/ Procurement Knowledge / What is TCO (Total Cost of Ownership).

What is TCO (Total Cost of Ownership).

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What is TCO?

Total Cost of Ownership (TCO) represents the total cost associated with purchasing and owning a product or service.

This includes not only the purchase price, but also all additional costs over the life of the product.

Consider maintenance, materials, and services such as software updates.

Analyzing TCO gives you a more accurate picture of the true cost of an investment, leading to more informed decisions when choosing products or services.

Optimizing TCO results in lasting cost savings and better decisions for the business.

TCO and the environment

Not only does a TCO analysis help identify cost savings and improve financial performance, it can also contribute to environmentally friendly choices.

When environmental aspects are included in the TCO calculation, companies can prioritize more economical and environmentally friendly products.

This ultimately leads to long-term cost savings and reduced environmental impact through reduced waste and use of external resources.

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Relationship between TCO and quality and durability of products

TCO is an essential factor for product quality and sustainability. By including TCO in purchasing decisions, companies make choices that lead to higher quality and sustainable products.

A lower purchase price can be associated with higher maintenance costs, while a higher purchase price often yields a lower TCO due to better quality and reliability. Cheaper products may incur additional (previously invisible) costs.

Taking TCO into account helps choose durable, high-quality products that require less frequent repair or replacement.

Examples of TCO

Here are some examples of TCO calculations for different products:

  1. Cars: In addition to the initial purchase price, fuel, maintenance, insurance and repair costs should be included.
  2. Computers: TCO includes purchase price, maintenance costs, energy consumption and operational costs over the life cycle.
  3. Buildings: In addition to construction costs, energy, maintenance and repair costs over the life cycle are included.
  4. Software: TCO includes the purchase price, as well as costs for training, implementation, maintenance, upgrades and licensing.
  5. Phones: In addition to the purchase price, costs for repairs, upgrades and accessories are included.

By incorporating TCO calculations into product and purchasing decisions, companies can identify cost-saving opportunities and reduce long-term costs.

The role of TCO in the IT industry

In the IT industry, where systems and technologies are constantly evolving, TCO is crucial. Companies need to invest in the latest hardware and software to stay competitive. IT departments must consider not only acquisition costs, but also all costs associated with the use of equipment.

For example, a system with a lower TCO can reduce downtime, improve effectiveness and increase efficiency. TCO analyses help IT departments make the right purchasing decisions and optimize their long-term plans.

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How the TCO approach makes for better purchasing decisions

Using TCO provides insight into the total cost over the life of a product or service. Companies can use TCO calculations to get an accurate picture of long-term costs, both financial and environmental.

By using these metrics, hidden costs can be identified and informed purchasing decisions made.

In short, TCO is a valuable tool for innovative companies.

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