Delivering predictability in total cost of ownership

Marcus Filipsson

In a recent total cost of ownership (TCO) study, we showed that about a third of the total cost for the referenced video surveillance system incurred during the operational stages. In fact, studies from other IT industries show that the operating costs can be as much as 80% of the total lifecycle cost.

While it is relatively easy for a buyer to assess the upfront investment – it’s basically a matter of negotiating the price for purchasing equipment, installation and education – it’s much harder for the user to estimate the operating costs. And even harder to make these costs predictable over the long-term.

I recently spoke with a customer in Europe that has deployed a video surveillance system with 25 cameras to protect his site. He is a typical mid-sized installation customer not wanting to have to learn a whole lot about video surveillance technology but simply a solution that works and that is easy to use. Yet he still has specific requirements on image quality and product reliability. He doesn’t have any dedicated security staff. Instead the video surveillance monitoring is done by some of the managers as an extra task (see this blog post for more characteristics of mid-sized systems).

This customer has two wishes (probably quite typical for any customer, when you think about it):

  • A trouble-free operation
  • Predictable long-term costs

Analysis of a video surveillance system’s total cost of ownership

The system has been running at the customer site for around two years, and in the discussion we settled for a predicted total seven-year lifecycle of the system. Looking at the costs so far, and combining this data with our experiences from other customer sites, we can estimate the total cost of ownership for this particular system with what we believe is a fair degree of precision.

The total cost of ownership for this video surveillance system is estimated at approximately  60,000 USD for seven years. About 50% of the total cost occurs in the first year, covering the procurement of hardware and software, as well as costs relating to installation and user education. The other 50% of the total cost are costs appearing during operation and decommissioning of the system during years 2-7.

The operating costs in themselves consist mainly of four parts: costs for power consumption, costs for equipment failure, staff costs relating to daily operation, and costs for maintenance.

Energy consumption and disk failures drive cost

Power consumption is a major cost for this customer and the majority is caused by his workstations and servers. I would recommend replacing the older equipment with more energy efficient options the next time the customer needs to replace his hardware in order to save money as well as to also make a contribution to the environment (read more on our view on green technology).

The failure costs are mainly made up of hard disks and, to a lesser degree, switches failing on a fairly continuous basis. While some wear and tear can certainly be expected, the failure rates are quite high, and I would suggest that the customer takes a look at the specifications of the drives and how the equipment is installed – reducing the failure rates of out-of-warranty equipment could drive down his costs over time significantly.

The staff costs come mainly from the time spent each day by managers to look at the video feeds. A possible way to decrease this is to consider using intelligent video analytics, from simple motion detection to more advanced solutions, and to see about if automated alerts could free the users from having to watch the video screens when nothing is happening.

Service agreement as the route to predictability

When it comes to system maintenance, the customer has arrived at the ideal solution to give long-term visibility and predictability to costs: a service agreement with his system integrator. This means that the customer pays a fixed monthly fee, and the system integrator commits to keeping the system up and running. This setup is mutually beneficial: the customer’s costs for maintenance become predictable and he achieves peace of mind because he knows that the system integrator is committed to solving any issues. The system integrator’s business is stabilized through an equally predictable monthly revenue stream, and it gives him a platform to ensure that the customer continuously benefits from the video surveillance system. The definition of a win-win scenario!