What is tco

We typically think the cheaper option is usually better. But, cheaper hardware typically comes with hidden costs. The procurement and use of computing workstations include many indirect costs. Operating costs and opportunity costs can have a huge impact. Looking beyond the purchase price will save companies money in the long run. Deployment costs include more than meets the eye. First, the hardware needs to be transported to the deployment site.

Packaging and weight make a difference here. Once the product has arrived, install time impacts IT staffing assignments. Easy install means more time to achieve other goals For lower opportunity costs. When installation hits roadblocks, other tasks can be delayed, leading to opportunity costs.

Products designed to reduce unnecessary parts and labor deliver a better TCO. User experience can be an overlooked aspect of Total Cost of Ownership. Poor workstation ergonomics can lead to repetitive strain injury. Ailments range from headaches and eye fatigue to muscle pain severe enough to keep employees home from work. The U. Workers who push through the pain and stay in the office are undoubtedly less productive.

The opportunity costs can be huge. When new equipment is easy for users to adapt to, productivity is preserved. The shorter the learning curve, the better. Intuitive setup and use let employees learn as they go, minimizing training and support costs.

Reliable products reduce service and maintenance needs. Knowing the average failure rate can help businesses estimate future costs for shipping replacement units. Will your IT staff be able to troubleshoot the equipment on-site? Or will there be costs to ship units to the vendor for repair?

Either way, the costs of employee downtime is another potential hit to your bottom line. With large quantity rollouts, storage and recycling costs can add up quickly. Companies are concerned about the amounts spent on acquisitions because they need to make safe investments. Indeed, high initial spendings are not always the most serious difficulty. The TCO is useful whenever a company aims to acquire an asset or make a large investment. The metric could be relevant in situations such as:.

Software, for example, needs a renewal of licenses and requires the company to have a budget for training so that employees know how to operate them. Thus, numbers are the basis of an investment choice. The TCO calculation considers some implicit values. An asset has a price, but, besides this cost, many other factors will impact the amount of money spent. You can make two calculations; a simple one and another more complex. The use of each one depends on the context and what you intend to acquire.

The initial cost is the label price, that is, how much you will pay for the asset. The maintenance cost , in turn, involves the costs to ensure that the asset remains useful in the long term.

This last factor helps us make a calculation focused on a possible devaluation. It is important to include more variables since, most of the time, many factors impact the acquisition cost if we consider a long-term perspective.

Different departments within a company may use the TCO before making an acquisition decision. The marketing department has to spend its budget regularly.

Register Now. Information Technology Gartner Glossary. Recommended Content for You Research. Cybersecurity for Business Decision Making Gartner. Learn More. Read Now. Customer Success Story. However, other functional costs associated with investing in a particular product or service are usually unknown.

Furthermore, a substantial part of the cost of product ownership is hidden. TCO costing helps identify the hidden costs by making them visible. The hidden costs can be direct or indirect. The direct costs can be identified by assigning them to specific products. For example, in the case of an information technology investment, direct costs may include:. Indirect costs have a significant influence on maintaining the functionality of the purchased products.

Indirect hidden costs arise from the inefficient use of the purchased item. It is complex to identify and quantify indirect hidden costs due to the inefficient use of an object. Using TCO is especially important for business units when making purchasing decisions. Businesses are working with a limited budget and therefore need to make the best purchasing decision that will pay off in the end.

Therefore, a breakdown of the costs associated with acquiring and maintaining ownership of a product is essential. In other cases, the analysis also helps make make-or-buy decisions. Sometimes it may be cost-effective for a company to manufacture a product rather than buy it or vice versa.

Determining the best option is made possible by performing a TCO analysis. Total Cost of Ownership broadens the perspective and includes other factors besides the purchase price in the analysis. It gives a company the necessary overview of how high the costs are. In addition to this cost analysis, the added value of a solution should be included and considered in the purchasing decision process.