Total cost of ownership is outdated, claims NCC

Stop wasting your time trying to predict running costs for IT systems. You could slash 60 per cent from your budget using a pioneering outsourcing approach developed in the US.

So claims a report from the National Computing Centre (NCC). Attempts to calculate the so-called total cost of ownership (TCO) of IT systems are stymied from the start because there are too many unpredictable factors, says the NCC.

"We can't take TCO as a reliable guide to realistic expenditure. We've found from our members that it's a meaningless figure," said report author Gary Herman.

IT directors should instead minimise risk by adopting an approach to outsourcing called seat management, says the NCC.

First developed by the US government, it involves outsourcing IT functions at a set price per seat, which covers the lifecycle of a system from procurement to decommissioning.

By no longer attempting to manage systems directly, organisations can shelve costly and complex systems management tools which ironically were installed in an attempt to reduce costs. "There's debate in the US over the impact of seat management, but a 60 per cent reduction in cost looks realistic," said Herman.

Analyst Gartner Group, which originally popularised total cost of ownership, says that systems management can account for a significant part of IT budgets. Gartner declined to comment on the NCC report until it has studied its findings.

"The study makes the valid point that predicting total costs based on an unknown future is inherently risky," said Tim Conway, director at Computing Services and Software Association.

Mark Roberts, strategy director at Cap Gemini, said that outsourcers' cost predictions are more accurate as they are based on "commercial reality".

"We work out what the system actually costs us to provide it," he said. "For users that is difficult, as there are so many hidden costs."

Virgin Trains already uses a form of seat management. "Outsourcing is much more focused on services," said head of IT, Jeremy Acklam.