But, upon initiating a TCO assessment in an organization, the first realization is that organizations often do not have a clear understanding of their total budgets. Most organizations do no track IS costs accurately, lacking detailed inform-action on asset location, total head count, and labor expenditures. A well-defined TCO model helps to avoid these shortcomings. According to the Interpose research, the average organization has more than 50 percent of total IT costs allocated to indirect expenses. Most alarming is that over the past ten years these costs have tripled, and the majority of cost growth has been outside of traditional IS budgets.
Indirect costs are harder to quantify for most organizations.
The TCO model and associated TCO lifecycle cost management methodology assist in organizing research and quantifying indirect costs. To help organizations identify all the variables connected to the cost of IT systems, direct and indirect cost classifications are divided into cost categories. Subcategories are granular enough to be actionable, i.e. products, best practices, or training can be applied against the categories and the impact can be measured. How costs are allocated among these categories varies by organization depending on the types of technology present, as well as the processes and people managing and using the technology. Comparing TCO ratios can mean very little if the data is collected using different models and methodologies.