Welcome to the exciting world of tech development! You may have already experienced the thrill of brainstorming innovative solutions, tackled integration challenges, and implemented an insurtech product. As you expand the implementation and fine tune it, there’s a crucial concept to understand: Total Cost of Ownership (TCO).
Think of TCO as the complete financial picture of your tech project, similar to how a general manager in the National Football League (NFL) considers all the expenses associated with building a winning team. It’s not just about the initial investment in star players (think of that as the upfront development costs). Like a team needs to factor in coaching salaries, training camp expenses, workout facilities, medical staff, and ongoing player development, your TCO encompasses everything from initial development to maintenance and support.
Why is understanding TCO so important?
TCO should be a primary factor used to evaluate technology options, allowing you to fully assess the value of each option and avoid being lured into a suboptimal choice by the appearance of a deceptively low initial cost. Whether assessing build vs. buy or comparing multiple vendor software options, constructing a comprehensive TCO evaluation is key to understanding the true cost and potential value of each option in the same way an NFL team evaluates free agents each offseason.
A full understanding of your chosen option’s TCO will also allow you to set budget and delivery expectations that can be confidently met. This can help you avoid hidden costs that can significantly impact your project’s budget, straining your company’s financial milestones and becoming a burden that affects the long-term execution of your strategy. Imagine a situation where your development team encounters unexpected technical challenges, like a star player suffering a season-ending injury. These unforeseen events can lead to costly delays and budget overruns, just like an injury can derail a team’s championship aspirations.
By understanding TCO, you can make informed decisions about your tech projects. This article will equip you with the knowledge to identify and manage these hidden costs, ensuring your projects stay on track financially, much like a well-managed NFL team stays within its salary cap.
Unveiling the TCO Landscape: Beyond the Initial Investment
Let’s break down what TCO entails. While the initial development cost (think salaries for developers and design fees) is a significant factor, it’s just one piece of the puzzle. Here are some other key areas that contribute to TCO, similar to the various positions and considerations a successful NFL team requires:
- 🛠️ • Operations and Ongoing Development: Tech solutions are like living organisms—they need constant care and attention. Bug fixes, security patches, and even new features are all part of ongoing operations and development. How big will your team need to be to support your chosen path? These expenses contribute to the overall TCO, just like a team needs to invest in ongoing player training and coaching throughout the season.
- ⚖️ Scalability Challenges: Consider the scalability of your tech solution as similar to a growing startup team. While it may meet current needs perfectly, ANY growth could present challenges is your solution isn’t prepared to handle it organically. Your technology must be adaptable and capable of supporting an expanding user base or handling increased data volume. Scalability could necessitate infrastructure enhancements or a total system overhaul, significant cost factors akin to a sports team needing to upgrade its facilities to add more suites and food options.
- 🔐 Security Vulnerabilities: Cybersecurity threats constantly evolve, and your tech solution must be prepared. Regularly patching vulnerabilities, implementing robust security measures, and staying updated on the latest threats contribute to TCO. Just like a team needs a strong defense to prevent opponents from scoring, your tech solution needs robust security measures to protect your data.
- 🏋🏻 Training and User Support: Changes to even the most intuitive tech must be managed effectively. Providing comprehensive training and ongoing support ensures your team can use the solution effectively and reach its full potential. Think of it as ensuring your team has a strong playbook and understands the game plan – just like a well-coached NFL team can maximize its potential on the field.
This isn’t an exhaustive list, but it gives you a good understanding of the factors contributing to TCO. By keeping these factors in mind from the beginning of your project, you can avoid hidden costs and ensure your tech development projects stay within budget, much like a well-managed NFL team stays competitive season after season.
The “Buy vs. Build” Conundrum: How TCO Impacts the Decision
While building a solution may seem cheaper initially, a thorough TCO analysis often reveals that purchasing a pre-existing solution can be more cost-effective in the long run, akin to the NFL’s draft vs. free agency decisions. By understanding and managing TCO, tech projects can stay on track financially and set and meet expectations, much like a well-managed NFL team stays competitive.
In the next article, we will discuss cost accounting for TCO
About Bruce Broussard
Bruce F. Broussard, Jr. has more than 30 years of P&C and Life & Annuities insurance experience focusing on insurance data solutions. Bruce has served in various roles, including solution & data architect, project & program manager, and insurance application manager. Prior to founding Percipience, Bruce led the Data & Analytics practice at MVP Advisory Group and served as SVP & General Manager of the Data Solutions Business Unit for Insurity. He led the product strategy, development, client implementations, and sales for Insurity’s DataHouse product (formerly IEV). DataHouse became the leading P&C data solution under Bruce’s leadership. Previously Bruce was an Associate Partner for IBM’s Insurance Consulting Practice, where he led IBM’s global insurance data practice. Bruce also served as VP, Application Development for Pan-American Life Insurance Company, responsible for all US and International systems. Bruce holds a Bachelor of Science degree in Computer Science from Louisiana State University and completed the IBM Executive Program at Wharton School at the University of Pennsylvania and received his Machine Learning certification from the Massachusetts Institute of Technology (MIT). Bruce holds FMLI and ACS designations.
Bruce F. Broussard, Jr. has more than 30 years of P&C and Life & Annuities insurance experience focusing on insurance data solutions. Bruce has served in various roles, including solution & data architect, project & program manager, and insurance application manager.
Prior to founding Percipience, Bruce led the Data & Analytics practice at MVP Advisory Group and served as SVP & General Manager of the Data Solutions Business Unit for Insurity. He led the product strategy, development, client implementations, and sales for Insurity’s DataHouse product (formerly IEV). DataHouse became the leading P&C data solution under Bruce’s leadership. Previously Bruce was an Associate Partner for IBM’s Insurance Consulting Practice, where he led IBM’s global insurance data practice. Bruce also served as VP, Application Development for Pan-American Life Insurance Company, responsible for all US and International systems.
Bruce holds a Bachelor of Science degree in Computer Science from Louisiana State University and completed the IBM Executive Program at Wharton School at the University of Pennsylvania and received his Machine Learning certification from the Massachusetts Institute of Technology (MIT). Bruce holds FMLI and ACS designations.
