When I wrote my first book back in 1998, one of the things my editor and I did was look at the cost of buying and maintaining technology.
Regardless of how we chopped the costs up, it came up consistently that the purchase cost of a personal computer was around a third of the Total Cost of Ownership (TCO).
The TCO concept is something forgotten by people – be it a minister announcing a billion dollar purchase of jet fighters, a CEO boasting how he’s opened a hundred new outlets this year, or a family buying an investment property.
It was bought sharply into focus for me when one of my kids claimed he couldn’t use his government provided school laptop because the IT guy didn’t have the repair software to fix a problem.
Despite millions being spent on providing these computers, little has been allocated to maintaining them.
This is typical of the public education sector, early in the adventure of building a computer support business I learned that services to schools and universities were fraught with difficulties as many would infrequently receive a fixed amount for capital expenditure but nothing for ongoing maintenance. You see this in the conditions of buildings on many campuses.
Forgetting operating and support costs is something we all fall for.
Strangely motor vehicles are the only area we consistently factor in maintenance and running costs, probably because we get the fuel price shoved in our face every time we take the car for a drive.
While computers are becoming disposable items just like fridges and TVs were maintenance isn’t so much an issue given most last five to ten years before needing expensive repairs, its still true for many capital items.
There’s another aspect to forgetting costs – depreciation.
Depreciation allows us to factor in the declining value of our business assets yet I keep meeting people who treat depreciation as income or even an asset in itself. This is particularly true among real estate investors who prefer to buy newly built apartments for the higher depreciation deductions they can claim against tax.
Bizarre stuff and true bubble thinking where people think operating losses will be offset in the medium term by capital gains.
One of the aspects of 1980s thinking is that business costs like training and maintenance can be palmed off elsewhere or infinitely deferred. That isn’t the case.
In society and business, we’re seeing the effects of pretending these costs don’t exist. Somewhere in there lies opportunity.