TCO - TOTAL COST OF OWNERSHIP

TCO (Total-Cost-of-Ownership), is a way of looking at the complete cost of an asset, including initial acquisition, maintenance, required training, repairs and other associated costs. The concept of TCO began to be used in a widespread manner in the financial world in the late 1980s, when new technologies were being rapidly developed and it was sometimes difficult for companies to understand the value of their assets. TCO appears commonly in the automotive and technology industries where consumers are encouraged to weigh the TCO of products that they purchase.

TCO is a financial estimate. Its purpose is to help consumers and enterprise managers determine direct and indirect costs of a product or system. It is a management accounting concept that can be used in full cost accounting or even ecological economics where it includes social costs.

Although many companies factor TCO into the purchasing equation, they often underestimate the hidden costs of a new technology solution, which can result in negative consequences. For example, if you don't have the resources you need to adequately maintain a solution, you may skip upgrades and patches required to keep the solution running securely and at peak performance. Or, if you misjudge the time and expense needed to train employees on a new product or service, they may never use it productively.

While TCO helps you to determine hidden costs of a new technology solution, ROI (Return on Investment) analysis helps to illuminate benefits that may not be readily apparent, such as improved employee productivity or increased customer satisfaction. ROI assessments can be more subjective in nature than TCO, because these indirect benefits are usually harder to measure than direct costs.

When two solutions provide roughly equivalent benefits over the solution lifecycle, but have different types of costs associated with acquisition, maintenance and operation, a TCO comparison gives you a framework to better evaluate competing solutions to a problem and avoid getting stuck with hidden costs and unwanted surprises.

TCO is essential in understanding where you are as an organization. DOCUWISE consultants are experts in the area of TCO assessment and will assist you in determining your customer's existing costs and help you improve processes and your customer's buying habits to maximize profitability in their organization.