Friday, December 03, 2021

Total Cost of Ownership

Total Cost of Ownership, or TCO, has become an extremely important metric often used by consumers and businesses to compare two similar products. TCO is a financial concept that combines the initial acquisition costs for a product with the operational costs of using the product over its expected life. For many classes of durable goods, a comparison of two products based solely on purchase price can lead to very inaccurate conclusions. Over the past decade, the concept of TCO has grown in importance. The computer and automotive industries are two examples of industries where TCO is commonly promoted.

TechWise Research is a pioneer in the area of TCO. We have conducted dozens of TCO studies for various high technology products. One area extensively studied by TechWise includes server and server clusters. Numerous past studies and customer experiences have proven that a financial comparison of two server systems based solely on purchase price and service costs is fundamentally flawed. Other operational factors, including the costs to manage and maintain the servers, as well as reliability and downtime costs, have a far greater financial impact on most organizations than just the system's acquisition cost. Recognizing these factors, TechWise developed an analytical approach in 1999 called Reliability-Adjusted Total Cost of Ownership that incorporates management costs and application availability in the TCO analysis.

Another segment of the computer industry that is heavily influenced by TCO is the printer market. Successful manufacturers such as Canon, HP, and Lexmark, long ago realized that virtually all of the profit from their printers comes from the sale of supplies. Consumers quickly realized this too the first time they needed to replace the toner or ink cartridges in their printer. Supplies costs can easily be many times the purchase price of the printer itself, over the printer's useful life.

TechWise performs a cash flow analysis as part of a TCO study.TechWise prefers to approach TCO from the perspective of the consumer or customer. We conduct market research studies to measure the actual costs incurred by users. These costs are then uses to develop a TCO model. Each TCO study is unique. Most, however, will include the following factors in the analysis:

Factors Included in a Total Cost of Ownership Study

  • System pricing,
  • Service contract costs,
  • Installation and training costs (if any),
  • Energy costs,
  • Ongoing management and maintenance costs, and
  • Reliability costs.

Depending on the type of study, cash flow analyses can compare the true long-term costs of owning different systems or the cumulative costs associated with upgrading one system with another.

If you are interested in learning more about a TCO study, or to request a quote, contact us.

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Total Cost of Ownership - TCO
Page Last Updated: 06/19/2014