Total Cost of Ownership (TCO)

Total cost of ownership, or TCO, is a business concept that’s been around for about 20 years now, but it’s an idea that librarians have understood informally for centuries. When a patron loses a book, most libraries charge more than the cover price of the book, because the cover price doesn’t include the cost of ordering, processing and cataloging the book. The staff time involved in getting that book into the system is part of the TCO of that book. If you look out even further, there are costs related to shelf space, repairs, circulation, reshelving it and deaccessioning. Cars, houses, pets, children — there’s a TCO associated with just about everything, and computers are no exception.

For example, when you’re setting out to buy a new computer, the latest prices on the Dell or HP web site represents at most 30 percent of the true, long-term cost of that computer. And that’s the high end of the scale. Some experts estimate that the purchase price of a new technology is closer to 10 or 15 percent of the long-term cost. Installation, maintenance, training, tech support and replacement parts are a few of the hidden costs of technology.

On the other hand, some technology acquisitions and upgrades will make your staff more productive or improve the service you offer to patrons. Experts sometimes refer to this as the total value of ownership (TVO) or return on investment (ROI), and you should consider it alongside the TCO. For some additional guidance, we recommend that you read our Some TCO/TVO Questions You Should Be Asking tool.

Why Should You Consider the Total Cost of Ownership when Buying Technology?

  • TCO helps you make decisions about technology and prioritize among competing projects and services. For example, let’s say you’re looking at a new accounting software package. It’s more expensive than your existing software, but it’s also more user-friendly and your staff won’t spend as much time completing routine tasks. How much staff time are you really saving, and how does that time translate into dollars? How much retraining does your staff need, and how much will that cost? What are the annual costs for maintenance and upgrades? By comparing the TCO for your existing software to the TCO for the new software, you have a solid framework for making decisions.
  • TCO helps you make accurate budget projections, which makes you popular with your trustees and funders. Of course, you’ll still have to make some adjustments, but the adjustments won’t be as jarring as they would be without TCO.
  • Savvy funders already understand TCO or the concepts behind it. They’ll be impressed if you couch your request in these terms.
  • When you ignore TCO, the indirect costs of technology will haunt you. For example, if you don’t budget properly for staff development, productivity might plummet as librarians struggle with the new system and develop inefficient workarounds. In the worst-case scenario, staff won’t adopt the new system and you’ll have to write off the money you invested.

Key Actions

  • Whenever you’re thinking about the purchase of a new technology, whether it’s a new computer, a new piece of software or a network upgrade, make a list of all the indirect costs and indirect benefits. Taking TCO to the Classroom has a good TCO checklist to help you get started. Again, take a look at our list of TCO/TVO Questions.
  • Also consider TCO when you’re drawing up your annual budget, your strategic plans and your technology plans.
  • Make assumptions, if necessary. The first time you set out to measure the total cost of technology in your library, you may find that your information is incomplete. Feel free to make educated guesses until you can fill in the blanks. However, document these guesses. As you track the cost of technology over time, use the same sets of assumptions that you started with.

Stories from the Field

I am a big return-on-investment girl. For example, the best example I can give you was we have a telephone notification server and when we got that, it was expensive. It was about 20 grand by the time we bought all the hardware and the software. I kept trying to say this will save us so much money and people were saying 'We don’t understand why.' Well, I calculated how many people could have their notices sent to them on a telephone because we’d been mailing them all out and we were mailing about 1400 notices a week. The notification server cut it down to 200 or so every week. We saved 1200 items, and you can do the math. It was 32 cents at the time, so we saved $400 a week basically if we sent out the notices on the phone. And of course, I calculated staff time as well because someone had to process all the notices. So I made a little chart up and said look, ‘Here’s the deal — in three years, this will pay for itself and the server’s probably going to last five or six, so you basically get two years for free of saving money.'

Michelle Foster
Boone County Library System, KY

And so it's like, I'm buying a $1,500 computer; I put aside $2,000 so that three years from now, I have enough money to buy another one. And in fact, we talked to, you know, the city manager and he suggested we only change them out every four years, it's not changing that much and it's taking too long to install. So our goal will be by four years, we'll be totally changed out. So they've got all of their computers on retirement schedules and the funding there to help offset those costs. I mean, I thought, to me — I set that up seven, eight years ago. I still find people are stunned to find out that you would do that. It's just a good business practice, it's not anything else. It's not a fancy idea.

KG Ouye
San Mateo Library. CA

Well, when I consider total cost of ownership, what I'm taking into account is sustainability. We can do this great project, or install this great piece of software, or buy this piece of equipment that we'll offer to the public. But how much staff time is involved in creating that project or supporting that project, and how much staff time is involved in maintaining it? Can we maintain it really well or not? We think, 'If we just buy this new software product, it'll help us check out books ten times faster.' Okay, maybe it helps you check out books faster but maybe it's more of a burden on the IT department. Are you solving problems, or are you shifting responsibility to different departments? And we ask ourselves [IT staff] the same questions. When we do an IT project we think, 'How does that impact the staff?' If it's going to make the staff have to do ten more steps, how much staff time is that costing us? Maybe it's not really an efficiency thing. Maybe it's not really saving time. Maybe we're just moving that inefficiency around. I think a lot of times people try to use technology as the silver bullet to solve problems that aren’t really technology problems. Maybe they’re staffing problems, or training problems, or workflow problems.

Jim Haprian
Medina County Library, OH

We don't buy a computer around here unless we have a plan for purchasing its replacement three years from now. We don’t say, 'Well, I think we're gonna be able to raise more grant money.' If the grant money isn't already in the bank, then we don't buy it. We don’t want to build up a level of service that then is going to get reduced.

Paul Ericsson
Bemidji Public Library, MN

I think in the situation with Userful it was a tremendous total-cost-of-ownership advantage because they didn’t have to hire somebody to actually physically run the network because she could depend on having the support staff. I think it does save us a lot of staff time on cleaning up the computers. We don’t have to run spyware programs and we don’t have to empty temporary Internet files and that sort of thing. That’s all taken care of already. We don’t have to worry about viruses. We don’t have to worry about any of that.

Brett Fisher
Flathead County Library, MT

Further Resources

Whether you just need a few basic pointers about TCO methodology or you want to dig a little deeper into the subject matter, we have plenty of additional resource recommendations.