Total cost of ownership

When looking at a product, it is not just a question of how much it can be produced and ultimately sold for, but rather a holistic view of the entire product life cycle. Total Cost of Ownership, also known as TCO, is a method for analyzing products and services in precisely this way. Not only acquisition costs, but also direct and indirect costs are always taken into account - thus creating a basis for making a decision for or against an investment, for example.

An overview of the key features of total cost of ownership:

  • TCO is a cost analysis method or an accounting method that takes into account all costs of an investment (direct and indirect).
  • Bill Kirwin, who in 1987 developed a method for calculating the total cost of IT investments, is a key figure in the current importance of the "total cost of ownership" approach. The special feature here is that acquisition costs for hardware and software, for example, only account for a negligible proportion of the total costs, plus costs for operation and use.
  • With the help of various TCO pricing models, some of which can be customized, companies can make targeted decisions regarding investments, profitability calculations or the selection of suppliers.
  • The core element of Total Cost of Ownership is that a distinction is made between direct and indirect costs and individual TCO models generally represent best practice models - depending on the industry and area of application, more specific, ideal-typical processes are then assumed.
  • Classic questions in the course of Total Cost of Ownership are, for example, those where a distinction must be made between purchase, rental or leasing models or those that influence rationalization within the company.


Logistik Lexikon Total Cost of Ownership

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