Total Cost of Ownership (TCO)
Total cost of ownership, also known as TCO, looks beyond the upfront costs of a product and considers the extended value, providing a cost basis for the total economic value of that product or system as an investment.
TCO is applied by buyers who are looking to invest into products or service. Instead of looking at an item’s short term, purchase price, they look at the bigger picture: how much money will that item save them in the long term? Will it cut down the need to invest in other items?
In an analysis of direct and indirect expenses, by using TCO buyers can make more informed, long term, viable investments. On the other hand, TCO also seeks to uncover hidden costs of items that will in effect be more costly in the long term. Such is common with items that require hardware, multiple cubes or service updates.
TCO as a metric is used in:
- Budgeting and planning
- Asset life cycle management
- Capital purchase and project proposals
- Vendor selection
- Lease vs. buy decisions