From the 1950s, IBM had a virtual monopoly of computers in India. The 360 series release in 1960s was the major workhouse of the large organizations. They even maintained a chain of programmers who could write down software's for their machines. However in 1978, when George Fernandes, ministry of industries at that time, commanded IBM to take local shareholders into its subsidiary, the company refused strictly and went back after winding up its all operations in India. Its ex-employees then set up Computer Maintenance Corporation, with the primary object of maintaining IBM computers.

Time has changed the way businesses are carried out. What was supposed to be known to few and limited to the home towns, appears to be an ancient methodology of carrying out the work. The present day brands work on world wide scale, that is they are successful in not just one particular region but have deepened their roots to all the corners in the globe that you can think of.

Information Technology is what constitutes the most important sector in the present day trend of carrying out business. It is because you can not be present everywhere to monitor the work, but with networking and communications, you can always stay in contact with the other business sites of yours.

India’s development and contribution in world’s information technology sector is of highest reputation. Cities like Bangalore have become the favorite(most preferred) destinations of all the big banners like HSBC, Dell, Microsoft, GE, Hewlett Packard, and several Indian multi national firms like Infosys Technologies, Wipro, and Microland who have set up their offices in the city. It is because the city offers good infrastructure, with large floor space and great telecom facilities. This can be judged on the basis of the high growth statistics of India and the changing outlook of the companies towards India .

It is because of this growth many popular brands that have not yet build up there rigid offices in the country are making it fast to have a destination in India too. For example, Sun Microsystems, a global IT major, announced in Bangalore to double the present workforce of the company's Sun India Engineering Center (IEC) from the present 1000 to 2000 in the next two years time. IEC, which is the largest R&D center for Sun outside the US , would also focus on developing products in India to suit the needs of the Indian market, which would be benchmarked globally.

This speedy growth of IT Sector is undoubtedly due to the efforts of Indian government and the other developments that took in the other parts of the globe.

The country has seen an era when after the IBM shutted its shop in India in 1950, the mainframes that were imported into the country were all from Russia . Western computer could not be imported because of an American embargo on export of high-technology equipment to India , which was considered an ally of the Soviet Union .
Slowly, with the time the country could develop its first powerful parallel computer in 1991 known as CDAC, by connecting together a string of less powerful computers.

With time and the continuous growth across the world, the country continued struggling and came up as the world leader in Information Technology Sector.
The industry has grown up to US $ 5.7 billion (including over $4 billion worth of software exports) in 1999-2000, with the annual growth rate not sliding below 50 percent since 1991.

It exports software and services to nearly 95 countries around the world. The share of North America ( U.S. & Canada ) in India ’s software exports is about 61 per cent.

The Indian labor is not only cheap but is technically skilled too to the world class level. It is due to the Indian Education System that includes in its course curriculum the practical knowledge of the latest technology that is developed in world along with the fluency in English Language that imparts compatibility in an Indian technician to communicate and work through out the world.

Further the geographical location of India serves it the advantage of being exactly halfway round the world from the US west coast, which is another reason why India is preferred destination of many big brands.
Also, The presence of a large number of Indians, especially engineers, in the US gave India an easy entry into the US software market.

What adds more to the dominance of India in Information Technology Sector is the government policies like the enactment of cyber laws to protect and safeguard the interest of software companies in India .
Setting up of the Software Technology Parks of India (STPI), by the Ministry of Information Technology, Government of India and the International Technology Park in a joint project by the State Government, the TATA Group and the Singapore Consortium to promote and facilitate the software exports is another major step towards the growth of Indian Information Technology Sector.

Similarly an industrial park, known as Electronic City , was set up in 1991 takes more than a hundred electronic industries including Motorola, Infosys, Siemens, ITI, and Wipro, in an area of around 330 acres.

The Export Promotion Industrial Park , built near International Technology Park , gives an exclusive 288 acres of area for export oriented business. GE has its India Technology Center located at this park and employs hundreds of multi disciplinary technology development activities.

The other promotional activities that brought up India to this position include the IT Corridor project. Conceptualized by Singapore 's Jurong Town Corporation Private Ltd, the IT corridor Project was initiated by the Department of IT and the Bangalore Development Authority in order to develop state of the art facilities for the development of knowledge based industries.

Thus India is a perfect solution for all those companies which seek for cheap, yet technically skilled labor who have innovative minds and state of art to work over a project. The ample of facilities provide in a perfect working conditions. For rest, cyber laws are there to monitor and safeguard everyone's interest related to IT sector.
All these reasons contribute for India to be as the most adored destination to many companies.

In the latest in Indian IT Sector, a five-city security seminar hosted by Microsoft Corporation India Pvt Ltd, is scheduled to take place around mid 2005. It will concentrate on representatives from the IT professional, developer, government, academic and the system integrator and ISV community. The basic motivation behind it will be to help them to systematize and standardize a comprehensive security framework that is essential for the protection of their IT investments.

With the growing trend of outsourcing world wide, India is continuously focusing towards deepening its roots in the outsourcing market. Undoubtedly one can be assure of the quality and low wages, the prime requirements a company searches for while outsourcing its business processes. This is the reason why India has been successfully able to drive all the big banners to its land and establish itself as the world's biggest software outsourcing destination.

Today, India exports software and services to nearly 95 countries around the world, with North America (U.S. & Canada) leading ahead in India's software exports.

India is this success and growth of the Indian IT industry, which has motivated government to take necessary steps for ensuring the continuous growth of the outsourcing company in India.

India has set up a separate ministry of IT, to expedite swift approval and implementation of IT projects and to streamline the regulatory projects. Also the government has approved a 108 point action plan submitted by the National IT Task Force to promote the IT in the country. This has been done in order to alleviate the situation of the critical shortage of venture capital, especially faced by the small and medium enterprise sector.

India regards the IT sector as one of its top five priorities.

Further, the Indian Parliament has passed the information technology bill in May 2000, notified as the IT Act 2000 in order to bring the e-commerce with in the purview of the law and to accord stringent punishments to cyber criminals. The act will provide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication, commonly referred to as "electronic commerce", which involve the use of alternatives to paper-based methods of communication and storage of information, to facilitate electronic filing of documents with the Government agencies and further to amend the Indian Penal Code, the Indian Evidence Act, 1872, the Bankers' Books Evidence Act, 1891 and the Reserve Bank of India Act, 1934 and for matters connected therewith or incidental thereto.

Under this act the government puts forward the legal definitions of many IT related terms and outlaws computer crime. It has given a special emphasis to check the privacy and security of the IT industry by taking up the "security of the electronic records and secure digital signature" in a separate chapter, CHAPTER, of the act.

It defines the secure electronic record as the one in which any security procedure has been applied at any specific point of time, and from such point of time to the time of verification.

Also it regards the digital signatures as the one which are unique and can be used to identify the subscriber. They should be created in the manner or using a means under the exclusive control of the subscriber and is linked to the electronic record to which it relates in such a manner that if the electronic record was altered the digital signature would be invalidated. Or in short we can say that the digital signals have been given as the same legal status as the physical signatures, and thus the documents are acceptable in Indian Courts.

State governments in India have also got into the action to match the central government's own information age initiatives like the recently passed IT Act 2000. That is why the e-government infrastructure and services sector in India is looked up as a billion dollar market for IT vendors, software and training companies.

Also the E-governance initiatives promote the digital research.

The success of any business is greatly affected by the resources available and the business polices of the nation. The tremendous heights that take the Indian Information Technology industry to the top of the world cannot be only rewarded to the resources, price cut outs, etc factor, but to a great extent it is the encouragement and promotion techniques adopted by the Indian Government to take forth the Indian IT industry. IT Act 2000 was a major development in this respect which laid down a clear picture of the industry, and secures the Indian business, making many domestic and offshore customers to rely over the Indian Industry and many entrepreneurs to securely join or move ahead in the field.

As I explained in previous sections, cost components where the work of people is involved, are hardest to calculate. Time & material based items in your spreadsheet need some time component to create a number…

So basically, ask the people who will be involved. Make assumptions explicit. This will help some people to give you a number if they are not sure. Let them put large disclaimer notices on their statement. It's a guess. But that's enough for you right now.

3.4 Refining until the end

You have now a first rough draft of your spreadsheet, filled with number that will not be the truth. The coming period you will take steps to make sure it will not be far from the truth.

Now you know you need some complex interface between systems. Later on, you will know what kind of data will be exchanged, you will have a vendor to make a better estimate. You will end up with a better number.

Hardware specs will become more clear. Software licenses will become more detailed if you have narrowed down your potential vendors. Stick with the calculation. Remember always it's a way to communicate with the actual decision makers, as it's money that talks, it's in the end the only language they will understand.

Experience will tell you a lot. If you have done these kind of processes for years, you can probably produce some good statement with your eyes closed. But more likely you wouldn't been reading this guide ;-).

But if you're not alone, and working for a company, there will be some valuable information out there. You just need to dig it up.  Look for rules of thumb, look for comparable projects and apply them.  If your company has some database with historical data on projects, that would be great. But some old geezers who have seen it all before may do the trick also.

Corporate rules of thumb may give you a clue about a fair price per user for a software license. For a specialized business application the consensus within your firm may be that $1500 would be a fair deal, e.g.  Without knowing exactly what system you will end up, you can fill in some data for software licenses. So management will get some feeling for the amount right from the start.

Also rules of thumb may be available on ratio's between components. So, by calculating a part, you will be able to deduct the others.  One I use is the ratio of the total cost divided between software:services:hardware, where every component will be roughly equal. Services, like people you need to do the implementation, are hardest to calculate. Be calculating all the software components you need, you can use the same amount to reserve for services you will take. It's no exact science, but normally serve it's purpose.

If your company has done already several software projects, you can put these past experiences to some great use: done already some complex interface between to systems? Use this information for your preliminary cost calculation. Have some hardware already? Use their cost to put into your spreadsheet, until you have some better specifications.

The numbers. They are the hardest part of total cost of ownership. You will need time to get them clearer and clearer. You start out with some wild guesses, and you will refine them over and over again as more information comes available. And in the end, you end up with an estimation. An informed prediction.

Just keep in mind why you need the numbers. They are used for decision making with software selection. For this particular purpose it's ok to use a prediction. Actually, it's all you will have. It beats deciding based upon nothing.

This section will tell you all about the process of filling in the blanks; getting the numbers.

 

3.1 Don't be afraid

You will have to provide numbers with a high level of uncertainty, you will not know exactly everything; but still, you have to tell the story, as early as possible.

This may seem a little unnatural for you, if you are used to be more or less sure before speaking to your managers. Consider the following section taken from “The Microwave Way to Software Project Management”, the software project management guide I host on this site:

2.6 Example cost structure

This paragraph will describe an example on how to construct a cost structure by just talking about the software that needs to be selected.

Consider the following situation…

The subject is some new business application. It will be bought from a vendor (so it's not gonna be some new development). The department which will use the new software consists of 25 employees who will all be users of the system.

From a technical point of view, the system should fit into the current infrastructure of the department. No network changes should be required and no new workstations should be purchased; the stuff should run on the existing PCs. A server can be bought if there's not enough room to host it on some existing hardware. So we will calculate for the worst case (buying new).

This is all pretty global as you would agree. But let's see with what we can come up with.

-                     Software licenses for 25 users

-                     Maintenance for the software

-                     Hardware (server)

-                     Maintenance on the hardware

If we make use of some existing components (PCs, infrastructure) for a complete result we should include the cost for them also. Although we don't purchase anything new, they are actually costs that are needed to run the system as a whole. Most of the time, current costs are available and perfectly suited for this purpose.

The IT department has calculated that for the amount of users and for the amount of applications these users have, the annual cost for the infrastructure is $25,000 just related to the new system, and for workstations it is $15,000. All equipment is already written off, so there are just annual costs.

-    Hardware (workstations) annual cost:    
            $ 15,000

-    Infrastructure annual cost:                 
            $ 25,000

For the comparison of the new systems, these costs have no influence, as they for all be considered the same. But they should be included, even just to make everyone aware you thought of it.

A very quick scan on the potential candidates for the new application, learned that most of them just use a good old fashioned client-server model, and they all use a database from a third party.

So, this creates for us extra cost components:

-                     Database licenses 25 users

-                     Database maintenance over these licenses

The department at hand has a pretty general workflow, it's not expected to have certain aspects that are so specific that major changes to an existing software package is needed. However, past experiences have learned this particular organization, to reserve for software changes, just in case.

The new software has to communicate with several other systems, from the same department and from other parts of the company. Also, the old, legacy system that will be replaced, contains valuable data about customers. This data is considered to be the crown jewels of the business and the new database should at least contain a larger part of this information.

-                     Changes to software

-                     Interfaces to several systems

-                     Data conversion (from old to new system)

The department itself has no IT people, so the installation of the system should be done completely be the vendor. However, the system will be maintained by the companies central IT department. As with all other information systems within this company, the central department should receive money from the business for this effort.

And there for the following items should be listed:

-                     Software installation by vendor

-                     Hardware installation by vendor

-                     General system maintenance IT dept.

This story will continue for a while. Think about all tasks needed to implement the system e.g. You will catch on pretty soon.

The results can be put into a nice table or spreadsheet. I put I or C for either cost or investment.

2.5 Implementation (project) costs

"What cost this system in the window?" "Well, $12,000." And of we go with just 12,000 bucks to make the software work. Sounds familiar? It's funny how most of the time, people remember that they need some machines, or need some cables, but forget that actually hands do the work within the project, and that the persons attached to the hands are very expensive and are actually costs. So, you on day one: "we need hands, they cost money."

You can't go into to much detail at this moment in time, and you shouldn't have to. But you can setup a nice cost structure that will not be to far from reality for your project. Just think about the stuff that will be bought, and imagine what should be done, globally, with it to get it working. For the server, you need to install it, test it and roll it out. Software should be analyzed, specified, build, installed, tested and rolled out. And so on, and so forth.

If you think about it yourself, and talk to people. Don't go overboard in detail.

Easily forgotten, but part of an total cost of ownership, are the cost for the internal people, the people of the company or department themselves that are part of the project team. If fifty of your colleagues should follow a training  for 1 day, they simply cost money.  Don't make the mistake about thinking "I pay them anyway." If you are comparing e.g. software based upon these calculations, a difficult, not-user-friendly system may be cheaper first, but can cost you double in the end on internal cost (and mostly loosing production, and not generating any profits, like you should).

2.4 Annual or returning costs

You have an aunt that you invited once for dinner, and now she keeps coming back? In this document she is called "annual" or "returning" cost. You thought you paid for something, but things keep on coming, over and over, every year.

E.g. maintenance fees are a good example. You pay every year 20% of price to be able to call a help desk, or to have an engineer on site within the blink of an eye. Maintenance is a good example, but also think about routine jobs that have to take place to keep your system healthy, like regular updates. Most of the time you don't have to pay directly to a vendor, but your own people have to do it, test it and roll it out. Your fellow employees don't work for nothing.

2.3 Cost vs Investment

Now we are getting to a point you might want to consult your accounting department or your financial controler; a discussion about cost versus investments of software and related items. I will describe the subject as a understand it. A financial genius will provide you perhaps with a more detailed, more correct story. I will tell you just enough in simple terms.

Every cost item can be treated in the books in two ways: as cost, then the amount of money spent on the item is booked directly in the period you actually purchase it; or as an investment, then the total cost will be spread over a larger period in the accounting logs.

If I let someone install a server this week, and the vendor will charge me $1000 for it, if you look in the financial schedule for this week, you will see directly my 1000 bucks. If I buy also this week 30 software licenses, which cost me $3000, the accounting department can book $1000 this week, $1000 for next year, and another thousand the year after that.

Typically things that will be used over a longer period (couple of years) can be treated as an investment. So the server itself can be regarded as an investment; the installation is definitely cost. But like I said, your financial whiz -kids can fill you in on this one.

Why is this important? Well, departments typically work based on budgets. If they have a budget for this year, that doesn't mean all the cost for a new software system will be subtracted from this years budget. By taking into account the investments, management can see how the new system will influence their current budget, and the ones in the years to come.

The following questions should be answered by your financial man or woman:

• What is the write-off period (over how many years can we spread the cost?)
• And what are the write-off percentages for each year (perhaps you don't spread the costs equally over all the years)?

To summarize, consider the following example: a $3000 server is an investment. The write-off period is 3 years, and the percentages are 40-20-40. In the end your spreadsheet would like something like this…

The whole process of total cost of ownership starts by putting up an nice spreadsheet. It's the file you should nourish, it's the digital companion you should always have with you (or in good old hardcopy) during e.g. software selection process. As you will know, a spreadsheet begins with specifying some categories, some items where, later on, you will put numbers next to. The cost structure.

Experience and common sense will get you a long why setting up the cost structure for TCO. Typical components are hardware, licenses and some cost for network alterations. But I'm now getting ahead of myself.

2.1 Stuff vs People

Buying a computer is one thing, getting it running and available for users to work with is another. From a cost perspective you have the purchase of the product, in this case the computer, and the bill for the people installing and troubleshooting the thing. You have costs for products, stuff, things and costs for people.

It seems like an open door, but in nature they are very different. Buying things is easy -getting the right stuff is the hard part. But once you have a rather clear idea about what to purchase, calculating the cost is like 1-2-3. They're fixed numbers and the accuracy of the amounts is pretty ok. A vendor can tell you without to much room for error the price for a certain computer.

Enter people. Now, they are difficult to calculate. The estimate on how long a certain job will take is a very nasty one, and plays therefor a different role within the cost structure of the TCO.

2.2 Fixed price vs Time &Material

It's not completely true what I told you about the cost of people in the previous paragraph; you can have people working for you for a fixed amount of dollars. A service performed by resources can have a fixed price; regardless how long the task will take, you will pay one certain predefined amount of money.

The opposite of a fixed price deal, is time & material based. For this type of deal you will only agree on a fee (per hour, per day, whatever), and for every hour spend, the vendor will send you a bill.Cost is in this way always determined in retrospect. This makes it difficult to calculate, as the hours that will be spent on a task may range from a "wild guess" to a "pretty good informed guess".

It's so nice to talk about new ways of doing business, it's so enlightening to discuss neat futures for an application, why spoil the fun with numbers? Simple. Because you have to pay. Most businesses today still have to make a profit, so 'cost' is an issue.

Why then this 'total cost of ownership'? Again, simple. Because a lot of times only part of the cost is considered, and after a while the brown stuff hits the fan; unexpected bills turn their ugly heads up. If I learned one thing in all these years, it's that managers never like unexpected things, especially the ones of the paying kind.

When a company decides it's time for some information system, normally someone is assigned to fill in the answer to the urging question: which system? I assume, you are that one, the poor sucker responsible for pushing the car up onto the mountain.

From day one, you lay down this issue of cos