Oct 31 2006

Do the Math

As schools analyze the direct and indirect expenses of IT resources, they're finding technology insights and savings in unexpected places.

Melissa Solomon

TIGHT BUDGETS HAVE ALWAYS BEEN a given at Wellington-Napoleon, a 450-student school district in rural Missouri. But the funding situation last year was worse than usual.

Grant dollars froze up, the state cut funding and teaching positions were eliminated. The district even considered replacing its one technology support employee with a twice-weekly Kansas City maintenance contractor.

“Most districts in the state of Missouri lost 50 percent of their equipment and supply budgets because state funds dried up,” says Andy Hall, who was the sole employee of the technology department at Wellington -Napoleon at the time. “I was looking for ammunition to show why we shouldn’t cut technology.”

Hall had long been aware of the concept of total cost of ownership—taking inventory of technology assets and analyzing their direct and indirect costs. Hall felt a TCO analysis would help make his case to the district’s officials.

Hall then measured all of the school’s costs that were associated with IT deployment—hardware, software, maintenance, supplies, storage, training and so on—to determine if the district’s technology dollars were appropriately allocated and where they were stretched too thin.

“It really opened some eyes as to what we were accomplishing with such limited funds,” says Hall. “The administration came away with a sense of pride that we were doing so much with so little.”

Wellington-Napoleon isn’t the only school district to find value in understanding the full costs that are associated with the deployment of technology. Unlike most businesses, school districts purchase and utilize information technology differently, so they need to consider numerous criteria when they conduct a TCO analysis.

Most businesses anticipate a two-or three-year life cycle for hardware, whereas schools often use equipment for five or more years, Hall explains. Also, businesses often can justify extra spending if they can prove it will produce a good return on investment. Schools, on the other hand, cannot directly tie the extra costs to their primary mission of improving student performance.

Add It Up

A map can be invaluable for figuring out where you’re going, but if you do not know where you are to begin with, it doesn’t do much good, warns Research Director Bill Rust of Gartner, a research firm based in Stamford, Conn. For most school districts, plotting their current position is the hard part.

But, Rust warns, a low total cost of ownership isn’t the be-all-and-end-all goal for schools. School districts need to place a value judgment on the data they collect. Not spending any money on technology would produce the lowest possible TCO, but that wouldn’t go the distance in terms of reaching educational goals, he explains.

“We all understand that the total cost of ownership is not the full metric by which you measure success,” says Rust.

By assigning values to everything from computers, print cartridges and servers to direct and indirect labor costs, schools can gain a better understanding of where and when to deploy limited financial resources. Most technology suppliers will help schools analyze their total costs. Yet technology coordinators will benefit most from conducting their own detailed analysis of direct acquisitions costs, along with the costs of supplies, maintenance, and labor.

While each user may spend only a small amount of time on technology maintenance, that investment adds up when considering an entire district. “That is about 61 to 67 percent of the total cost of ownership,” says Rich Kaestner, TCO project director for the Consortium for School Networking (CoSN) in Washington, D.C.

To convert time into costs, you need to know salaries, so there’s a lot of information that IT teams need to collect from other departments. The benefits often prove worthy of the effort, however.

TCO “allows a school district to look at the whole picture,” Kaestner explains. “Districts can see their overall costs or break them down by school, user or other measures.”

The U.S. government encourages schools to gain more control over their technology costs. Its new National Education Technology Plan, an initiative of the U.S. Department of Education, contains a seven-point action plan, with its second point being “Consider Innovative Budgeting.”

Taking Stock

Unlike budget-crunched Wellington-Napoleon, the Fairfax County Public Schools in Virginia needed to assess whether their technology budget was too high. “[Calculating TCO] was something that was always in the back of our minds,” says Nina Wilkening, IT management and budget coordinator for the Fairfax school system’s information technology department. But, she adds, because of the district’s size, “it was daunting.”

As the 12th largest school district in the United States—with 21,000 employees and 166,000 students in 248 buildings—Fairfax spends a lot of money on technology compared with its peers. Consequently, the school’s technology leadership wanted to understand the budgeting process better and demonstrate the necessity of certain costs.

Fairfax keeps a detailed technology inventory that’s updated twice a year, so figuring out actual equipment costs was the easy part. Ascertaining the indirect costs, however, was considerably trickier. Determining indirect labor costs, such as how many hours teachers spend trying to fix technology problems on their own, is a “hard thing to do,” Wilkening says.

The Fairfax district sent a survey to a random sampling of teachers to come up with an estimate. “There’s no way we could have surveyed every teacher,” Wilkening says. “We try not to burden our staff with questionnaires because they have other things they need to do.”

In the end, the Fairfax school district did not gain any major revelations about its ITspending, but it did give school leaders what they needed: a clear picture of the district’s costs and where the money is going, says Wilkening.

That’s more complex than it sounds. Fairfax maintains a central IT budget, but different departments also buy their own technology. There’s also a separate program for assistive and adaptive technology for students with disabilities, and that complicates understanding the school district’s total technology spending picture.

“It’s tremendously important to be aware of all your costs,” Wilkening says. “A $1,000 computer is not $1,000. Hardware is a drop in the bucket. It’s everything else that adds up.”

Factoring Indirect Costs

Analyzing its TCO also enabled the budget-conscious Wellington-Napoleon school district to discover new opportunities for cost savings. For example, the school district thought that installing low-cost inkjet printers in every classroom made more sense than having classrooms share laser printers. After factoring in the indirect costs of ink cartridges and the maintenance on inkjet printers, however, Hall discovered that inkjets have a higher TCO than fewer strategically placed laser printers.

The TCO project helped Hall to lobby for better processes in the school district. For instance, educators often propose new programs that use equipment that was either donated or received via grants. But since the school district hadn’t been putting money aside for any upgrades, once that free equipment died, the new programs would have to be eliminated.

When district leaders saw what was happening, they acknowledged the importance of creating a fund to pay for equipment maintenance and upgrades. In addition, the school district now asks educators for their long-term plans so that the new programs don’t end when the grant dollars dry up.

Breaking down total costs saved the district’s one full-time technology position, explains Hall, who has since taken a job as technology director at Mexico Public Schools, a larger Missouri district with 2,500 students. Hall did a TCO analysis to determine the costs of a network outage at Wellington-Napoleon, if the district had to schedule an appointment with an out-of-town contractor. Even with a best-case scenario of two or three hours, the indirect cost of lost work time justified the need for a full-time in-house employee.

“I don’t think they realized that until they looked at the numbers and saw the concept of lost time,” says Hall.

Melissa Solomon is a New York-based freelance writer who specializes in technology.

Measuring TCO

Tracking down a district’s technology assets and analyzing that data can be intimidating. Rich Kaestner, TCO project director for the Consortium for School Networking (CoSN) in Washington, D.C., recommends that a total cost of ownership analysis contain three main categories:

1. Actual technology costs, such as servers, network equipment, software, printers, supplies and so on. School districts should take a complete inventory of what they have and what each piece of equipment costs. They should also examine amortization schedules over five years, which is something that schools don’t traditionally do.

2. Direct labor costs, which include salaries for all the people who support the technology infrastructure. If a teacher spends a third of his or her time helping others with technology, then one-third of that teacher’s salary needs to be included.

3. Indirect labor, which is the time that end users spend on technology maintenance. This includes salaries for the time teachers spend in training, as well as the time they spend trying to figure out why a computer or printer isn’t working. The final TCO figure is usually an eye-opener.

Additionally, it helps to coordinate the school’s or district’s annual inventory and/or budget process with the TCO project so as not to duplicate counts. Remember that TCO is only one measurement. Yet another critical, but hard to quantify, measure is the overall value of technology in helping a district reach its educational goals.

Vendor-Neutral TCO Calculator

With funding from the U.S. Department of Education, CoSN and Gartner developed a vendor-neutral TCO calculator in May 2003. Developed specifically for K-12 schools, the TCO calculator consists of nearly 2,000 measures consolidated to about 150 input data points. It can be found at http://classroomtco.cosn.org/gartner_intro.html.