Total Cost of Ownership. Sounds quite impressive, doesn’t it? Most IT pros I’ve talked to about TCO say how intimidating it can be to approach it. I tell them to rest easy; Gartner, Forrester, IDC and other IT pontificators can’t agree on how TCO should be calculated either. But nonetheless, that "C" person still wants a TCO figure.

The first part is easy. How much does the technology initially cost? Fire up Excel and enter some numbers: cost of hardware, software licenses, networking equipment—you get the idea. Enter some more numbers representing the person-hours required to design, install and configure everything, then type in a couple more for training -- both for IT staff and end users. You might also want an entry for the labor required to actually purchase everything.

The object here is to identify every aspect of what it takes to get an IT solution implemented. Many IT professionals think they’re done at this point. They figure they’ve done their part, and that’s that. Guess again: We’re just getting started!

Next, you need to come up with what the ongoing costs of maintaining and supporting this solution will be. There are some fairly obvious items to include here: help desk calls, hardware problems, software bugs and the like. I like to include some not-so-obvious items as well: legacy support ("I created this document with the old software, and now I need to modify it with the new system."), third-party issues (all your end users may be perfectly acclimated to the new system, but your largest customer may not!) and interoperability issues.

Again, the idea is to get some kind of a handle on what’s required over the next 24 or 36 months to keep things working as they should. So now, that should do it, right? Well, that’s it for the hard costs, or, as I like to say, what someone actually writes a check for. Now the real challenge begins -- figuring out the soft costs.

You know what it costs to buy a 17" monitor. You know what two hours of a techie’s time is worth. But what is it costing the organization when an administrative assistant can’t get to her e-mail for 20 minutes? Or when HR is unable to update a database all morning? And how much more work would be accomplished in a given day if people spent even 15 fewer minutes "tweaking" their computers? What do those 15 minutes cost the organization?
These are all examples of soft costs, and are very difficult to quantify. In fact, this is where the Gartners, IDCs and Forresters of the world differ most in their respective TCO models. But, soft costs are typically where the real TCO savings can be found.

So, how should you go about calculating soft costs? I recommend a four-step approach:

Step 1: Talk to Users
Ask an administrative assistant what would happen if her e-mail was unavailable for 20 minutes. I was talking with someone who works for a software company that runs real-time online stock trading systems, and she told me that they use e-mail to confirm trades. She said that one time their e-mail was down for 10 minutes and they lost three customers. Permanently!

Step 2: Look at History
I was consulting at a pharmaceutical company who was about to roll out a new version of Microsoft Office to the entire organization. They wanted some realistic TCO numbers, so I asked them about previous software rollouts. After a few probing questions I recognized a significant, yet overlooked, source of costs—excessive licensing due to re-installs of the software.

Step 3: Take the Experts’ Advice -- With a Grain of Salt
Gartner claims to have invented the concept of TCO, and IDC, Forrester and other IT think tanks have expended considerable resources to develop their TCO models. There is much to be learned from them, but realize that their generalized approach may not always apply to your organization (of course, you could pay any of these companies to develop a custom TCO model for your organization, but they are not cheap!).

Step 4: Use your Own Experience and Knowledge
You’re an IT professional, right? Hopefully, that means you know a thing or two about how IT-related things work, especially within your organization.

Cool! You’ve got all your hard costs and soft costs figured out, and now your TCO analysis is done. Technically speaking, it is done. But there is one more thing you need to be able to do: Relate the TCO analysis to real life. Be prepared to explain the TCO numbers and why it makes sense to go forward with the project.

This column is obviously just an overview of the TCO process, but it gives you a point to start from. Do your homework, and soon you will welcome a question from that "C" person!