Total Cost of Ownership - An Overview for Information Professionals

8 minute read
Cheryl McKinnon avatar

Two black shirts sit on a rack at the mall. A designer top on sale, and a store brand at full price. They’re both $40; both perfectly suitable work attire.At first glance, the designer shirt seems like the better deal: better fabric, workmanship and durability for the same price as the lesser brand. But the designer shirt is dry clean only, the store brand is washable -- $10 per cleaning versus a few cents.Project yourself two years into the future: which one’s the better deal now?

Not many people do a multi-year total cost of ownership (TCO) analysis when buying shirts at the mall, but it’s a useful exercise when trying to make decisions about budgeting and planning over the long term. Although, one may wonder: wouldn’t the cheaper shirt need repairs sooner? Shouldn’t we factor the cost of buttons, zippers or seamstress labor? Perhaps we should, it’s a better way to understand the real implications of our purchasing habits. Let’s extrapolate this small buying decision to a bigger one: acquiring an enterprise content management system.

Deciding on a content management solution for business documents is not getting any easier for information professionals. There is an ever-growing number of licensing and delivery options from numerousvendors, making it difficult to quickly assess what the best technical and economic choice might be. These decisions have multi-year implications and the initial price for end-user seats is rarely the end of the story. There is a lot of buzz about (return on investment), but perhaps it’s time for a refresher on TCO.

TCO Basics

Total cost of ownership helps an organization measure the cost of a content management investment over a period of time, often three, five or more years.Seeing past the initial cost of software acquisition is an important step for organizations serious about making a decision to proceed with an ECM deployment, and ensuring it has ongoing funding and resource allocation.

With software-as-a-service (SaaS) and open source platforms established as credible alternatives to traditional on-premises installation and licensing models, TCO is one of the few ways to level the playing field across options. Creating an apples-to-apples comparison across very different vendor business models is an important step when developing a business case for deploying an ECM solution.

What to Include in a TCO Analysis?

The essential categories to research in a TCO analysis include the initial acquisition and/or development costs, ongoing operational costs and the required investment in training and change management. These items can be broken down into areas such as:


  • Consider all software investments needed for the ECM deployment. The application software costs may be zero when looking at open source or SaaS/Cloud options, but do not overlook supporting systems that need to be acquired to run a particular product. This may mean upgrading or acquiring a new database, web server or office suite licenses. It may also mean upgrading client operating systems, browsers or authoring tools. These dependencies should factor into the software cost.
  • If looking at traditionally licensed on premises ECM products, perform due diligence on the real scope of the multi-month or multi-year rollout. Understand any discounting implications if seats are purchased as needed over a number of quarters, or if all seats must be purchased up front to get the best per-unit pricing. Unused seats (shelfware) are no bargain if support and maintenance fees need to be paid on licenses that sit unallocated.

    Also, dig into HOW the licenses are priced -- per user, per repository, per site, per CPU? All of these options exist in the Enterprise CMS vendor landscape and can have very different long term cost implications. Are there different types of user licenses? Do enough homework to know how many administrator, power user or read-only licenses are needed. Do specific modules such as records management or community tools need special functional administrator licenses?

  • Finally, ensure all third party or add-on components are identified and priced, so that all mandatory or highly-desirable requirements are priced across all vendor options -- remember apples-to-apples. If additional modules or products are needed for records management, archiving, social collaboration or workflow, make sure these products are identified and included in the TCO projection.


  • When comparing Enterprise CMSs with similar architectures, it's possible that any net new hardware investment will be the same regardless of the product chosen. If Cloud/SaaS options are on the short list, there may be significant cost savings here, particularly in the short to medium term.It’s also important to identify early in the planning cycle if any upgrades or new investments are needed for one option, but not others.
  • Don’t neglect the hardware needs of the end user audience. If supporting mobile and remote users is a high priority, determine if any upgrades to the current smartphone or tablet standard is needed. If a “Bring your own Device” program is to be supported, know what devices are supported by the short-listed ECM options.

Customization and Development Services

  • Development and customization costs to meet mandatory or highly-desirable features must be included as part of the initial acquisition costs. These may be one-time customization projects to enhance a feature or build integrations. Vendors should provide an estimate, so that the apples-to-apples comparison across options can be accurately assessed. It's also important to know what the long-term support, maintenance or upgrade costs of such customizations will be, in order to compare them to product options that have them as a default.

Ongoing Services

  • Understand the skills needed during the design, testing, training and documentation phases of an ECM project. Perform a gap analysis between the skills of the current internal team and what’s needed to deploy a particular ECM option. If the product is Java-based and the whole IT department uses .NET, deeper training or additional contract services may be required. Budget for any bridging of a skills gap needed to deliver on a given solution as part of the overall TCO analysis.

Maintenance and Support Services

  • Over a multi-year ECM project deployment, the ongoing annual support and maintenance costs can often emerge as the great leveler.Vendors frequently discount the price of client licenses, but very rarely discount the ongoing annual maintenance. This means paying a 20 to 27 percent annual maintenance fee on the LIST price of the product, not the highly discounted quarter-end special price. Over the span of five or more years, the impact of an initial license discount becomes negligible.
  •  Don't neglect a budget for maintenance and support for any required infrastructure, third-party or add-on modules needed to meet requirements. If a plug-in is needed to fill a records management functional gap, it will also likely have a 20 to 27 percent annual fee to stay current and ensure integrations remain supported.
  • If assessing SaaS or Cloud options, maintenance and support fees will be the highest cost category. A predictable and fixed cost model can be very beneficial for many organizations, making this an attractive path even if it ends up being more expensive in a long-term scenario.
  • Open source options will often deliver significant cost savings in years one and two when compared to traditional or SaaS options, but once production or large-scale rollout begins, most organizations will want to invest in the assurances and support services that back most of the enterprise-scale open source content management products.

    Ensure the TCO analysis assesses comparable service level agreements, response times and support services across all options,  meaning more premium support contracts from open source providers may need to be scoped.

Training and Change Management Costs

  • Assess the gap between the current system and processes and what the new Enterprise CMS could deliver.Understand the training costs for users, administrators and information specialists. If moving from a desktop system to a purely web-based system, the change management and training costs may be higher than if merely upgrading to a new version of the legacy system. Outline the costs of each alternative as it affects users, administrators and IT.
  • Do not neglect costs of migration from old systems to new. Enterprise CMSs that support interoperability standards or provide solid migration scripts will have a lower initial cost than systems that require hand-coding or manual export/import script design.If SaaS/Cloud options are being evaluated, ensure this capability is possible and what tier of service level agreement will allow automated migrations.


Learning Opportunities


Figure 1 -- Simple TCO Analysis Over Five Years

Don’t Be a Fashion Victim

Cloud, SaaS, open source, on-premises … the buzzwords never die in the world of enterprise content management. There is no one size fits all, no silver bullet to fix organizational information management issues. Selection of a new product or even upgrading an existing one must be viewed in the longer term context in which the system will operate. Do the homework. Dig into the costs and resources required. Make the decision right for your organization in context and within budget.

Title image courtesy of hxdbzxy (Shutterstock)

Editor's Note: Other articles by Cheryl McKinnon you may be interested in:
What You Need to Know About Big Data Hype

About the author

Cheryl McKinnon

Cheryl McKinnon is the founder of Candy Strategies Inc., a consulting and marketing services firm helping organizations make the jump to the digital workplace, and embrace open source and open standards as part of their information management strategy.She blogs at www.candystrategies.com and can be found on Twitter @CherylMcKinnon

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