What Is Total Cost of Ownership?
Total Cost of Ownership (TCO) is a technology that helps organizations evaluate, manage, and reduce all costs associated with an organization's acquisition of an asset within a certain time frame. These assets may be: plant buildings, vehicles, or software systems. TCO can be described as the sum of the cost of purchasing an asset and the costs incurred throughout its life cycle. TCO is by no means equivalent to the purchase of assets. It also includes the costs of operation and maintenance after the asset is purchased.
Total cost of ownership
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- Chinese name
- Total cost of ownership
- Foreign name
- Total Cost of Ownership
- Short name
- TCO
- Range
- Plant building, transportation
- Total Cost of Ownership (TCO) is a technology that helps organizations evaluate, manage, and reduce all costs associated with an organization's acquisition of an asset within a certain time frame. These assets may be: plant buildings, vehicles, or software systems. TCO can be described as the sum of the cost of purchasing an asset and the costs incurred throughout its life cycle. TCO is by no means equivalent to the purchase of an asset. It also includes the costs of operation and maintenance after the asset is purchased.
- The concept of "total cost of ownership" originated from a study by Gartner in the late 1980s. Gartner wanted to know how much it would cost to buy, configure, and use a PC. Their research results show that the annual cost of owning a PC is close to 10,000 $. This data not only helps PC owners to identify the total cost of the entire service life cycle of the PC, but also causes financial staff and IT managers No small commotion. Since then, total cost of ownership has been defined as a concept or a series of technologies to continuously define and measure costs to provide more effective management and decision support.
- In practice, there is no universally accepted formula for calculating TCO. What you need to keep in mind is that when you calculate TCO, you must consider all the associated costs of the asset. Listed below are typical items included in the TCO: purchase cost, installation cost, finance cost, commission, energy cost, maintenance cost, upgrade cost, conversion cost, training cost, support cost, service cost, maintenance cost, downtime Cost, security cost, productivity cost, risk cost, processing cost. So, what specific factors should be considered in your TCO? This depends on the industry use of the asset and the nature of the asset. (Software, computers, architecture, cars, equipment, factories, etc.)
- For any major asset purchased by the organization, its long-term true cost must be comprehensively analyzed to find potential costs beyond the purchase cost.
- TCO carefully measures all the costs associated with an asset.
- As a long-term measurement method, TCO is committed to reducing the total cost of the asset service cycle and improving the return on investment.
- Need to do TCO analysis.
- There is a cost to performing the TCO analysis itself.
- There is no universal formula.
- Sometimes it is difficult to judge the associated costs of an asset.
- Reducing costs through TCO is a long-term process, so if a company intends to reduce costs in the short term, TCO will not help much.
- Generally, TCO does not assess the risk of buying an asset.
- From the perspective of giving play to the strategic response of asset investment and corporate goals, TCO is of little help.