What is Total Cost of Ownership (TCO)?

Total cost of ownership (TCO) assigns a dollar value to a facility asset over its useful life. This value includes each level of an asset’s life cycle.

Total Cost of Ownership Differs by Industry

The expense added to determine the TCO often varies by industry:

Information Technology

TCO is often used for IT hardware, and includes factors like:

  • Cost for out-of-warranty repairs
  • Cost of annual service agreements
  • Prorated cost of any necessary supplementary hardware or software

Financial Sector

Mutual funds and related financial products often charge regular management fees. These secondary expenses need to be included to find the true cost of a product.

The True Value of Facility Assets

The value of each element of the TCO can vary widely depending on each particular asset. Some of these elements include:

  • An item’s worth
  • Asset content
  • Physical characteristics
  • Method of delivery
  • Individual asset lifecycle
  • Order processing costs
  • Program management expenses
  • Opportunity costs

True total cost can also take incremental revenue changes into account. The variation in cash flow is what lowers TCO.

Real TCO analysis is vital in the decision-making process for businesses of any size. Calculating TCO correctly calls for both a thorough understanding of each facility asset and its potential financial impacts over time.

Although TCO can seem daunting, it is necessary to create an accurate financial picture of any business or organization. Make sure you think through all your options while keeping your company’s long-term bottom line interests top of mind.

Want to know more about how to accurately calculate Total Cost of Ownership and why it’s important to do it correctly? Call MaintenX today!