What is TCO – Total Cost of Ownership?

Total Cost of Ownership (TCO) is a way of looking at the complete cost of an asset, including initial acquisition, maintenance, required training, repairs, and other associated costs. The concept of TCO began to be used in a widespread manner in the financial world in the late 1980s, when new technologies were being rapidly developed and it was sometimes difficult for companies to understand the value of their assets. TCO appears commonly in the automotive and technology industries, where consumers are encouraged to weigh the TCO of products that they purchase.

TCO starts with the initial cost for the asset, including taxes and fees. Then, costs associated with the asset must be taken into account as well. In the example of a car, the vehicle will require insurance, regular maintenance, fuel, and repairs. The potential purchaser might weigh the cost of a cheap car against expensive repairs, or vice versa, and determine which choice is more practical. While most commonly used by large firms, individuals can be well served by TCO analysis of major life purchases such as computers, cars, and homes.

In the case of computing, TCO is sometimes estimated to be as much as four times the cost of the initial computer, which can be especially devastating in office environments where large and expensive computer systems are purchased. TCO for a computer includes hardware and software upgrades, technical support, database upkeep, training, and maintenance, especially in large companies where staff members specialize in keeping up the computer equipment. Often these factors are not accounted for when first estimating the cost of a new computer system, and this can have disastrous results when a limited budget is involved.

TCO can also look at associated costs, some of which may be more intangible. For example, a company which handles secure data usually considers the cost of security breaches and failures. In addition to representing a costly data recovery process, security breaches can also lead to a major lack of faith in the company, which can cause the loss of customers. Virus vulnerability is also a concern, with potential data loss due to viruses being an important part of TCO.

When considering a major investment, it is important to look at TCO so that there are no unpleasant surprises associated with the new acquisition. There are a number of professional firms which undertake TCO analysis for a small fee, and this route is advised for companies embarking on large investments. For individuals, new purchases should be researched thoroughly before committing.

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