In today’s digital age, IT has become an indispensable component of businesses across all industries. You need it to work consistently to operate successfully and serve your customers.
However, managing IT costs can be a challenge. At a time when many businesses are seeking to streamline expenses and be more efficient, IT often feels like an unavoidable drain on resources. Its cost will rise over time due to factors such as hardware upgrades, software licenses, personnel costs and energy consumption.
To remain competitive and maintain profitability, businesses must find ways to optimise their IT spending.
Augmenting your operations with external, managed support is an ideal option. It enables you to get the resource you need for optimal IT, including maintenance and security, while still maintaining cost efficiency. Your total cost of ownership across your IT provisions is lowered, and any resource gaps addressed, so you get more value for your money.
We explain how managed IT can help you lower your total cost of ownership and why it’s so crucial to do.
Understanding total cost of ownership in IT
Total cost of ownership (TCO) is a comprehensive metric that calculates the overall cost of a product or service over its entire lifecycle. It’s often used to help businesses understand all the costs that go into running and maintaining their IT operations, including direct costs like purchase price and staff salaries and indirect costs such as maintenance, repairs, upgrades and energy consumption.
A lower total cost of ownership results in reduced overall costs. This is beneficial for business, allowing you to be more efficient, prevent rising expenses and improve profitability.
So, this is why many businesses choose to track the total cost of ownership, with the aim of tracking and streamlining costs.
Calculating TCO
Calculating TCO involves several key steps. If you want to make it simpler, we’ve created a TCO calculator to do the job for you.
If you want to do it alone, here’s how.
Firstly, you need to identify the components of your IT operations. Remember to include everything, including:
- Hardware (servers, workstations, networking equipment, storage devices and other physical components)
- Software (operating systems, application software and software licenses)
- Personnel (salaries, benefits and training costs of IT staff)
- Facilities (Costs of data centres, office space and utilities)
- Support (Costs of IT support services, maintenance contracts and help desk operations)
You’ll need to quantify the costs for each, which includes upfront purchase costs, ongoing expenses and hidden costs like issues with downtime, lost productivity or security breaches. If you’re calculating TCO of a specific area or product, you only need to consider related components.
You’ll also want to factor in depreciation and inflation, as costs may rise over time and your assets may lower in value.
By adding all the costs and introducing the factors of depreciation and inflation, you should get an end figure that tells you exactly what your TCO is.
Common total cost of ownership issues
Running IT operations requires significant investment. While many businesses may be aware of direct costs, like the price to purchase hardware and software or renew licences, many other costs are more hidden. This includes things like maintenance costs, IT employee benefits, energy costs and so on.
However, these contribute to your overall expenses, even if they’re often forgotten about. By encompassing them in your TCO calculations, you’re likely to discover your IT costs more than you thought. This isn’t necessarily a negative thing, provided you’re getting enough reward to warrant the costs.
But many businesses see their costs rising without getting value back. If systems become outdated or you do not have the resource to adequately run your IT processes, it can result in higher costs around maintenance and declining productivity. This reduces your profitability, while also making it harder to perform effectively.
If you are concerned about your TCO, there are options that may be more cost-effective for your business. These enable you to strip out some of the indirect costs and streamline spending.
How managed IT reduces total cost of ownership
Managed IT involves outsourcing part of or all your IT operations to a third-party provider. Although there is a cost involved to doing this, which may vary depending on what your contract covers and who you work with, it can actually reduce your IT TCO. Here’s how:
1. Reduce labour costs
While a managed services contract has a cost, this is far less than you’d need to hire an internal team. Internal IT staff require a yearly salary, alongside pension contributions, National Insurance and benefits. This all needs to be covered by you as an employer.
When you utilise a third-party contract, someone else is paying for their salary and benefits. This means that you’re just paying for the service you’re receiving and nothing else.
None of this is to say there isn’t a place for internal IT professionals. Depending on your business setup, they’re likely crucial to keep things running and providing a contact point for any IT related matters.
However, by augmenting this resource with managed services, you can save their time for what really matters while ensuring everything else gets done. Plus, you can do it without having to employ a large team and cover the related costs.
2. Minimise overheads
IT operations typically have significant overheads. Examples of these include:
- Data centre costs (including lease costs, electricity, heating, cooling and maintenance of infrastructure)
- Staff training and development costs
- Network connectivity costs
- Insurance
Over time, these can add up and rise with inflation. By outsourcing to an external partner, you can minimise these overheads. Instead, your partner will cover them. This can lower your total cost of ownership.
On top of this, IT providers often have access to economies of scale, enabling them to offer you a reduced costs, especially if you have comprehensive services from them.
3. Better resource allocation
Often, businesses have a limited pool of internal IT resource who need to do everything, from training and helpdesk support to security and planned maintenance. As a result, IT teams can often feel burnt out and unable to do everything that should be done as part of an optimal IT set up.
This often leads to things being dropped, which can harm productivity or lead to disruption later. It also means longer turnaround times for core IT tasks.
Outsourcing parts of your IT means someone else is responsible for those crucial but often deprioritised tasks. This helps it to work better, encouraging business-wide efficiency and preventing lost costs.
4. Access to expertise and technology
Your internal IT staff may have varying levels of expertise and experience, depending on their roles and career paths. Unless you invest in training (which is another cost you’d need to cover), they may be limited to only the technologies you already work with.
Third-party providers, on the other hand, often have specialised expertise in specific IT areas, such as cyber security, cloud computing or data analytics. They can provide access to the latest technologies and best practices, without the need for significant upfront investments.
This means you can leverage useful guidance and even find opportunities to improve your IT processes, which can help you to streamline costs.
5. Scalability and flexibility
Your IT needs can evolve over time, or even vary from month to month. When you have an internal team only, you will pay the same cost regardless of whether it’s a busy or quiet period, which can reduce cost efficiencies.
Third-party providers can offer flexible and scalable services, allowing businesses to adjust their IT resources based on changing needs. This makes it easier to manage costs, especially in quieter periods.
Outsourcing can also help you handle peak workloads or unexpected spikes in demand without investing in additional internal resources.
6. Risk mitigation
One of the hidden costs associated with TCO is issues like system outages, data breaches and other failures. These problems can result in financial losses in your business while also ruining productivity.
Outsourcing can help mitigate these risks by introducing shared responsibility. Your provider can conduct preventative maintenance or resolutions that eliminate issues, fix obstacles promptly and encourage compliance. They often have robust disaster recovery plans in place, providing businesses with added protection against disruptions.
This means you can eliminate the costs of risks.
Additional benefits of managed IT
Alongside the positive impact on TCO, there are other benefits associated with outsourced IT:
1. Overcoming skills gaps
Many businesses are undergoing an IT skills shortage. Where you do have vacancies or resource gaps, it’s hard to fill these with the appropriate talent, which can leave many organisations struggling.
An external partner should have access to a pool of experts able to help your business. This enables you to plug the gap without having to go through your own recruitment drive.
2. Innovation
Outsourced providers spend time researching the latest IT trends. They also work with businesses like yours to solve problems, giving them experience across a range of challenges and technology types. As such, they can bring fresh perspectives and ideas to IT projects, fostering innovation and creativity.
Working with these partners can facilitate collaboration and knowledge sharing, leading to new opportunities for growth. You might even find ways to serve your customers better or increase your competitiveness, which can boost longevity and performance.
3. Improved focus on core business
When you’re left struggling with IT resource gaps and issues, it takes away time to do everything else. By outsourcing IT functions, businesses can reduce internal distractions and focus on their core business objectives. You can also free up internal resource for high-value work.
Outsourcing can also accelerate the development and deployment of new IT initiatives, enabling businesses to respond more quickly to market changes.
4. Improve user satisfaction
Unlike internal teams, outsourced IT partners aren’t juggling multiple tasks. They’ll have dedicated hours to serve your organisation. They’re also highly experienced and knowledgeable, meaning they can quickly resolve issues.
This means that, if your business, staff or customers are having an IT issue, they’re more likely to get a quicker response. This response is almost likely to fix the problem first hand, so they can get back to what they were doing.
This improves productivity, but also reduces any user frustration.
Key considerations when seeking managed IT support
When seeking to lower your TCO through managed IT support, it’s crucial to find a partner who provides the services you need and drives outcomes. There are a few factors to think about:
1. Alignment to your business goals
Any partner you work with must understand your objectives clearly and be able to progress you towards them. This includes your growth plans and specific IT challenges.
Seek a partner who can tailor their services to align with your specific needs, as this will help you to avoid unnecessary costs and obtain greater rewards. Part of this involves understanding the expertise available and leveraging it effectively.
2. Proactive maintenance and prevention
Outdated or broken systems can see the total cost of ownership skyrocket. So, it’s ideal to have a partner who can prevent these issues from occurring.
Inquire about their use of tools to predict potential issues and proactively address them, preventing costly downtime.
You should also confirm their commitment to keeping your systems up to date with the latest security patches and software versions.
3. Comprehensive Service Level Agreements (SLAs)
You need to agree an SLA that covers your needs. This will enable you to get the most value from your contract and prevent spending on things you don’t need or aren’t getting.
Negotiate SLAs that outline specific response times, uptime guarantees and performance metrics. And ensure that this is enough to cover you. There will be a degree of experimentation in this, and most providers will enable you to reduce or increase your contracts if needed.
Some providers may even offer guarantees or penalties for non-compliance, so you can be confident the SLA is upheld.
4. Cost-effective infrastructure management
A cost-effective infrastructure is crucial to lowering IT costs. So, your partner should be able to help you manage yours to keep costs down and your needs met.
Evaluate their expertise in cloud migration and optimisation to leverage cost-effective cloud solutions. You’ll also want to ensure they can negotiate favourable terms for hardware and software licensing, as well as optimal network connectivity for reduce latency in your operations.
5. Security and risk mitigation
Avoiding significant security threats and other risks is critical for minimising financial losses and disruption. An ideal partner should support you in this.
Verify their security practices, including firewalls, intrusion detection systems and data encryption. The more knowledgeable they are, the more likely they can provide advice to secure your business. You may even be able to outsource your security operations to them.
You should also ask about their procedures for handling security breaches and data loss, so there’s a fast response if an incident does happen.
6. Scalability and flexibility
You need a partner who can support your business through its growth and evolving IT needs.
Part of this may include having flexible contract terms that enable you to scale up or down services as required. You’ll also want to have regular contact so you can share new priorities.
You can also explore options for staff augmentation to address temporary resource needs. This can offer support in temporary busy periods without having to commit to a long-term service.
7. Regular reporting and transparency
When you have a managed IT contract, it’s crucial to review its effectiveness to make sure you’re getting value. This can help you to consistently maintain a lower TCO.
Request regular reports on key performance indicators and cost savings. You should also seek to maintain open communication channels for discussing issues, concerns and future plans, so you can ensure your contract continually meets your needs.
What’s your total cost of ownership?
Many businesses don’t realise how much their IT operations actually cost them. We’ve built a total cost of ownership calculator to uncover how much you’re spending each year on IT, incorporating factors like staff overheads, maintenance costs and more.
Once you know your figure, it becomes much easier to identify opportunities to reduce costs.
