Beware Not Understanding TCO

Posted: March 15, 2011 in Uncategorized
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In honor of the Ides of March, we are focusing on what to beware when obtaining a new telecommunications solution. Typically we decide on a set of minimum requirements from an acceptable company who offers the equipment/services at the lowest possible price.  In these economic times this is an acceptable business model, or is it? Before we grab our pen and check book we should first consider TCO; Total Cost of Ownership.

TCO is defined as a financial estimate whose purpose is to help consumers and enterprise managers determine direct and indirect costs of a product or system. It is a management accounting concept that can be used in full cost accounting or even ecological economics where it includes social cost. (Don’t  you love Wikipedia?).

What does that mean to me? For starters consider the following:

  1. Your telephone costs consist of two things, equipment and network services (dial tone and internet access.) Getting equipment at a reduced cost or even free is not a bargain if your monthly dial tone and internet access costs are increased. Manage IP (Hosted IP) uses this to market their plan, beware!
  2. Software licenses and yearly licenses to use must be configured in to the TCO. Some higher end IP solutions such as Cisco will assess a yearly license to use fee. This is needed for the system to operate. Do not confuse this will maintenance and tech support agreements; beware!
  3. The longer the warranty, the better the deal. Whether Maintenance Contracts are a good idea or not is a discussion for another time. A system with a 5 year warranty is superior to one with a 2 year warranty. 6 month warranty or less? Beware!

When considering any major investment think TCO. What will the total cost be over the assumed life of the system? The math may be tedious but not difficult. To quote Julius Caesar, “No one is so brave that he is not disturbed by something unexpected.” Don’t let an unexpected TCO put a drain on your cash flow.


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