Total Cost of Ownership

TCO

In this exercise, you will practice calculating the total cost of ownership (TCO) to support your decision as to which printer to purchase for your organisation. We use printers as an example because a large portion of the TCO is not the purchase price and yet this is often a powerful motivator for home users to choose one model or brand over another. We assume you have access to a spreadsheet application. If you don’t have one installed a web-based solution such as Google Sheets will be fine.

While this may seem to some like a tedious exercise, almost everything at the business level of IT gets decided based on total cost of ownership, in combination with a few other non-monetary factors. For example, the decision to:

• Run servers in the cloud or run your own data centre locally
• Employ your own IT support staff or subcontract the work
• Use Lenovo, HP, Dell AND/OR Apple as a laptop vendor

As an example that is [in]visible to you, Moodle, the LMS system which delivers your course materials at Murdoch has changed from running on local Murdoch South St hardware to being outsourced to a private contractor in the Eastern States of Australia and now runs back to Murdoch South st again. Undoubtedly a TCO was run at each of these decision points.

You should find this activity useful in your life too. Buying a new/used car or evaluating the decision to buy or rent your house or business premises can all use TCOs to help evaluate the decision.

Remember that running a TCO does not eliminate the ability for you to incorporate your feel for the quality of one solution over another. As an example, comparing an equivalent Hyundai to a Honda may tell you that the Honda is $x more than the Hyundai. It doesn't stop you from buying a Honda, but it will put a figure or financial number on home much extra you are paying for the reliability, quality or whatever you feel about the Honda.

Which printers?

You will choose the printers to compare. Ideally, you should choose a low cost printer such as a budget inkjet and a more expensive laser printer to compare the TCO. This is often the choice for home users.

Alternatively, you could compare an entry level laser printer designed for a single user against a large networked high capacity laser printer aimed at a work group.

If you are working on this exercise on your own (external student) you will need to complete it for the two printers yourself. If you are completing this exercise as part of a supervised workshop with an instructor you may choose to work with a partner. In this case, you and your partner should each choose a printer and complete the TCO calculation for your printer. You can then compare results and importantly consider differences that you may have made in your assumptions.

Getting Started

In order to determine the TCO you need to know what costs are involved. Obviously to print you need a printer and paper so you need to know the fixed cost (one purchase for its life) of the printer and the variable cost of the paper (the cost varies depending on how much you print).

But there are other costs. Take your time to think carefully about the costs associated with a laser or inkjet printer and list them out. It might be efficient for you to do this in a spreadsheet. Once you think you have all the costs associated with printing listed out, compare your list with your classmates and update your list as necessary. It is important that you capture the large expense items. While we refer to the “total” cost of ownership, in practice accounting for tens of dollars for a purchase that will cost thousands of dollars doesn’t make much sense as your time is also an expense.

Requirements and Assumptions

Costs will vary depending on the assumptions you make. So you need to be very explicit in your assumptions and apply them equally to alternatives you are considering.

Some assumptions that are relevant to the acquisition of a printer are:

What period do we want to compare costs over? If we are considering a long period of time it may be necessary to replace the printer if it wears out.

How many hours a day will it run? This may affect the life of the printer and will affect power consumption.

How many pages does the printer need to print each week? This will affect the number of consumables required and potentially the life expectancy of the printer.

• Again, take your time to list any assumptions that you feel are important in determining the total cost of ownership.

If you are working with others your list should be quite complete. However, you may wish to download the spreadsheet template provided and compare your costs with those listed by the unit coordinator. If you are completing this exercise on your own we strongly recommend that you check your work against the unit coordinators suggested inclusions.

Gathering specifications and costs

With a list of expense items associated with your printers, you should now find the unit costs for all the items.

For example, you listed paper as a variable cost. You will be able to find the cost of paper the web. If you listed electricity as a cost you could visit the power company website to determine that cost of electricity.

• Use the web (eBay or Officeworks are good) to determine the price of the fixed and variable expenses you noted earlier. If you are using a spreadsheet note the unit prices with the expense items.

If necessary, download the provided template and use that as a starting point. However, if you can develop the spreadsheet yourself you will learn more.

You will need to refer to the manuals or search online for the printer specifications to determine some information such as power consumption or the number of pages an ink cartridge can print.

Calculating consumption

Using your assumptions you can calculate how much of each fixed and variable cost will apply for the period you are considering. For example, if we are looking at a 5 year period and we assume that we will print 400 pages per week then our total paper consumption will be 5 (years) x 52 (weeks) x 400 (pages) = 104,000 pages. From this number, we can work out how many other consumables we require.

If you don’t already have some reasonable assumptions use the following:

• Period to consider: 5 years
• Printing per week: 750 pages
• Power on per week: 40 hours

Calculate the quantity of resources that will be consumed during the period of interest.

Calculating cost

• Knowing the quantity of consumables used over the time period and the cost of each individual consumable, determine the cost for each type of consumable and then add these to determine the total cost of ownership.

Reflection questions

• Based on the TCO which printer is the “best”?
• Would your answer be the same for a home user who prints 5 pages per week?
• What other factors could/should we have considered apart from the TCO?
• Knowing something about the cost structure of printers, what would you look for in a large workgroup printer?
• What is the time period where both printers will cost the same?