IT Users can question rates & basis of allocation Free riders Corporate Budget
allocates funds to
IT in annual
budget – to
No billing to the
No rates to compute.
Encourages use of
Have to compete
with all other
Comparison of IT funding methods
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How to Determine Cost
• Basic method: add up costs of hardware, software, network, and people involved in IS.
• Real cost is not always easy to determine • Remains a mystery for many firms
© 2016 John Wi ley & Sons, Inc. 32
Total Cost of Ownership (TCO)
• Has become the industry standard.
• Looks beyond initial capital investments to include costs often forgotten. For example: • technical support
• Estimates total annual costs per user for each potential infrastructure choice.
• Provide the best foundation for comparing to other IT and non-IT investments.
© 2016 John Wi ley & Sons, Inc. 33
TCO Component Breakdown
• Shared components (servers and printers): • TCO divided among all users who access each
• When only certain groups of users possess certain components, segment the hardware analysis by platform.
• Soft costs, such as technical support, administration, and training are important to include
© 2016 John Wi ley & Sons, Inc. 34
Soft Cost Areas Example Components of Cost Source
Technical support Hardware phone support Call center In-person hardware troubleshooting IT operations
Hardware hot swaps IT operations Physical hardware repair IT operations Total cost of technical support
Administration Hardware setup System administrator
Hardware upgrades/modifications System administrator
New hardware evaluation IT operations Total cost of administration
Training New employee training IT operations Ongoing administrator training Hardware vendor
Total cost of training Total soft costs for hardware
Figure 8.13 Soft cost considerations
© 2016 John Wi ley & Sons, Inc. 35
Managing and Using Information Systems:
A Strategic Approach – Sixth Edition
Keri Pearlson, Carol Saunders, and Dennis Galletta
© Copyright 2016 John Wiley & Sons, Inc.