with 6 computers and high speed internet. How can we estimate their yearly budget for computing. Here are some numbers that could help put things in perspective.

$2,000 Computer replacement - If we assume that we will be replacing computers every 3 years and we have 6 computers, then, on average, we will be purchasing 2 computers per year.
$1,000 Other hardware replacement - Things such as printers will need to be replaced. Other items such as PDAs and cameras may not be compatible with your new computers. Also, networking equipment will need to be replaced from time to time.
$2,000 Consulting services - This figure will vary greatly. However most businesses will require some additional computer support
$500 Training - When you get your new operating systems and office suite there may be some training issues
$1500 Web Design - In many cases a business will use the same consulting company for their network support and web design.
$7,000 Estimated total. This is a very rough estimate but is probably close. It works out to about $1200 per computer per year. We didn't include the cost of Internet access which could add anther $500 to $1000 per year.

Summary

Business owners should estimate their yearly computing costs realistically. Otherwise they will become overwhelmed by the constant expenditures.

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Last modified:  11/10/06