Total cost of ownership (TCO) analyzes have been around for a very long time. But very few organizations that own and manage eDiscovery environments have ever done a full TCO analysis, in my experience. I know this because I have asked this question to many customers. Maybe 1 in 100 people have done this. I believe this is a huge mistake. So first I would like to describe Why you should do it and then How? ‘Or’ What to do it.
Why should your organization perform a TCO analysis?
- Without this analysis, you’ll never really know how much eDiscovery really costs you every year. You can guess, depending on budgets, but you’ll almost certainly miss important details.
- Every customer we’ve done this for has been surprised at what eDiscovery really costs them. The difference between what they think it costs and what it actually costs can be as much as 100%.
- eDiscovery is often full of hidden fees that are assigned to other departments or functions.
- A TCO analysis gives you a frame of reference with which you can start predicting costs based on real, hard data, not just budget assumptions. This is the cornerstone of controlling your costs in the future.
So how do you perform a comprehensive TCO analysis? Here are the areas where I recommend documenting your expenses. In general, it is people, process and technology. The objective is therefore to collect and categorize data for the last 36 months in these categories of expenditure:
- Technology: what did you spend on software, servers, storage systems, disaster recovery, SQL databases (not human costs) and security systems? Please consider the cost of warranties on all of these systems.
- Unplanned projects: It’s a big. Review your actual spending and look for spending spikes. These are usually indicators of an unplanned project. Consider the costs of consultants, overtime for your staff, new technology, and anything else related to this event.
- Data center space: this should be fairly straightforward as most organizations pay for this monthly or quarterly. Be sure to note any cost increases, as you will want to factor them into future projections.
- Network Services: this may include Internet access costs and LAN and WAN systems and services.
- Data hosting: Most eDiscovery features charge a fee to host their data in one or more locations.
- Fixed human costs: I recommend that you divide your human costs into two categories: fixed and variable. Fixed human costs come from people primarily or partially dedicated to your eDiscovery function. These people are often full-time employees of the claims or litigation support team. In many clients we have served, there are only a handful. Then there are other employees, often from IT, who frequently contribute. You will need to find a fractional cost equation to calculate an accurate picture of expenses.
- Variable human costs: This is where many of the hidden costs of eDiscovery come from. Variable costs come from people doing work in eDiscovery on an ad hoc or project basis. This can often include consultants, service provider projects, reviewers, project initiators, and even attorneys to review issues. No two clients have ever had the same variable human costs because each company seems to have a different approach.
Once this scan is complete, you’ll probably be pretty uncomfortable with what you’re seeing. So let me make a few recommendations. First of all, I do not recommend that you go into this analysis with a big announcement to your management team.. You will likely need support from someone in your finance department to access all expenses. So choose someone you trust. Build your TCO picture, then make choices about what you do with that information. The most important thing is that YOU KNOW what eDiscovery is really costing your organization. You can’t really take control without it.
Second, make your financial forecasts for the future with this much more accurate information at your fingertips. You may or may not include variable human costs or other categories in your forecast. It is entirely up to you. The goal of this exercise is to get accurate, data-driven insights into all areas that impact your costs.