Redefining TCO and ROI For The Private Cloud

Classic IT usually thinks in classical terms like TCO -- total cost of ownership -- and ROI -- return on investment.  And there's a few of my blogosphere friends that occasionally rant on this topic, so I felt I had to chime in :-)

So much is changing as we enter a period of rapid change in how IT infrastructure is built, operated and consumed -- perhaps we might want to reconsider our definitions of these terms?

And, in doing so, I think we can deliver a useful insight that might help people -- or annoy them, as the case might be ...

The New TCO

Ostensibly, TCO -- total cost of ownership -- is the "all in" costs for a certain product or capability: hardware, software, maintenance, environmentals, labor, depreciation, etc.

Now, there's nothing wrong on figuring out what the "real" cost of something might be -- since it's all too easy for an IT vendor to show low prices in one aspect that result in significant costs in others.  Caveat emptor.

That being said, classical TCO analysis can be a cumbersome analytical framework when considering any phase of a private cloud journey -- virtualizing IT applications, virtualizing business applications, or ultimately delivering IT as a service.

TCO works well when we're talking about isolated parts of the infrastructure that don't affect others -- an individual storage array, a network device, a server, etc.  Its intended function doesn't really change as you consider the new component.

TCO doesn't work well when we're considering re-architecting IT architecture, operations and consumption end-to-end.

So, for a while, I've been casting about for a new way to re-interpret TCO in a modern light.  And for this, I'll have to thank the sharp people at Forsythe who came up with it.

The new TCO?  Transform.  Consolidate.  Optimize.

Why do I like this?

It invokes the end-to-end nature of the journey we've embarked on.  It forces reconsideration of long-held assumptions about how IT is built, delivered and consumed.  And it leaves no stone unturned in doing so.

The New ROI

The associated concept with TCO is ROI -- return on investment.  In this model, everything is considered as an investment.  Pay X, get Y.  All potential projects that clear a hurdle rate get approved -- that is, until all available resources are consumed.

I think ROI has its role in IT.  Every effort should be made to understand the direct and indirect benefits of a proposed project or initiative.

Unless, the project is to redefine the role of IT itself.  And, when you dig into the private cloud discussion, that's exactly the proposition on the table -- nothing more, and nothing less.

Now, if IT really matters to your business strategy (and that's not always the case), wouldn't it make sense to seriously consider the transformation proposition in its entirety?  Especially if you're in a competitive industry and are depending on IT-delivered capabilities to power the business?

In this sense, ROI takes on an entirely new meaning -- Risk Of Ignoring

I stole this term from Polly Pearson as we were both struggling to convince people of the transformative nature of social media proficiency in a corporate setting.  We kept getting the usual "what's the ROI?" question, so we wanted a snappy comeback that put the issue in context.  It worked well.

You don't want to be too late to this IT transformation game, folks, if IT matters to your business.  And whether you choose to run at scale internally, use external compatible service providers, or any dynamic combination -- the race is now on to re-architect IT around the new rules.

TCO and ROI Reconsidered

During normal times, I'm OK with the traditional definitions of TCO and ROI -- total cost of ownership which leads to return on investment.  Business as usual, right?

But in times of great change, the meaning -- at least for me -- is changing.

Transform, Consolidate and Optimize. 

And avoid the Risk Of Ignoring.