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SolutionMatrixLtd

TotalCostofOwnershipTCOExplained
Definitions,Meaning,andExampleCalculations
BusinessEncyclopedia,ISBN9781929500109.Updated20150516.

TotalCostofOwnership(TCO)isananalysismeanttouncoverallthelifetimecosts
thatfollowfromowningcertainkindsofassets.Forthisreason,TCOissometimes
calledlifecyclecostanalysis.

Acquiringcertainassets
bringspurchasecostsbut
thesecanbe
overshadowedbyother
largecoststhatappear
duringalongservicelife.
TCOanalysisattemptsto
uncoverboththeobvious
costsandthe"hidden"
costsofownership.

Ownershipbringspurchasecosts,ofcourse,butownershipcanalsobringsubstantial
costsforinstalling,deploying,operating,upgrading,andmaintainingthesameassets.
Formanykindsofacquisitions,TCOanalysisfindsaverylargedifferencebetween
purchasepriceandtotallifecyclecosts,especiallywhenviewedacrossalongownership
period.Examplecalculationsbelowshowhowthisisdone.
Thosewhopurchaseormanagecomputingsystemshavehadahighinterestin
TCOsincethe1980s,whenthepotentiallylargedifferencebetweenITsystemsprices
andsystemscostsstarteddrawingtheattentionoftheITconsultingcommunityandIT
vendormarketers.CompetitorsofIBM,forinstance,usedTCOanalysistoarguethatan

IBMcomputingenvironmentwasanoverlyexpensiveownershipproposition.Thefive
yearcostofownershipformajorhardwareandsoftwaresystemsfromanyvendorcanbefivetotentimesthe
hardwareandsoftwarepurchaseprice.
Today,TCOanalysisisusedtosupportacquisitionandplanningdecisionsforawiderangeofassetsthatbring
significantmaintenanceoroperatingcostsacrossownershiplife.Totalcostofownership(TCO)analysisiscenter
stagewhenmanagementisfacedwithacquisitiondecisionsforcomputingsystems,vehicles,buildings,laboratory
equipment,medicalequipment,factorymachines,andprivateaircraft,forinstance.
TCOanalysisforthesekindsofassetsisinfactacentralconcerninthefollowing:
Budgetingandplanning.
Assetlifecyclemanagement.
Prioritizingcapitalacquisitionproposals.
Vendorselection.
Leasevs.buydecisions.
Contents
TCOanalysiscoversownershiplife,buthowlongislife?
HowdoesTCOuncoverhiddencostsacrossassetlifecycle?
DoTCOresultsresultsreflecttheanalyst'spersonaljudgement?
TheTCOcostmodel:Centerpieceoftheanalysis
Totalcostofownershipisbasedoncashflowcostestimates
Totalcostofownershipanalysisillustratedwithanexample
WhatTCOanalysiscantellyou.
TCOanalysisisblindtobusinessbenefits(exceptforcostsavings,sometimes)

TCOanalysiscoversownershiplifeorlifecycle,buthowlongislife?
Costofownershipanalysisattemptstouncoveralloftheobviouscostsandallofthe"hidden"costsofownership
acrossthefullownershiplifeorlifecycleoftheacquisition.Usually,however,thereisroomforjudgementand
differentopinionsregardingtheappropriatelifespantoanalyze.Inspecifyingownershiplifeorlifecycle,owners
mayverywelltakenoticeofseveralother"lives"thatareinview:
Depreciablelife:Thenumberofyearsoverwhichanassetwillbedepreciated.Ineachyearofthislife,a
depreciationexpenseiscalculated(asprescribedbylocaltaxlawsandaccountingstandards),whichlowers
reportedincomewhilecreatingataxsavings.
Economiclife:Thenumberofyearsinwhichtheacquisitionreturnsmorevaluetotheownerthanitcoststo
own,operate,andmaintain.Whenthesecostsexceedreturns,theacquisitionisbeyonditseconomiclife.
Servicelife:Thenumberofyearstheacquisitionwillactuallybeinservice.
Alloftheabovelivesmaybedifferentandallmaycontributetotheowner'sjudgementastothelengthofthe
ownershiplife.Beyondthis,however,thespecifiedTCOlifespanmaydependontheowner'spurposeforthe
analysis:
1.WhentheTCOanalysisisperformedtosupportbudgetingandplanning,ortosupportstrategicdecisionmaking,
ownershiplifefortheanalysisisnormallytakenasthecompletelengthoftimethatownershiphasfinancialimpact:
Ownershiplifebeginswhentheacquisitionbeginscausingcosts.Thismayincludecoststhatoccurbeforethe

actualarrivaloruseoftheacquisition(seethe"hiddencost"categoriesinthenextsection).
Ownershiplifeendswhentheassetisnolongercausingcostsandhasnocontinuingfinancialimpactofany
kind.Thismeansthatallcostsofdisposalordecommissionhavebeenpaidandtheassetisnolongercarried
inanassetaccountonthecompany'sbalancesheet.
2.Alternatively,TCOanalysismaybedesignedtocoveranarbitrarilyspecifiednumberofyears,forexample,3
years,5years,10years,andsoon.Thisapproachisusualinthesesituations:
TCOanalysisisperformedtochooseavendorfromcompetingproposals,ortoprioritizecompetingcapital
acquisitionproposals.
Theactualeconomiclife,orservicelifeoftheacquisitionisuncertain.
Theorganization'sassetlifecyclemanagementpolicesandpracticesdictatespecificlifespansforclassesof
assets.

HowdoesTCOuncoverhiddencostsacrossassetlifecycle?
TCOanalysisbeginswhentheowneroranalystidentifies(a)thespecificresourceorassettobeacquired,and(b)
specifiestheownershiplifeasdescribedintheprevioussection.Theownershiplifeisgivenasanumberofyears
withaknownstartingdateandendingdate.
TCOanalysiscontinueswhentheowneroranalystidentifiesallthecostcategoriesthatcanbeexpectedtohave
costimpactsfromownership.TCOanalysisissuccessfulwhentheownerincludestwomajorkindsofcost
categoriesthatwillseecostimpactsacrossownershiplife,obviouscostsand"hidden"costs.
1.ObviouscostsinTCOanalysis
ObviouscostsinTCOarethecostsfamiliartoeveryoneinvolvedduringplanningandvendorselection,suchas:
Purchasecost:Theactualpricepaid.
Maintenancecosts:warrantycosts,maintenancelabor,contractedmaintenanceservicesorotherservice
contracts.
2.HiddencostsinTCOanalysis
Thesocalledhiddencostsarethelessobviouscostconsequencesthatareeasytooverlookoromitfrom
acquisitiondecisions.Costsofthiskindcanbeverylargeandreal,nevertheless.AllbelongintheTCOanalysisif
theydoindeedfollowfromthedecisiontoownsomethingandtheyarematerial(largeenoughtomatter)."Hidden"
costsmayinclude:
Acquisitioncosts:thecostsofidentifying,selecting,ordering,receiving,inventorying,orpayingfor
something.
Upgrade/Enhancement/Refurbishingcosts.
Reconfigurationcosts.
Setup/Deploymentcosts:costsofconfiguringspace,transporting,installing,settingup,integratingwith
otherassets,outsideservices.
Operatingcosts:forexample,human(operator)labor,orenergy/fuelcosts.
Changemanagement:costs:forexample,costsofuserorientation,usertraining,workflow/processchange
designandimplementation.
Infrastructuresupportcosts:forexample,costsbroughtbytheacquisitionforheating/cooling,lighting,or
ITsupport.
Environmentalimpactcosts:forexample,costsofwastedisposal/cleanup,orpollutioncontrol,orthecosts
ofenvironmentalimpactcompliancereporting.
Insurancecosts.

Securitycosts:
Physicalsecurity,forexample,securityadditionsforabuilding,includingnewlocks,secureentrydoors,
closedcircuittelevision,andsecurityguardservices.
Electronicsecurity,forexample,securitysoftwareapplicationsorsystems,offsitedatabackup,disaster
recoveryservices,etc.
Financingcosts:forexample,loaninterestandloanoriginationfees.
Disposal/Decommissioncosts.
Depreciationexpensetaxsavings(anegativecost).
Thelistofhiddencostcategoriesabovecouldofcoursebeextendedformanykindsofacquisitions.
TCOanalysisuncoversobviousandhiddencostswhentheanalystanticipates(plansforthepossibilityof)cost
impactsinalltheabovecategoriesandsometimesadditionalcategories.Guidanceandsuggestionsforidentifying
allrelevantcostcategoriesmaycomefromanumberofplaces,including:
Theowner'sownexperiencewithotheracquisitionsandownershipinthecurrentenvironmentoranother.
Thecompany'spoliciesandstandardpracticesforassetlifecyclemanagement.
Industrystandards.
Vendorrecommendationsandvendorexperience.
PublishedTCOanalysesfromotheranalystsorpublishingconsultants.
Projectplansforimplementation,whichshouldincluderesourcerequirementsincludinglaborand,ideally,a
completeworkbreakdownanalysis.
Theorganization'slongrangebusinessplan,whichshouldincludetheorganization'sbusinessmodel,projected
businessvolume,revenues,anddistributionofexpectedcostsbymajorcategories.Thebusinessplanshould
alsorecognizeexpectedimportanttrendsintheaboveareas,aswellastrendsinfactorssuchasinflation,costs
andprices,customerdemand,technology,andgovernmentregulation.

DoTCOresultsreflecttheanalyst'spersonaljudgment?
Simplynamingthecostofownershipsubjectdoesnotsetboundariesfortheanalysis.Youmuststilldecideand
communicatewhichcostsbelongintheanalysisandwhy.ConsiderthecasewhenTCOanalysisisappliedto
potentialITsystemacquisitions:
ITTCOcomparisonsfrompublishinganalyststendtofocusmorenarrowlyonpurchaseprice,maintenance,
andverydirectoperationalcosts.Heretheemphasisison"ApplestoApples"comparabilitybetweendifferent
vendorsolutions.
ITTCOanalysesfromsalespeople,consultants,ormanagersforspecificsettingstendtohaveabroader
scope,aimingatalarger,moreinclusivetotallifetimecost.Heretheemphasisisonpredictingbudgetimpacts
accuratelyand,sometimes,oncomparingthetotalcostsforquitedifferentkindsofproposedactions.
Ineachofthesesituations,theTCOanalysisservesadifferentpurpose,andeachcallsforitsownTCOcostmodel
(seenextsection).WhenusingTCOresults,rememberthatanalystjudgmentplaysarolechoosingwhichcost
categoriestoincludeintheanalysisandwhichtoexclude.Analystsarefreetochoosecostcategoriesthat
bestservethepurposeofdecisionmakersandplanners.WhentheTCOanalysiscomparesdifferentscenariosor
actionplans,besuretoverifythatallwereevaluatedwiththesameTCOcostmodel.

TheTCOcostmodel:Centerpieceoftheanalysis
TheTCOanalysiscontinueswiththedesignandcompletionofacomprehensivecostmodelthatcompletelycovers
thesubjectofthecasethroughtheentireownershiplife,andwhichsupportsthepurposeandneedsofdecision

makers.
Makingthestepfromacompleteinventoryofobviousandhiddencostcategories,toacomprehensivecostmodel,
requirestheanalysttolookforspecific...
Kindsofresourcesusedineachoftheobviousandhiddencostcategories.
Activitiesrequiredasaresultofownership,ineachoftheobviousandhiddencostcategories.
Whydoestheanalystinvesttimeandeffortingoingbeyondthelistofcostcategoriestocreateacostmodel?
Thereareatleasttworeasons:
1. First,rememberthatalistisonlythatalistthatdoesnotbyitselfcommunicatecompleteness.Ina
successfulTCOcostmodel,however,completenessshouldbeselfevident,toboththeanalystandtothose
whorelyontheanalysisresultsfordecisionsupportandplanning.
2. Secondly,thecostmodelstructureprovidesaframeworkforaveryinformativekindofcostanalysis,the
resultsofwhicharenotsoeasilyseenintheprojectedcashflowstatement.
[Foramorecompleteintroductiontocostmodeling,includingresourcebasedmodeling,activitybasedmodeling,
andcashflowcostestimatesbasedonthemodel,pleaseseeBusinessCaseEssentials.]
Thecostmodel,aspresentedhere,issimplyatwodimensionalmatrix,whosecellsrepresentcostcategories.Here,
forexampleisamodelfortotalcostofownershipanalysisofaproposedITsystemacquisition.
AcquisitionCosts

OperatingCosts

ChangeCosts

Software

Obviouscosts

Obviouscosts

Hiddencosts

Hardware

Obviouscosts

Obviouscosts

Hiddencosts

Personnel

Hiddencosts

Hiddencosts

Hiddencosts

NW&Comm

Hiddencosts

Hiddencosts

Hiddencosts

Facilities

Hiddencosts

Hiddencosts

Hiddencosts

NotethattheverticalaxisrepresentsITresourcecategories,andthehorizontalaxisrepresentsITlifecyclestages.
Themodeldesignissuccessfulifitachievestwoobjectives:
Eachaxiscoversthecompletesetofcategoriesforthatdimensionthatareusefultodecisionmakersand
planners.
Thecostcategorieswillcapturetheobviouscostsbutalsothelessobvious,or"hidden"costs.
Thetwoaxes,thatis,shouldconveyselfevidentcompleteness.Iftheydo,thereshouldbenounpleasantcost
"surprises"later,duringimplementation,andtheanalystshouldnothavetoanswerquestionssuchas:Why
didn'tyouincludethis?Orthat?
Astheexamplebelowshows,itisthechoiceofcostcategoriesforeachaxisthatgivesthemodelitspowerasan
analysistoolandasacommunicationtool.
Theanalysiscontinuesbyaddingthenamesofresourcestoeachcell.Resourceitemsthatgotogetherinacell
shouldbethosethatareplannedandmanagedtogether,andwhichmayhavecommoncostdrivers.Foraplanned
ITSystemacquisition,twoofthemodel'scellsmightholdtheseresourcenames:
Acquisition/HardwareCosts

OperatingCosts/Personnel

2ndrow,1stcolumn

3rdrow,2ndcolumn

Serversystempurchase

Administrativelabor

PCsystempurchase

Systemsoperators

Engineeringworkstationpurchase

Systemsprogrammers

Storagespacepurchase

Applicationsprogrammers

Otherperipheralhardwarepurchase

Networkadminlabor
Storagemanagement
ITmanagement
OtherAdmin
Troubleshootinglabor
Continuingcontractlabor
Continuingtraining(professional)

Othercellsinthesamemodelaresimilarlypopulatedwithresources.Thefullmodelprovidesaneffectivetoolfor
assuringTCOcasebuildersandcaserecipientsthateveryimportantcostitemisincludedandthateverything
irrelevantisexcluded.Asthefollowingsectionsshow,italsoprovidesauniquelypowerfultoolforanalyzinglife
cyclecosts.
Thecostmodelalsoprovidesameansforassuringallinvolvedthatdifferentproposals,ordifferentactionscenarios
werecomparedfairly.Themodelshouldbedesignedsothatonemodelcoversallrelevantcostsinallscenarios.Of
coursesomeitemsmayhave0valuesinonescenarioandnonzerovaluesinothers,butbyapplyingonemodel
withthesamecostcategoriestoallscenarios,thereshouldbenoquestionthattheTCOcomparisonbetween
scenariosisfair.

Totalcostofownershipisbasedoncashflowcostestimates
Thecostmodel(above)providesthetotalcostofownershipanalystwithalistofcostitemsthecontentsofallthe
modelcells.Theanalystmustthenestimatecostfiguresforeachitem,foreachscenariounderconsideration,for
eachyearcoveredbytheanalysis
Here,forexample,areoneanalyst'sestimatesforjustonecostitem(ServerSystemPurchase):

TheTCOanalystmustmakesixcostestimatesforonecostitem("Serversystem
purchase")whentheTCOstudyincludestwoscenarios(BusinessasUsualand
Proposal"),overathreeyearownershiplife.Thethreeincrementalcashflowestimates
arethendeterminedautomtaticallyas"ProposalEstimateBusinessasUsualEstimate"
foreachyear.

Methodsformakingtheseestimatesarebeyondthescopeofthisencyclopediaentry,butbriefly,theanalystwill
basethesefiguresonseveralkindsofinformation.FortheITexample,theanalystwillforecastcostdriversforeach
item,undereachscenario,(forexample,numbersofusers,transactionvolume,storagespacerequirements,andso
on).Theanalystwillalsobasetheestimatesonvendorprovidedinformation,experiencewithsimilarsystemsin
othersettings,andindustrystandardsandguidelines.

Withcostcategoriesandcostitemsfromthecostmodel,theanalystcanbuildtheprimaryanalytictoolsintheTCO
study:cashflowstatementsforeachscenario.
Theexamplebelowshowscashflowstatementstructure(manylineitemsfromthemodelareomittedfromthis
exampletoshowthestructuremoreclearly).
ATCOanalysiswithtwoaction
scenarios(Proposaland
BusinessasUsual)willhave
threecashflowstatements,all
withthesamecostlineitemsand
structure,similartotheexample
above.Therewillbetwofull
valuestatements,witheachcost
estimateacashoutflow,andone
incrementalcashflowstatement,
whereeachincrementalfigureis
"ProposalestimateBusinessas
UsualEstimate."

Thecashflowstatements
areinasensechildrenof
thecostmodel,inthatthe
statementstaketheirline
itemsfromthemodeland
retainsomeofthemodel's
structure.Thecashflow
statementshavetheparent
costmodel'sverticalaxis
categories,butinthe
horizontaldimension,the
statementspresentatime
linecoveringtheTCOanalysisperiod.ThetaskfortheTCOanalystistoestimatecostfiguresforeachyear,for
eachitem,forallscenarios.
Here,theanalystisconsideringtwopossiblescenarios:
1. ProposedSystemAcquisition
2. BusinessasUsual.
TheBusinessasusualscenarioisanimportantpartofanyTCOanalysis.Itrecognizesthatevenifthecompany
doesnotacquirethenewsystem,itwillstillspendmoneyonmanyofthesameITrelatedcostitems.Onlywitha
baseline,orBusinessasUsualscenarioforcomparison,cananycostsavingsoravoidedcostsbefoundand
measured.
Forthisreason,theTCOanalystwillalsoconstructanotherscenario,(3)TheIncrementalScenario,whichshows
thecostdifferencesbetweencorrespondinglineitemsonscenarios(1)and(2).Allthreecashflowscenarios,
however,willhavethesamecashflowstatementstructure(asabove)becausetheyallderivefromthesamecost
model.
Finally,theTCOAnalystwillusethe"bottomlines"ofthecashflowstatementstocomparescenariosusing
standardfinancialmetrics,suchas3yearnetcashflow,netpresentvalue,totalcapitalcosts(CAPEX),total
operatingexpenses(OPEX)and,ofcourse,3yeartotalcostofownership.
Moreover,ifProposalScenariocostsarelowerinsomeareasthanthecorrespondingBusinessasUsualScenario

costs,theIncrementalcashflowstatementwillshowcostsavingsintheseareas.Costsavingscanbetreatedas
cashinflows,allowingtheanalysttoextendtheanalysiswithinvestmentorientedmetricssuchasreturnon
investment,internalrateofreturn,andpaybackperiod.Inthatcase,theTCOanalysismightbesummarizedwith
anarrayoffinancialmetricsthatlookslikethis:
3YearFiguresin$1,000s Proposed

Business Incremental

Acquisition asUsual Differences

TotalCostofOwnership

$14,256

$17,258

$(3,002)

CapitalExpenses(CAPEX)

$1,219

$707

$511

OperatingExpenses(OPEX)

$13,037

$16,550

$(3,513)

NetCashFlow

$2,981

NetPresentValue@8%(NPV)

$2,365

InternalRateofReturn(IRR)

121%

ReturnonInvestment(ROI)

24.9%

PaybackPeriod

7months

Negativevalues(inparentheses)indicatecostsavingsundertheProposalscenariorelativetoBusinessasUsual.
Thosewhowanttounderstandfullywherethesemetricscomefromwillofcoursehavetohaveaccesstothethree
cashflowstatements.
TheTCOresultsaboveseemtoshowaclearadvantageforchoosingtheProposalScenariooverBusinessas
Usual.However,theTCOanalyst'sworkisnotyetcompleted.Afterreviewingtheabove,forinstance,questionswill
arisesuchasthis:IfwechoosetoimplementtheProposedSystemAcquisition...
Whichcostareasrepresentthegreatestrisks,andthereforeneedtobemanagedmostcarefully?
WhichcostareasaremostimportantindrivingoverallTCOresults?
Whatcanwedotominimizecosts?
Theanalystcanbegintoanswersuchquestionsbyreturningtothecostmodelitself(nextsection).

Totalcostofownershipillustratedwithanexample
Costmodelcategoriesforthecostmodel'srowsandcolumnswerechosentorepresentcostareasthatneedcareful
planningandmanagementduringthethreeyearperiodinview.Oncethescenariocashflowestimatesaremade
(previoussection,above),themodel'sstructurecannowbeexploitedtoshowcostdynamicsthatmaynotbeso
easytoseeinthecashflowstatements.
Here,thecostmodelcellsarefilledwiththe3yeartotalsforitemsineachcell.Thefiguresthatgointoeachsum,
ofcourse,comefromthecashflowstatements.
ProposalSystemAcquisitionScenario
$in1,000s Acquisition Operating

Change

Total

%of

Costs

Costs

Costs

Software

444

121

220

785

5.5%

Hardware

874

222

122

1,218

8.5%

TCO

Personnel

188

5,699

3,925

9,812

68.8%

NW&Comm

255

1,082

892

2,229

15.6%

Facilities

60

46

106

212

1.5%

Total

1,821

7,170

5,264

14,256

%ofTCO

12.8%

50.3%

36.9%

100.0%

$in1,000s Acquisition Operating

Change

Total

%of

Costs

Costs

Costs

Software

274

82

138

494

2.9%

Hardware

539

97

71

707

4.1%

Personnel

55

8,873

5,952

14,879

86.2%

NW&Comm

146

543

459

1,149

6.7%

15

15

29

0.2%

Total

1,104

9,610

6,634

17,258

%ofTCO

5.9%

55.7%

38.4%

100.0%

BusinessasUsualScenario

Facilities

TCO

IncrementalCashFlow(ProposallessBusinessasUsual)
$in1,000s Acquisition Operating

Change

Costs

Costs

Costs

Software

170

38

83

Hardware

335

125

51

Personnel

133

(3174)

(2027)

NWComm

109

539

432

Facilities

60

31

91

Theanalysissummarizedinthesethreetablesprovidesawealthofusefulinformationthatmanagementcanputto
gooduse,regardlessofwhichscenariotheychoosetoimplement.Thenextsectiondiscussesjustafewofthe
messagesbroughtoutbythecostmodelanalysis.

WhatTCOcantellyou
TheTCOanalysisaboveismeanttoshowthat:
TCOcanbringoutsocalled"hidden"costsofownership.
Inthisexample,managementchosetoincludealltheimportantcostscausedbysystemacquisition,including
thelaborcostsofpeoplewhouseorsupportthesystems.
Whendecidingwhetherornottoacquireanewsystem,itiseasytobecomedistractedbyhardwareand
softwarecost,butinfactthe"People"coststhatcomewiththesystemare68.8%oftheverylargeTCO.How

wellthesepeoplearetrained,employed,andmanagedwillbefarmoreimportantindeterminingactualcostof
ownershipthanotherfactors,suchasthechoiceofHWorSWvendor.
TCOcanputthespotlightonpotentialcostproblemsbeforetheybecomeproblems.
IntheITworld,forinstance,"Changecosts"aretypicallyunderplannedandoverbudget(thesearethecosts
ofupgrading,addingcapacity,reconfiguring,addingusers,migratingtodifferentplatforms,andsoon).
Allofthechangecostitemsfromthismodelcouldhaveappearedunder"Acquisition"or"Operating"cost
columns,butbyspecificallycullingoutthechangecosts,andgivingthemacolumnoftheirown,theycanbe
plannedandcontrolledmoreeasily.Inthisexample,changecostsrepresentbetween35and40%oftotal
costofownershipinbothscenarios.
AnIncrementalCashFlowStatementFindsCostSavingsandAvoidedCosts.
Inthisexample,ProposalScenariocostsarelargerthanBusinessasUsualCostsinallcellsofthecostmodel
excepttwo:OperationalCostsforPersonnelandChangeCostsforPersonnel.Here,however,theProposal
CostSavingsshowupasverylargenegativenumbersintheincrementalcostmodelsummary.Thosetwocost
savingsaremorethanenoughtogivetheProposalScenarioalargeTCOadvantage.

TCOanalysisisblindtobusinessbenefits(exceptcostsavings,
sometimes)
TCOanalysisisnotacompletecostbenefitanalysis,however.TCOpaysnoattentiontomanykindsofbusiness
benefitsthatresultfromacquisitions,projects,orinitiatives,suchasincreasedsalesrevenues,fasterinformation
access,improvedoperationalcapability,improvedcompetitiveness,orimprovedproductquality.WhenTCOisthe
primaryfocusindecisionsupport,itisassumedthatsuchbenefitsaremoreorlessthesameforalldecision
options,andthatmanagementchoicesdifferonlyincost.
TCOmaybeusedasshownabove,however,tofindthebenefitscostsavingsandavoidedcosts.Thesebenefits
showupwhenTCOforonescenarioiscomparedtoTCOforanotherscenario.Asintheexampleabove,when
TCOislessundera"Proposal"scenariothanTCOundera"BusinessasUsual"scenario,theresultisanexpected
costsavingsundertheproposalscenario.
ByMartySchmidt .Copyright20042015.SolutionMatrixLimited.Finduson

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