When my boss first began to talk about “best cost”, I thought that this was it. How could anyone use the word “cost”, which has a negative connotation, together with the word “best”? However, when I started to more closely study the matter, I realized that “best cost” really exists and what is more, it is a desirable feature in the context of IT infrastructure purchases.
The “best cost” term is closely related to the widely used terms “Total Cost of Ownership, TCO” and “Life Cycle Cost”. All of them are used to estimate the costs arising from a particular product being purchased and used for the duration of its life cycle. Costs are traditionally divided into two parts – Capital Expenditure (CAPEX) and Operational Expenditure (OPEX). Quite often it is the capital expenditure that gains focus and people may spend a lot of time trying to cut the price by just a fraction of a percent. Operational expenditure, on the other hand, may not receive much attention due to a lack of want or possibility, which is why the total price of ownership may remain a mystery.
In the case of an individual investment, standard reasons for not calculating the operational expenditure include “we will have the same work resources anyway” or “electricity is so cheap that there is no need to calculate its share” or “space is not an actual cost”. They are basically true, but I feel that such thinking indicates a degree of mental laziness which is detrimental to the efficiency of the IT department. For example, it is true that the number of employees will not change, but it is not the same for the organization if a person is working to develop services needed by the business or if they make urgent fixes to keep existing systems running.
The ratio of cost factors has varied over the decades but at the moment we are moving towards a situation where the majority of costs come from operational expenditure (OPEX) and a smaller part from capital expenditure (CAPEX). This is exemplified by storage systems where the share of capital expenditure of total life-cycle costs has fallen to as low as 20 percent. The remaining 80 percent is due to dozens of different factors – the biggest, of course, being personnel expenses. In data centers, for example, personnel expenses, according to Gartner, account for one third of all costs.
Since personnel costs take a big part of the cake and the chosen solution has a direct effect on them, one might wonder why this matter does not receive more attention. For example, automation which is currently very much in vogue could, at best, eliminate more than 90 per cent of all manual work. In practice, this means an average saving of 27 percent in the total cost of ownership! That is, even if the solution to be acquired were 26 percent more expensive than a manually adjusted competing product, but fully automated, it would provide the best cost. And I think that the acquisition decision should be based only on these grounds!