Technology Grantmaking Toolkit: Practical tools for technology grantmaking in Canada's voluntary sector

4. What should technology basics cost?

Objective: Give not-for-profit managers and funders simple tools that will help them estimate how much an organization should be spending on technology basics.

For many people, the idea of coming up with a technology budget is an intimidating one. This needn't be the case. This chapter of the Toolkit provides not-for-profit managers and grantmakers with tools that make technology budgeting easy. In particular, it focuses on the idea of 'total cost of ownership' (TCO) – an approach that helps with budget technology basics. TCO is simply a way of estimating what it actually costs to install, operate and maintain a computer system, as opposed to just the purchase price of the computer.

Why Total Cost of Ownership?

TCO is not new – business and government have been using it since the 1980s. It’s a tried and true method for understanding the total cost of an investment in technology. Knowing your TCO allows an organization to budget effectively for the real and actual costs of using technology. Additional benefits include:

• Adds predictability and ensures a more realistic budget
  
• Supports accurate budgeting for ongoing technology training for staff
  
• Ensures the maximum return on technology investments by planning for
  maintenance and upgrades
  
• Decreases emergency and ad-hoc purchases

Understanding TCO is not complicated. In fact, it can be as simple as counting up the number of computers that are needed in your organization.

How much should technology cost?

There are a variety of ways to budget for an organization’s ongoing technology costs.

The easiest is to assume a monthly expense of $250 per computer workstation per month when developing an annual technology budget. This figure of $250 is widely accepted in the voluntary sector as a reasonable “support and maintenance” amount.

Another widely accepted way to budget for the ongoing costs of having an office that uses technology is to assume a cost of two to three percent of the annual budget for maintaining and upgrading technology.

Finally, the most accurate way to plan for the technology needs within an organization is to develop a technology budget, just as one would develop a program budget or administration budget.

What's included in Total Cost of Ownership?

If your organization decides that it should do its own TCO calculations, it should consider the following factors:

With all equipment, it is important to consider depreciation. Depreciation is the process of allocating the cost of an asset over its expected life. When budgeting for technology costs, this means spreading out the cost of computer hardware across several years. It is a common standard to fully depreciate hardware over three years, so plan for complete replacement costs each three years. A longer depreciation schedule means you are falsely valuing what is now a (financially) worthless asset.