Oct 12 2006

Facing the Facts About Technology Costs

The hidden costs of technology can dent a school district’s budget, so understanding total cost of ownership is vital to financial success.

What does technology cost? That’s a tough question to answer, since it goes well beyond the price tag of new hardware, software and networking technologies. Maintenance, support, training and user productivity issues all factor into the total cost of ownership (TCO).

During the past decade, private industry has strived to nail down technology TCO in order to garner budget support and prove technology’s value. Given the budget constraints facing the educational system today, it’s no surprise that TCO is now a major issue for public school systems around the country.

“Many people don’t understand that over half the cost of technology ownership is indirect,” notes Leslie Fiering, an analyst specializing in TCO for Gartner, a research firm in Stamford, Conn. For example, productivity is a huge indirect element. “There is a cost attached to students and teachers taking longer to get things done,” she explains. “Time has value.”

Clearly, technology is a necessity for today’s schools—and so is developing a realistic TCO program. But there isn’t a single path to determine TCO. Some school districts use vendor or analyst TCO programs built for the private sector, while others build a proprietary model. Another approach is to use TCO initiatives offered by industry groups such as the Consortium for School Networking (CoSN), a Washington, D.C.-based nonprofit group that focuses on advancing K-12 education through technology.

Though TCO tools vary, the ultimate goal is the same for every school: to make the best use of their technology dollars.

Many School Districts Are in the Same Boat

In the San Diego, Calif., school system, Mike Casey, the executive director for information technology, says that the implementation of its new TCO program “was driven by the budget challenges we’ve faced in recent years.” He adds that in the past, “There weren’t any metrics that measured what we were spending. We’d just take a guess as to what things cost, but we knew those guesses weren’t completely accurate.”

Many school districts are in the same situation, according to CoSN, which helps schools understand the full cost of technology. “When we started in 1999, the vast majority of school districts were unfamiliar with the concept,” recalls CoSN CEO Keith Krueger.

In speaking with more than 300 districts about TCO, CoSN discovered that public education IT departments weren’t spending enough time and money on training and tech support. Many districts viewed technology as a one-off investment, and most didn’t have a working lifecycle management program, according to the findings.

Most districts surveyed were operating with an anecdotal TCO program that was based on assumptions rather than hard numbers. In many cases, districts had been making what they thought were fiscally prudent decisions that ended up costing more money than they saved. In addition, they were operating in a fashion that undercut the return on investment (ROI) for many larger projects.

Gartner’s Fiering says the CoSN results indicate that no IT shop should “fly blind” when it comes to evaluating costs and ROI. Regardless of the TCO tool being used, it’s imperative to understand the lifecycle costs of technology and the expenses created by using that technology, she adds.

Information Driven

A major issue with TCO tools is the amount of data that is required. (See “An Information-Hungry Tool” above.) A typical tool requires 1,000 or more data elements to determine the total cost of technology, and one analyst tool needs as many as 1,900 elements. To eliminate these heavy data requirements, CoSN boiled down a program to 100 elements to create its K-12 Web-based tool.

While the amount of data required to assess TCO seems daunting, the main issue most school districts grapple with is finding the right information to plug in. That was the experience of San Diego’s Casey when he sat down to fill in the information required by the TCO tool he used.

“I found out that we really didn’t have a good way of collecting that information,” he explains. “In many cases, we had to make an educated guess as to what we had.”

For example, Casey had to “guesstimate” the number of service calls his department made, what equipment the district housed at various campuses, and the total amount of personnel time needed to run and service the IT infrastructure. “Our inventory procedure in particular wasn’t what it needed to be,” he admits.

San Diego resolved the problem by installing new help desk and enterprise resource planning software. Now Casey can cull information from those systems to determine TCO.

Gartner’s Fiering notes that even though school districts aren’t the only ones struggling to get inventory data for TCO exercises, they have an added burden because they typically don’t have the same number of staff people to do inventory as private companies often have.

Tallying inventory is certainly a big hurdle for the relatively small school district of Northern Lebanon in central Pennsylvania, according to technology director Sally Bair. “The hardest part of the whole process is to gather the information needed to use a TCO tool,” she says.

Personnel costs and inventory proved elusive for Bair’s five-campus district. So, like San Diego’s Casey, she’s now using new help desk software to track the IT department’s tasks, purchases and resources. “When you start to put it all together in one place, you discover how much you don’t know,” Bair points out.

Figuring out downtime is another TCO aspect that needs more research. “I don’t know how to figure the value of that in dollars,” Bair says. “We know it costs us, but we haven’t come up with a way of quantifying it.”

Another obstacle is that many people—from the IT department to the superintendent—don’t have a clear understanding of technology’s true costs.

“Our director of student achievement didn’t really understand TCO,” explains Steve Beining, technology coordinator for the Gresham-Barlow school district outside of Portland, Ore. “And when I ventured into it, I didn’t realize it was as complex as it was. So it’s going to take a while to build the knowledge base on what TCO means and what it is.”

A Long Row to Hoe

Another issue school districts have to deal with is establishing a consistent TCO methodology.

Jack Byrd, director of technology for Fort Wayne Community Schools in Fort Wayne, Ind., controls the technology budget for the central non-school offices and for district-wide shared services such as networking and e-mail. But school technology committees control independent school technology purchases. Combining the responsibilities would provide a clearer view of TCO, but that seems unlikely to happen.

“That would be a huge paradigm shift for the way we do the budget,” Byrd acknowledges. “I’d like to see that shift happen, but it’s not coming anytime soon.”

The good news is that Fort Wayne’s purchasing department has a strict replacement cycle for the copier fleet, and Byrd hopes that it becomes a model for other technology purchases.

“We currently use computers until they die,” he admits.

Since older machines increase both maintenance costs and downtime, as well as lowering productivity, they do have an impact on TCO. Consider Patti Bostwick, director of technology for Zionsville Community Schools located outside of Indianapolis. She says that her district’s computer turnover averages about seven years, while their service warranties run for only three years.

“I’m trying to start a TCO program mainly to show that it’s costing us more to maintain those machines than to replace them,” she explains. “And then we have to get rid of them, which costs us $125 for each computer.”

Bostwick’s seven-person tech staff services more than 2,000 machines in seven school buildings, and she knows that upgrading older machines is not a good use of their time. For instance, the district needs new operating systems to run newer applications and to accommodate modern media technology, yet many of the system’s older applications don’t run on the newer operating systems.

“We can’t standardize on software until we get our hardware situation ironed out,” she says. On top of that, a change in the state property tax structure and the way it gets distributed to the public schools has left Bostwick’s department in a budget bind.

She hopes that a TCO program can justify the value of her staff and help create a more affordable technology plan. “The seven people I have can barely keep up,” Bostwick says. “We know there’s a better way to do things, and we’re going to have to make the case for it.”

In San Diego, Casey used TCO to make the case for scrapping “old siloed systems that didn’t relate to one another” and to standardize on PCs and notebooks.

“We cut down to two vendors for our desktops, and we buy only one type of desktop PC and two types of notebooks,” Casey says. And when the San Diego schools purchase those machines, they include the cost of provisioning software and setup into the package. “We’re also looking at the cost of upgrades—of what it costs every time we touch a machine,” he adds.

Casey has built into his budget a four-year turnover for desktops, which reflects a refresh rate closer to that of private industry. He also intends to apply his TCO methodology to his district’s phone system, investigating whether Voice over Internet Protocol technology makes sense as an upgrade from the district’s traditional phone service or whether it should only be installed as new schools are constructed. “You can’t make the right decision if you don’t have the right information,” he points out.

Lifting the Veil

Personnel represent a hidden cost that should be included in a TCO program. “Professional development and tech support are the real big costs that people are missing,” says CoSN’s Krueger. “Hardware is only about 25 percent of the total cost of ownership.”

Yet districts surveyed by CoSN reported tech support staffs ranging from one per 100 users to one per 1,500 users. Krueger adds that three-quarters of district-level tech directors said their background was in education rather than technology, so they “aren’t always aware of some of the practices that are common in the private sector,” he says.

Beining of the Gresham-Barlow district points out another personnel issue that should be included in a TCO equation: Many teachers need training in using technology. “Our staff doesn’t know how to use the equipment effectively as a teaching tool,” he says, “so we’re not getting the full benefit of the technology.”

While the realization of what staff members don’t know can be deflating, some districts have been able to leverage the information to achieve immediate results.

For instance, Northern Lebanon’s Bair reports that as a result of a TCO analysis, the district justified hiring two new staff members and signing a three-year onsite service agreement with a local vendor. “We used to think we were saving money by doing it all ourselves, but we weren’t,” she acknowledges. “Now we’re maximizing what we get out of our own services.”

Bair also hopes to bring audio/video conferencing and higher-speed connections into the district and views the TCO program as a key component to help her make the business case for these new technologies.

While it’s clear that a TCO program can help improve and enhance IT operations, Gartner’s Fiering cautions that it shouldn’t be viewed as a magic bullet. “What you get out of a TCO program is only as good as the effort and information you put into it,” she cautions.

Yet optimism is running high.

“This is the first time we’ve had an environment that’s conducive to a discussion of what technology really costs,” says Beining of the Gresham-Barlow school district. “It will take some time, but this is giving us a way to make a business case that others can understand.”

For San Diego’s Casey, that empirical evidence is what makes all the difference. “We’ve got real numbers now—instead of urban legend and myth—on what it takes to run an IT shop,” he explains.

Michael Meehan is a freelance business and technology writer based in Brookline, Mass.

An Information-Hungry Tool

To get at the actual cost of technology for your district, you will need to track down a lot of data. Here are some of the things you will need to know:

• A list of all clients (desktops, notebooks, etc.) broken down by machines used in shared facilities (such as libraries), teacher-dedicated units, classroom machines, non-classroom personnel units and student-dedicated machines.

• An inventory of all servers, network gear, printers and copiers.

• A software inventory categorized by content and curriculum, educational administrative (such as grading systems) and infrastructure. Make sure you account for every application on every machine in the district.

• A list of all application service providers and their cost.

• Direct labor costs, such as staff salaries and vendor costs, for maintenance, integration work, consulting, systems planning, professional development and training, and content and curriculum development.

• Indirect labor costs (often measured in units of time by users) such as peer support, self-directed learning, formal training, file and data management, downtime, and application development and customization.

Source: The Consortium for School Networking

Laying the Groundwork for TCO

Balancing all the variables that go into a total cost of ownership program can be the trickiest part to master. Here are some tips for how to achieve quick results:

• Embrace the change associated with measurement.

• Involve all constituents.

• Ensure the IT direction aligns with the district’s mission.

• Measure the environment in a way that enables changes to be identified, tracked and quantified.

• Perform a business-case analysis of any proposed changes to identify potential savings and the associated return on investment.

• Consider all aspects before migrating.

• Follow a rigorous project management doctrine.

• Secure executive sponsorship.

Source: Gartner


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