Dr. Sharon L. Bender
September, 2006
Total Cost of Ownership
Why not
apply
the
tenets
of TCO
(total
cost of
ownership)
formula
to
earning
a
college
or
graduate
degree?
Like
businesses
we
should
calculate
projected
costs to
measure
success
in
education. Better
still,
calculate
TCO in
three
major
categories:
1)
financial,
2)
emotional,
and 3)
administrational.
If you
want to
know the
true
cost of
education,
utilize
the
concept
of TCO
(Total
Cost of
Ownership).
Companies
use TCO
to make
investment
decisions.
But
isn’t
education
an
investment?
Why not
apply
the
tenets
of TCO
to
earning
a
college
or
graduate
degree?
When
companies
make
decisions
about
their
investments
they
want to
know how
much it
is going
to cost.
Calculating
TCO in a
business
sense
can mean
looking
at the
costs of
equipment
for
example.
It also
means
accounting
for
projected
costs
and
hidden
costs.
There
are many
hidden
and
ongoing
costs
that
frequently
are not
considered
when a
project
is
originally
proposed;
and
education
is
indeed a
project-related
venture.
TCO was
developed
in the
1980s by
Gartner,
a
research
firm to
determine
the cost
of
owning a
personal
computer.
TCO has
been
widely
used in
the IT
industry
as a
result.
But if
TCO
considers
direct
and
indirect
costs
incurred
throughout
the life
cycle of
an asset
along
with its
operation,
maintenance,
and
retirement,
it can
just as
easily
be
applied
in the
very
same
manner
to
determining
the true
cost of
ownership
(TCO) of
an
education.
Calculating
TCO in
Education
The
Gartner
TCO
model
utilizes
two
major
categories
to
organize
costs:
1)
direct
costs
and 2)
indirect
costs.
This
should
be
expanded
the
three
major
areas
for
calculation:
1)
direct
costs,
2)
indirect
costs,
and 3)
projected
costs.
Direct
costs
cover
the
visible
support
related
investment.
Indirect
costs
are less
visible
and they
are
spread
out over
the life
of the
undertaking.
Downtime
might be
an
indirect
cost for
instance.
Projected
costs
are not
visible,
but they
are just
as
crucial
to your
TCO
calculation
in
education.
This
area
accounts
for the
cost of
not
putting
your
degree
to good
use
along
the way
and in
the
future,
a
concept
that is
very
subjective
and
explorative.
But it
enables
you to
enjoy
the best
outcome
in your
education.
It can
help
keep you
motivated
if you
have a
projected
use for
your
degree.
Having
served
as an
educator
for
several
years, I
have
noted
that we
must
calculate
TCO in
three
major
categories:
1)
financial,
2)
emotional,
and 3)
administrational.
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1)
Financial
This
area
accounts
for all
of the
financial
investment
you will
make to
accomplish
your
educational
endeavor
such as
the cost
in terms
of
hardware,
software,
equipment,
space,
tuition,
and
anything
else you
believe
you will
need on
a
financial
level.
This
area is
easy to
calculate.
It
involves
“direct”
costs.
You can
see in
dollars
and
cents
the cost
of
material
items.
2)
Emotional
This
area
accounts
for all
of the
emotions
involved
in
earning
a degree
such as
from
personal
hardships,
strain
on
relationships,
endless
hours
spent on
homework
that can
drain
mental
resources,
and
anything
else you
believe
you will
need to
devote
on an
emotional
level.
This
area is
not as
easy to
calculate.
It
involves
“indirect”
costs.
You
cannot
see a
monetary
value
here,
but
there is
a cost
if there
is
emotional
expenditure.
3)
Administrational
This
area
accounts
for all
of the
administration
involved
in
earning
a degree
such as
organizing
your
workspace,
keeping
records,
producing
coursework,
and
anything
else you
believe
you will
need on
an
administrational
level.
This
area is
not easy
to
calculate
either.
It
involves
“indirect”
costs as
well.
But you
can
calculate
costs in
terms of
time
spent
administrating
your
degree
program
from
beginning
to end.
|
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Projected
Costs
and ROI
in
Education
We've
addressed
direct
and
indirect
costs,
but what
about
projected
costs?
This is
where it
gets
tricky,
but not
impossible
to
calculate.
For
instance
if you
analyze
the cost
of not
using
your
degree,
you can
easily
imagine
the loss
of a
higher
paying
job for
instance.
To scope
this
area of
projected
costs a
bit
more,
take
some
time to
examine
some
intangible
costs.
For
those
who earn
a
doctorate
for
example,
there
could be
a loss
of
friends
who do
not
relate
to you
any
longer.
This is
a cost
you may
not be
able to
project,
let
alone be
aware of
it.
Estimating
projected
costs
associated
with
earning
the
degree
is the
place to
calculate
the ROI
(return
on
investment)
in
education.
Education
should
be added
to the
investment
side of
the ROI
equation
as part
of TCO.
That is,
the ROI
of the
costs
should
be
considered
in the
context
of the
overall
education
investment.
The ROI
equation
is ROI =
(Net
Benefits
-
Investment)/Investment.
Take a
closer
look at
the
components
that
help you
to
develop
the
investment
and
benefits,
which
reveals
drivers
that are
specific
to
education.
To
calculate
ROI,
determine
what
percentage
of the
benefit
outcome
is
directly
due to
earning
a
degree.
This can
be a
highly
subjective
guess,
based on
your
personal
value
system.
It helps
to
establish
tangible
points
for your
consideration.
List all
of the
affects
of
earning
the
degree
as well
as ways
holding
the
degree
can
further
your
self-worth.
The idea
is to
establish
the
value of
knowledge
transfer
to you
and what
is the
cost of
not
fully
utilizing
the
gain.
Regardless
of how
you
apply
TCO in
education,
you
should
do it in
order to
realize
what is
truly at
stake in
a
learning
venture.
If you
go into
it with
eyes
wide
open,
you will
not be
taken by
surprise.
Chances
are you
will be
better
prepared
and able
to
maintain
productivity
throughout
the
venture
because
you have
taken
the time
to
evaluate
your
personal
TCO in
education.
