Organisations are poor at forecasting the true cost of ownership for a proposed system, preferring to base business cases on corporate accounting policies instead; thereby creating an increasing legacy of sunk costs for years to come. Consequently our operating budgets become heavily backloaded towards the past, rather than towards the future.
I have lost count of the business cases presented to me for signature that purported [at worst] an 80:20% cost split between initial and ongoing investment for a system; generally illustrating a favourable payback within the designated corporate accounting timescale.
In recent years I have routinely challenged every case that doesn’t show the ongoing cost as more than the initial investment because experience has taught me that the acronym TCO really stands for the True Cost of Ownership.
A typical business case will often set out the purported total cost of ownership, expressed over a five year period. Which is surprising because most business systems have a much longer life-expectancy.
And yet the ongoing costs do not actually disappear until the system is successfully decommissioned and consumes no further resource; which also raises two extremely interesting questions:
- Why doesn’t every business case include the cost of retiring the proposed system?
- Should the business case also include a substantial contribution towards the cost of a subsequent replacement system?
Routine failures to pose, letalone address, these questions is a source of major budgeting problems for many IS managers and CIOs.
