Prudent enterprises are reviewing and optimizing their IT resources and practices to maintain a competitive edge in today's global economy. The current economic climate has accelerated the underlying structural shifts in IT usage and delivery models, driving IT purchasing decisions to be critically evaluated at multiple levels and CFOs to emphasize the decapitalizing of IT. It is, therefore, little wonder that the majority of organizations are looking at total cost of ownership (TCO) as one of the metrics to ascertain the impact of any IT investment on their overall financial bottomline. TCO is a measurement of the total life-cycle costs of an IT investment, including acquisition, implementation, management and retirement. This IDC Analyst Connection takes a closer look at the key parameters in establishing the appropriate financial objectives in an organization's decision-making framework. The document also explains why CIOs should stop focusing on the initial capex costs and pay greater attention to the more significant life-cycle costs to operate, manage and run a particular technology. Other indirect costs like user productivity and soft issues like ease of use are also key factors to consider when determining the TCO of operating systems.

1. I D C A N A L Y S T C O N N E C T I O N
Praveen Sengar,
www.idc.com.sg
Sr. Research Manager, IDC India , Enterprise Computing Research
Demonstrating Business Value: It Pays to
Assess and Understand the Total Cost of
F.65.6220.6116
Ow nership of IT Investments
November 2009
P.65.6226.0330
Prudent enterprises are reviewing and optimizing their IT resources and practices to maintain a
competitive edge in today's global economy. The current economic climate has accelerated the
underlying structural shifts in IT usage and delivery models, driving IT purchasing decisions to be
critically evaluated at multiple levels and CFOs to emphasize the decapitalizing of IT. It is,
therefore, little wonder that the majority of organizations are looking at total cost of ownership
IDC Asia/Pacific: 80 Anson Road, #38-00 Fuji Xerox Towers Singapore 079907
(TCO) as one of the metrics to ascertain the impact of any IT investment on their overall financial
bottomline. TCO is a measurement of the total life-cycle costs of an IT investment, including
acquisition, implementation, management and retirement. This IDC Analyst Connection takes a
closer look at the key parameters in establishing the appropriate financial objectives in an
organization's decision-making framework. The document also explains why CIOs should stop
focusing on the initial capex costs and pay greater attention to the more significant life-cycle costs
to operate, manage and run a particular technology. Other indirect costs like user productivity and
soft issues like ease of use are also key factors to consider when determining the TCO of
operating systems.
The following questions were posed by Microsoft to Praveen Sengar, Senior Manager for
Enterprise Computing Research, IDC (India), on a recent Microsoft-sponsored TCO research
survey conducted in India.
Q. How do organizations currently look at TCO, and why do some have difficulty
conducting such analysis on IT investments?
A. Companies have traditionally focused on the purchase price of the technology or the
primary capital expense, ignoring the more significant life-cycle costs to operate, manage,
and maintain that technology, operations expense, and the impact on end-user
productivity. During decision-making, CIOs should also consider and self-evaluate the IT
expertise that is available in-house for managing workloads. This becomes decisive
because it can have a serious impact on the run-time costs. CIOs, at times, are unwilling
to take risks, choosing to go with an established platform and ignore the TCO of the
technology. The ease and timeframe of implementation also dominate in cases where
business pressure to adopt a faster solution is high. At times, it also becomes difficult to
determine the TCO when the organization does not capture and maintain historical data.
In such cases, multiple assumptions are required, making the exercise less efficient.
Q. What critical parameters should be included in the TCO analysis? How does this
apply to the server environment?
A. TCO is a measurement of the total life-cycle costs of an IT investment, including
acquisition, implementation, management, and retirement. A TCO analysis helps decision

2. makers determine which solution or product carries the lowest cost through its entire life
cycle. The challenge is to focus on all costs to the organization, not purely IT costs. More
than 40-50 distinct factors may be classified into the following broad headings:
1. Hardware: Systems, networking, storage, and peripherals critical to operations. Initial
purchase price amortized over the typical life of the hardware plus annual upgrade
and direct maintenance costs, typically at 15-25% of purchase.
2. Software: Operating system, application, middleware. Initial purchase and annual
licensing fees.
3. IT staff: Full-time equivalents (FTEs) who support the clients, servers, storage,
security, applications, and users. Annual loaded salary (salary x load factor to
account for benefits and overheads) of IT staff time associated with management,
maintenance, and training.
4. Services: Outsourced IT support or technology, which can include bandwidth and
maintenance. Annual cost of service contracts.
5. User productivity: As a cost, it is the value of the working hours that users do not
have access to the applications needed to perform their jobs. Network, server, and
application downtime are the primary sources. Annual loaded salary of user time lost
due to application downtime, discounted by a partial-productivity factor (i.e. users can
make business calls). As a result, only some portion of the loaded salary (usually 10-
50%) is counted as cost.
To determine the TCO for x86 servers in India where enterprises run heterogeneous
platforms and different application scenarios across verticals, the above factors may be
clubbed into capex and opex, with capex including server and system software
acquisition costs. Opex costs include server and software maintenance, evaluation,
implementation, training, IT staff and downtime. The per-person productivity of
employees affected by the downtime, i.e. persons directly affected by access to systems,
should also be taken into account.
In 2009, IDC conducted a Microsoft-sponsored TCO survey based on in-depth interviews
with 150 Indian enterprises having more than 250 PCs countrywide and across six
workload scenarios, i.e. networking, application, database, mail, file/print and Web.
Based on the survey results, IDC found that the majority of the three-year costs are in two
key areas: operation and administration (53%), followed by hardware costs (40%).
Operational expenses are higher than the capital expenses in the average TCO, and
software constitute a marginal cost of 7% in server TCO.
Figure 1 - The Average Total Cost of Ownership of an x86 Server in Indian Rupees (INR)
Overall TCO
0.58, 10%
2.37, 40%
TCO = INR
5.98 Lacs
2.61, 43%
0.42, 7%
Hardware Software
Operation & Adminstration Downtime
Source: A custom TCO survey conducted among 150 enterprises in India, sponsored by Microsoft, 2009
The major contributors to operational and administration expenses are manpower (38%),
evaluation and implementation (34%), and annual maintenance costs of hardware and
#AP75540S 2 ©2009 IDC

3. software (15%). The reason for the surge in these cost components is the rise in
manpower costs.
Most of the larger organizations tend to rely on an internal evaluation process for
decision-making on server implementation, and very few (11%) of the enterprises
surveyed consult a third party. The overall average evaluation time is approximately 35
days; almost 23% of the organizations either completely outsource or consult a systems
integrator (SI) for server implementation.
Q. What was the relative TCO on Windows servers by different workloads as
compared to the survey average?
A. Based on the survey conducted among 150 enterprises in India, the survey showed that
Windows Server has a lower TCO of 5.77 Lacs INR as compared to the respondents'
1
average of 5.98 Lacs INR, despite its relatively higher acquisition cost. Having said that,
the higher initial cost of Windows is offset by the lower administration and training costs
over a period of three years. The scenario also varies by application environment
depending on the deployment maturity.
For enterprise mail workloads, Windows Server has a lower TCO of 12% compared to the
respondents' average on account of savings in terms of the operation and administration
costs, the survey found. The relatively lesser downtime and availability of manpower
reduce the TCO for Windows Server.
In the case of application server and database server workloads, Windows Server was
reported as having marginally lower TCO of 4% compared to the respondents' average
on account of some savings in downtime costs.
Windows Server has marginally higher TCO of 5% compared to the respondents' average
in the case of Web server, file/print server and networking server workloads. Windows
Server score better on downtime among the survey respondents; however, the software
acquisition costs as well as operation and administration expenses are higher compared
to the respondents' average.
Q. What challenges does Windows Server face across different deployment
scenarios?
A. As far as mail server, application server and database server workloads are concerned,
the Windows Server environment was reported as providing a better TCO by the survey
respondents. However, there are challenges with overall TCO in the case of Web server,
file/print server, and networking server workloads.
At the overall level, the perception mapping indicates marginal gaps on various attributes
like security, reliability, support, manageability, scalability, and interoperability, with
Windows scoring better in perception mapping on attributes like ease of use, support
from vendor, and the skill sets available.
Although the survey respondents rated Windows relatively better in terms of overall
satisfaction on all workloads, they still have concerns around reliability, security,
manageability, and interoperability that stem from preconceived opinions of earlier
versions of Windows Server. Therefore, despite improvements in the latest version of
Windows Server, Microsoft needs to continue to work on communicating these
improvements to prospects and customers.
1
Respondents' average refers to the average TCO results among the operating platforms
deployed by the 150 interviewees for the survey
©2009 IDC 3 AP75540S#

4. A B O U T T H I S A N A L Y S T
Praveen Sengar heads the Consulting, Enterprise Computing and Vertical Research in IDC (India). He is responsible
for all consulting assignments and identifying new research opportunities in India. Praveen is also in-charge of driving
IDC India’s research into emerging technology markets such as Cloud Computing, Service Oriented Architecture
(SOA), Information Management, Managed Services, and Datacenter Services.
A B O U T T H I S P U B L I C A T I O N
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