IT Total Cost of Ownership: How to calculate + cost/benefit analysis

Grasping the IT total cost of ownership (TCO) for enterprise networks is key to making well-informed technology investment choices. TCO includes all expenses related to owning and managing IT infrastructure, such as hardware, software, labor, maintenance, energy use, and costs associated with downtime and security.

A thorough TCO analysis helps businesses find the right balance between performance and cost, leading to long-term success and stability.

In this article:

• What is the IT total cost of ownership for enterprise networks?
• Components of IT total cost of ownership for your enterprise network
• How to calculate the IT total cost of ownership for your network
• Hidden costs in network management
• Why you should conduct a cost/benefit analysis for your IT investments
• How to reduce your TCO with Meter’s NaaS

What is the IT total cost of ownership for enterprise networks?

Total Cost of Ownership (TCO) represents the cumulative expenses associated with owning and operating technology throughout its entire lifecycle. TCO includes not only the upfront purchase costs but also ongoing expenses like maintenance, support, upgrades, and any downtime, offering a comprehensive view of all costs that add up over time.

Key components of TCO include:

• Hardware costs: This covers the purchase of servers, networking equipment, and devices necessary for building and maintaining the network infrastructure.
• Software costs: These are the expenses for licenses required for operating systems, business applications, and network management tools.
• Labor costs: Often underestimated, these include the costs associated with installation, configuration, ongoing management of the network, training, onboarding, and the potential costs associated with employee turnover or outsourcing to managed service providers. It also involves continuous monitoring, troubleshooting, and optimization performed by skilled IT staff.
• Maintenance costs: Networks need regular updates, patches, and occasional hardware replacements to remain secure and efficient. These ongoing maintenance activities are essential to avoid vulnerabilities and performance degradation.
• Energy costs: Running and cooling servers and other networking equipment consume a considerable amount of power. Inefficient energy use can lead to higher utility bills, impacting the overall cost of operating the network.
• Downtime costs: Perhaps the most insidious of all, downtime costs arise from network outages. These outages can halt operations, leading to lost productivity, missed revenue opportunities, and potential damage to customer relationships and the company's reputation.

Understanding TCO in business means looking beyond the initial purchase price to recognize the hidden costs that can impact profitability. 

For example, inadequate energy management can lead to rising utility expenses, and frequent network outages can cause significant losses in productivity and sales.

By examining these factors closely, businesses can make informed decisions that optimize network performance while controlling costs. The goal is to create a balanced approach where the network remains cost-effective, reliable, and capable of supporting long-term growth without unexpected financial strains.

Components of IT total cost of ownership for your enterprise network

To manage your IT budget effectively, it's important to understand the different components that contribute to the total cost of ownership (TCO) for your enterprise network. Breaking down these costs provides clarity on where expenditures are happening and how they can be controlled:

• Initial capital expenses (CapEx): These are the upfront costs needed to establish your network infrastructure. CapEx includes all long-term investments in physical and virtual infrastructure, including building out or upgrading data center facilities, not just equipment purchases. While these investments can be substantial, they are necessary for setting up the foundational elements of your IT network.
• Operating expenses (OpEx): After the initial setup, OpEx accounts for the recurring costs of running the network. This includes power consumption, cooling systems, salaries for IT support staff, costs for managed services, telecommunications fees, continuous compliance costs, insurance, and subscriptions for software. Unlike CapEx, OpEx is an ongoing expense that can fluctuate depending on network usage and efficiency, making it essential to monitor these costs regularly for effective budgeting.
• Maintenance and upgrades: Keeping the network in top condition requires regular maintenance, which involves tasks like applying software patches, performing hardware upgrades, and scaling the network to accommodate growth. These activities help prevent performance issues and mitigate potential security risks. While these costs can often be overlooked or underestimated, they play a significant role in maintaining network reliability over time.
• Downtime costs: Network outages can have a direct impact on finances, affecting everything from lost productivity to missed business opportunities. To calculate downtime costs, consider the revenue lost during each hour of downtime, along with any potential damage to the company’s reputation. For businesses that depend on constant network availability, even brief outages can lead to significant financial consequences.
• Security expenses: Protecting the network from cyber threats involves a range of expenses, including the purchase of security tools, hiring skilled personnel, and implementing ongoing monitoring and incident response measures. The amount spent on security will vary based on the specific risks faced and the sensitivity of the data being protected. A comprehensive approach to security helps prevent costly breaches and minimizes the financial and reputational risks associated with cyber attacks.

Understanding these components provides a clear view of how TCO is composed, allowing for better financial planning and decision-making regarding your network infrastructure.

How to calculate the IT total cost of ownership for your network

Calculating the TCO for your network involves a thorough evaluation of all associated expenses, both predictable and unforeseen. For network engineers, understanding these steps is key to optimizing resources and making informed financial decisions. Here's a step-by-step guide to accurately determine your network's TCO:

1. Assess upfront capital investments

Start by identifying all initial expenses, which include the cost of hardware such as servers, switches, routers, and firewalls, along with software licenses and installation fees. These CapEx represent the initial financial outlay required to establish your network.

Documenting these costs provides a clear picture of the starting investment needed before the network becomes operational.

2. Estimate ongoing operational costs

Consider the recurring expenses necessary to maintain the network. These OpEx encompass costs like power consumption, cooling systems for data centers, IT support, and network management staffing.

Unlike initial capital investments, these costs recur regularly and can vary due to factors such as fluctuating energy prices or changing staffing requirements. To estimate these expenses accurately, use historical data along with future projections, taking into account potential cost variations during peak usage periods or seasonal changes.

3. Include costs for periodic maintenance, upgrades, and scaling

Regular maintenance and upgrades are necessary to keep the network functioning effectively and to adapt to the evolving needs of the business. These costs cover routine software updates, patching, hardware replacements, and scalability expenses as the company expands.

Though these costs may not always be immediately apparent, they accumulate over time and significantly influence the total cost of ownership. Planning for these periodic expenditures helps avoid unexpected financial impacts and keeps the network aligned with business growth.

4. Account for unplanned costs

Unexpected events, such as network downtime, security breaches, and equipment failures, can lead to significant unplanned costs. While these expenses are often unpredictable, they should be included in your TCO calculations to cover potential financial impacts.

Consider both direct costs, like repairs or replacements, and indirect costs, such as lost productivity, revenue loss, and any negative effects on the company’s reputation. Factoring in these potential disruptions provides a more comprehensive view of your network's TCO.

Meter offers a Network as a Service (NaaS) solution that combines hardware, software, installation, and ongoing support into a single, predictable monthly fee. This approach eliminates many of the variable costs often associated with TCO, making budgeting simpler and reducing financial uncertainty.

With Meter's NaaS, companies can manage IT expenses more effectively, benefiting from high network performance without unexpected costs. This model also frees internal IT resources, enabling teams to focus on strategic projects rather than routine maintenance and upgrades.

Hidden costs in network management

Managing an enterprise network often involves more than just the obvious costs. Several hidden expenses can significantly increase the TCO if they're not closely monitored:

• Power and cooling: Networks that aren't optimized can lead to high utility bills and additional environmental costs. Energy efficiency should be a priority when considering equipment and data center management. Poor management of power usage can quickly deplete resources. Regularly assessing your network's energy footprint and making necessary adjustments can help reduce these costs.
• Staffing and expertise: Recruiting, training, and retaining skilled network engineers and IT support staff can be expensive. High turnover rates exacerbate these costs, as every departure means more spending on hiring and training new employees. Factoring in these human capital expenses is important when calculating the total cost of ownership technology for your network.
• Security vulnerabilities: The financial impact of security breaches can be substantial, not just in terms of immediate damage but also in the long-term recovery and mitigation efforts that follow. Investing in security measures may require a significant upfront cost, but it's an important step to guard against potential threats. Weighing these costs against the risks of a breach helps create a more secure network environment.

Meter provides a comprehensive network solution that addresses these hidden costs by optimizing network infrastructure to reduce energy consumption and automate routine tasks. This approach allows internal IT teams to focus on strategic initiatives rather than everyday operations.

Conduct a cost/benefit analysis for your IT investments

Conducting a cost/benefit analysis is essential to ensure your IT investments are delivering the value your business needs. Here's how to break it down:

• Weigh costs against performance: Start by evaluating if your network investments provide the speed, reliability, and capacity needed. Are the costs justified by the bandwidth and uptime achieved? Does your setup meet both current and future demands? By comparing these metrics to overall expenses, you can better understand your return on investment.
• Consider scalability: As your business grows, your network must scale smoothly without excessive costs. Evaluate if your infrastructure supports flexible, cost-effective growth. A network that can scale gradually saves money by reducing the need for frequent, expensive overhauls.
• Calculate security ROI: In today's threat landscape, security investments are non-negotiable, but they need to be financially sound. Weigh the costs of advanced security tools against the potential financial and reputational impact of a breach. Even substantial upfront costs in security can yield significant savings by preventing costly incidents.

By focusing on these areas, you can prioritize IT spending that maximizes performance, security, and scalability—while keeping unnecessary costs in check.

Next steps: Reduce your IT total cost of ownership with Meter’s NaaS

Meter’s Network as a Service (NaaS) makes it easy to reduce IT total cost of ownership (TCO) by shifting from costly upfront investments to manageable monthly payments. 

Unlike traditional ownership that demands ongoing maintenance expenses, our NaaS model consolidates all networking costs—hardware, software, installation, and support—into a single, predictable fee. 

This approach simplifies budgeting, reduces unexpected costs, and frees up capital for other critical business needs.

With Meter’s NaaS, you’ll benefit from a fully managed solution that lifts the maintenance burden off your IT team, allowing them to focus on strategic projects that drive growth and innovation.

Why choose Meter's NaaS?

• Predictable monthly costs: All networking expenses are covered under one steady monthly fee, simplifying budgeting and minimizing surprises.
• Comprehensive, end-to-end solution: From design and installation to ongoing support, Meter handles every aspect of network management, so your team can focus on core business priorities.
• Scalable flexibility: Easily adjust network resources as your business grows, without incurring large capital expenses.
• Built-in security features: Meter’s NaaS includes essential security tools to protect your network and reduce the risk of costly breaches.
• Energy-efficient design: Our solutions are built for efficiency, helping lower energy consumption and support sustainability goals.
• Reliable support: Meter’s expert support team resolves issues quickly, ensuring high network performance and reliability.

Discover how Meter’s NaaS can optimize your IT investments and keep your network performing at its best. Contact us today to learn more about our comprehensive network solutions.