Total cost of ownership
From Wikipedia, the free encyclopedia
 |
This article may require copy-editing for grammar, style, cohesion, tone or spelling. You can assist by editing it now. A how-to guide is available. (November 2008) |
 |
This article is in a list format that may be better presented using prose. You can help by converting this section to prose, if appropriate. Editing help is available. (February 2009) |
Total cost of ownership (TCO) is a financial estimate designed to help consumers and enterprise managers assess direct and indirect costs. It is used in many industries and this article provides examples related to software or hardware and automobiles. It is a form of full cost accounting.
Contents |
[edit] Overview Hardware and Software
TCO analysis was popularized for the Gartner Group in 1987[1] but its roots are considerably older, dating at least to the first quarter of the twentieth century.[2] It has since been developed in a number of different methodologies and software tools. TCO tries to offer a statement on the financial impact of deploying information technology during its whole life-cycle.
Depending on the IT deployment the following elements can be included in the Total Cost of Ownership TCO:
• End-user computer Hardware purchase costs
• Software license purchase costs
• Hardware and Software Implementation / deployment costs
• Hardware warranties and maintenance costs
• Software license tracking costs
• Operations Infrastructure Costs
• Infrastructure (floor space) costs
• Cost for electricity and cooling.
• Network hardware and software costs
• Server hardware and software costs
• Testing costs
• Cost to upgrade or scalability
• IT Personnel costs
• "C" Level Management Time costs
• Backup and Recovery Process costs
• Costs associated with failure or outage
• Diminished performance incidents (i.e. users having to wait)
• Costs of security breaches (in loss of reputation and recovery costs)
• Technology training costs of users and IT staff.
• Audit costs
• Insurance costs
• Replacement costs
• Migration costs
• Decommissioning costs
TCO is sometimes referred to as "total cost of operation". When incorporated in any financial benefit analysis (e.g., ROI, IRR, EVA, ROIT, RJE) TCO provides a cost basis for determining the economic value of that investment.
The TCO concept is widely used in the automobile industry. In this context, the TCO denotes the cost of owning a vehicle from the purchase, through its maintenance, and finally its sale as a used car. Comparative TCO studies between various models help consumers choose a car to fit their needs and budget.
TCO can and often does vary dramatically against TCA (total cost of acquisition), although TCO is far more relevant in determining the viability of any capital investment, especially with modern credit markets and financing. TCO also directly relates to a business's total costs across all projects and processes and, thus, its profitability.
[edit] Overview Automobiles
Some of the key data elements used to the cost of ownership for automobiles include[3]:
- Depreciation Costs
- Fuel Costs
- Insurance
- Financing
- Repairs
- Fees and Taxes
- Maintenance Costs
- Opportunity Costs
Several companies provide total cost of ownership data such as JATO Dynamics, Vincentric, Driverside.com, and Edmunds.com.
