When considering a product, it is not just a question of the amount for which it can be produced and ultimately sold, but rather a holistic view of the entire product life cycle. Total Cost of Ownership, also known as TCO, is a method for looking at products and services in precisely this way. Not only acquisition costs, but also direct and indirect costs are taken into account - thus creating a basis for making a decision for or against an investment, for example.
An overview of the main features of total cost of ownership:
- TCO represents a cost consideration procedure or an accounting procedure that takes into account all costs of an investment (direct as well as indirect).
- Bill Kirwin, who in 1987 devised a method for calculating the total cost of IT investments, is responsible for the current significance 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 progressions are then assumed.
- Classic questions in the course of total cost of ownership are, for example, those where a distinction has to be made between purchase, rental or leasing models, or those that influence rationalization within the company.