IT Users can question rates & basis of allocation Free riders Corporate Budget


allocates funds to

IT in annual

budget – to

general P&L

No billing to the


No rates to compute.

Encourages use of

new technologies.

Have to compete

with all other

budgeted items

for funds.

Potential for


Comparison of IT funding methods

© 2016 John Wi ley & Sons, Inc. 31

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

• administration

• training

• 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.