Last year, a suburban school district in Virginia spent about $89 million for technology hardware, software and labor dedicated to managing technical systems. But, a host of harder to calculate indirect costs raised the total cost to own technology for the 166,000-student district to approximately $233 million.

Similarly, a suburban Texas district with 35,000 students paid about $11 million in direct costs for technology and associated labor last year. But, $23 million in indirect costs drove total spending up to $34 million. An urban Wisconsin district with 21,500 students calculated its direct annual costs for 2003 at $6.6 million, but found that its total technology costs added another $14.6 million. Finally, a tiny rural district in Missouri acquired computers for its 450 students by spending $81,000 directly and $137,000 indirectly, for a total of approximately $218,000.

While the four districts differed dramatically — from large to small, from suburban to urban to rural — each found that the total cost of ownership (TCO) for technology was two-and-one-half to three times the direct cost of hardware, software and dedicated labor. In other words, for every dollar spent on direct costs, another dollar or two was spent indirectly.

Each district used the same Web-based tool to calculate technology costs, making the numbers, at least on the surface, appear reliable. The tool was developed by the Consortium for School Networking (CoSN, pronounced CO-sin) and Gartner, Inc., a Stamford, Conn.-based technology consulting firm. The U.S. Department of Education paid for the project with a $300,000 grant.

During 2004, as many as 1,000 school districts plan to use the CoSN tool to analyze their technology costs. By the end of the year, these schools may establish a hard and fast rule of thumb for calculating TCO. More important, perhaps, these district analyses will enable administrators to begin budgeting and managing technology costs with more certainty.

On the other hand, about 16,000 of the nation’s 17,000 school districts will continue to buy computers for students and administrators with little sense of how much they are actually spending.“Schools have been slow to adopt the concept of TCO,” says Keith Krueger, CEO of CoSN.“The concept has been used by the private sector since the late 1980s.”

CoSN hopes its vendor-neutral TCO calculator will bring school districts up to par on technology cost analysis. Information about the tool and TCO case histories can be found at the CoSN Website, . The site also provides a connection to reach the tool itself, which is available free to U.S. school districts.

Rich Kaestner, now an independent consultant, coordinated the TCO project at Gartner and worked with the four school districts to develop the case histories. “The idea was to take Gartner’s TCO model for business and adapt it to K-12,” he says. “We needed to put in K-12 terms and add calculations that related to teachers and students.”

What Is TCO?

While a TCO calculation for a school district differs from that made for a business, the same basic definition holds, says Kaestner. TCO adds up all the costs related to technology through its useful life. These costs include the purchase prices of hardware and software, networking costs, Internet access costs, system operating costs and maintenance costs. They also include direct labor — the wages, salaries and benefits of those assigned to manage technology networks.

More important, TCO also includes indirect labor costs. “These are productivity hits to users,” Kaestner says. “How much does it cost when a user spends time going through training sessions? What is the productivity loss when a computer goes down? How much does it cost when one user asks another to stop working and help with a problem? All of these indirect labor costs add to TCO.”

Calculating a Baseline TCO

TCO is not a single number that indicates wise or unwise spending practices. A high TCO for one district might actually be low for another district. In addition, within any single district, technology costs move up and down through time, as organizational priorities change and as technology advances.

A baseline or first TCO calculation becomes a reference point for costs incurred in succeeding years. As the TCO database grows to include five and 10 years worth of numbers, school districts will be able to make increasingly sophisticated decisions about technology spending.

But it all begins with a baseline TCO analysis. According to Kaestner, it takes about a month to prepare a baseline analysis for a typical school district.

The first step is to survey computer users. Kaestner recommends sending questionnaires to everyone that uses technology. In a school district, students, teachers, teacher aids and administrators should all complete survey questionnaires. The questions include the following.

• How much time do you spend trying to answer technology questions?

• How much time do you spend helping others solve technology problems?

• How much time do you spend in formal training programs?

• How much time is your computer down?

• When your computer goes down, what do you do? Do you wait? Or, do you find ways of working around the problem? How much time do you spend on these tasks?

When the surveys come back, the hours devoted to these tasks are assigned dollar figures based on average compensation packages. Student downtime gets factored in when it creates downtime for salaried personnel.

While users complete their surveys, Kaestner suggests moving on to collecting hard costs. How many computers does the district own? What was the purchase price? What system and application software are they running? What was the purchase price? When were these items bought? Network components such as servers and routers must also be factored in, along with Internet access costs. Don’t forget to add costs for printers and other peripheral equipment.

Advanced TCO Analysis

After collecting the baseline costs and plugging them into the TCO calculator, the tool will produce a series of numbers administrators can use to make informed management judgments about technology spending.For example, the Missouri school district analysis showed a remarkably low annual direct cost per desktop computer — $177. The Wisconsin district, by comparison, pays about $432 per year in direct costs for desktop computers. The difference arises in the computer acquisition and replacement policies of each district. In the Wisconsin district, administrators purchase new computers every four years, a relatively short replacement cycle. But, the Missouri district relies on donated computers and has no replacement schedule, a policy likely to lead to much higher costs when the donated computers begin to wear out.

The Virginia district also found that its direct costs for computers were relatively low. There, the TCO tool calculated a direct annual cost of $188 per year for each desktop computer. At the same time, Virginia’s direct labor cost per computer totaled $819.

By contrast, the Texas district reported a direct desktop computer cost of $397, about $200 higher than the Virginia figure, and a direct labor cost per computer of $223, about $600 less than Virginia.

Why? The difference lies in the age of the computers. In the Virginia district, more than half of the desktop computers were more than five years old and fully depreciated. Given the age of its computers, the district must spend extra on direct labor to keep them working.

On the other hand, the Texas district emphasizes spending more for top-tier computers and rotating old equipment out within five years. As a result, the district has higher equipment costs and lower direct labor costs.

Interestingly, the Texas district also recorded significantly lower costs for indirect labor — downtime while users tried to solve their own problems.

Kaestner warns about relying too much on comparisons between districts, recommending that districtsconduct baseline analyses and make judgments based on year-to-year comparisons going forward.

For example, a district that sees yearly declines in direct hardware costs and rising direct labor costs might consider a different acquisition policy. Newer computers should reduce the need for direct labor. Likewise, high indirect labor costs might be reduced by the addition of direct labor costs for a help desk.

Such experiments need not be conducted districtwide. “You can put a fence around an experiment,” Kaestner says. “You might be able to do this in a single school, and then compare that school to the district.”

TCO analysis also makes it possible to evaluate the relative costs of new programs. Suppose a district wanted to offer e-learning courses to homebound children. “If I’ve done a baseline study of the district, including the existing e-learning environment, I will know how much more my e-learning technology costs. So I can decide whether or not I can afford to add e-learning technology. This is the importance of the tool. It enables you to play what-if games to help make decisions.”

Finally, TCO numbers can help in establishing numbers for bond issues. “When I prepare a bond issue, I can make sure I cover my costs and don’t get caught short,” Kaestner says. You will know how much it costs to buy a piece of hardware and to provide support personnel to take care of it.”

Equally important, after acquiring funds from bond issues, TCO numbers can help to insure that districts manage the money effectively.

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