Why it’s time for SMEs to go beyond TCO to assess their communications costs

What’s cheaper: a £1,000 fully-refundable plane ticket, or a £500 non-refundable ticket?

Really, it depends on how likely it is that your plans will change. A £500 ticket sounds cheaper, but if you need to move your flight, you’ll be hit by an eye-watering fee for changing. At which point, it might’ve been better to part with a grand in the first place.

Now, what if you applied the revered methodology used to assess technology purchases, Total Cost of Ownership (TCO), to the equation?

Most likely, it would ignore the risk of change. You’d buy the £500 ticket, incur the future costs and end up out of pocket. All because the metrics of the TCO methodology don’t allow for future unpredictability and changes to your business environment. They take the most logical route at the time and apply it, come what may.

Unfortunately, businesses make these kinds of gambles every day with TCO informed technology purchases. Begging the question, has TCO’s time passed?

TCO timeline

TCO was popularised in the 1980s, when PCs were displacing mainframes with lower initial costs, but higher administrative costs. In short, this meant that the pricing didn’t reflect the overall expenditure needed from the business.

The methodology was developed to normalise total costs over a given period so that different technology options could be compared. A consistent set of assumptions would be applied to all solutions to fairly evaluate the costs associated with administration, implementation, training and maintenance.

The challenge with this is that predicting the future is hard. A company might assess the TCO of a technology solution assuming a certain level of growth, or a certain headcount, or certain market conditions. But all of these metrics change over time, making TCO forecasts less reliable as they age.

At its heart, TCO is inherently static, a best guess that isn’t terribly reactive to changes in circumstance. In short, something that’s not fit for making modern technology finance decisions.

In today’s fast-changing business climate, it’s becoming clear that TCOs’ time is running out.

Discover a better method for assessing your communications with our free eGuide, Why it’s important to assess your communications costs.

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Discover a better method for assessing your communications with our free eGuide, Why it’s important to assess your communications costs.

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There’s a good reason why you should be sceptical of TCO

As a small business, you want to be as accurate and thorough as possible when assessing the cost of your communications infrastructure, and you want to make sure that you’re getting the best value for money from all available options. The problem with TCO is that it ignores the benefits of perhaps the most revelatory and beneficial comms technology available to SMEs – the cloud.

For a start, one key benefit of cloud telephony services is that they’re adaptable to a constantly shifting business environment. Whether it’s an office move, a restructuring of your teams, or a madly successful marketing drive that requires more salespeople to keep up with demand, cloud services are flexible and scalable enough to deal with the change in circumstances. TCO ignores the fluid and fast-changing advantages of a cloud environment.

Moreover, cloud services eliminate the risks of on-premise hardware. The provider takes on the burden of developing, implementing and maintaining the technology. And because the solution sits in the cloud and is consumed as a service, the significant upfront cost usually associated with technology investment can be mitigated.

Indeed, the pricing structures for cloud telephony are much more transparent and organisations need only pay for actual, rather than planned, usage. Cloud providers are also developers, constantly updating feature sets on demand and requirement, which means users gain ownership over a renovated style and capability as and when new services come available. A cloud model enables business’ to adjust the services they receive – even switch to a different provider entirely – at a time that suits them.

Crucially, all of these benefits cannot be captured in a traditional TCO assessment. When a methodology for evaluating technology, purchases overlooks the primary benefits of one the most powerful solutions available today, perhaps it’s time to put it out to pasture. There are far more useful ways for SMEs to assess their communications costs and make technology purchase decisions.

Discover a better method for assessing your communications with our free eGuide, Why it’s important to assess your communications costs.

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30 November 2017 | Jamie Ward

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The views in this article are the personal views of the author and are not necessarily endorsed by Gamma.