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Eric Rudder: 60% of TCO is people costs

One of the points in Randy Holloway's blog, Impressions from the CIO Summit , that strikes me as particularly relevant to the "Big Software War" is a statement attributed to Eric Rudder that "60% of the total cost of ownership of an IT investment is driven by people costs".

No indication is given of the methodology by which or the context from which the figure of 60% was derived. So we can't safely assume it is universally applicable.

But let's take it at face value and look at how that 60% might vary by location.

Let's assume, for simplicity that information workers in the USA cost a nominal $50,000 per year. Then if those costs are 60% of information costs it follows that software and hardware are approximately $33,333 per year - which seems high.

Note: I assume that Eric Rudder's total cost figures also factor in costs for buildings, maintenance, heating, etc etc in the "non-people" 40% of costs. I have ignored those since it isn't the absolute but the relative figures which are of primary importance for the purpose of this discussion.

If, and there is lots of uncertainty here, 50% of that $33,333 is software then we have software costs of $16,667 per year per employee. Which again seems high.

For a country with information workers costing and earning much less, say $10,000 per year, an annual figure of $16,667 for software becomes enormous, relatively speaking.

In the USA, with the assumed nominal information worker figures, there is already an incentive to reduce business costs by cutting software (and other) expenditure with the hope of reducing total cost of ownership. In countries with a lower wage structure for information workers the push to reduce software costs would, I suggest, be much stronger.

While Eric Rudder's figures may not be universally generalisable the kind of actions taken by some countries to promote open source software is a practical outworking of economics of the type mentioned above. The real-world figures may be significantly different. The economic push in low wage economies towards reduced software costs is strong and is not, in my opinion, likely to go away in the foreseeable future. The "Big Software War" is on its way!