More on calculating Total Cost of Ownership

10/10/2010

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A TCO Index calculation method is now available using the adjacent figure. 

The TCO model takes into account  all related costs to be accounted for in a bid evaluation. The model also considers Asset Lifecycle duration and management aspects.
The TCO Index is a normalized figure in order to ensure confidentiality of financial figures presented by bidders.
There are two versions of the TCO Index calculation ... 
1) a detailed model, and 2) simplified version. 
A TCO Index example of 77.5 versus a base case of 100 for a lifecycle of 20 years is shown, in which lifecycle costs are allocated to CAPEX and OPEX types (e.g. acquisition, deployment, operation and support, retirement and replacement). 
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Total Cost of Ownership

21/09/2010

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The Total Cost of Ownership (TCO) for capital investments as for example an IT system, a DCS, an OTS, etc. is allocated to various cost components e.g. purchase/acquisition costs, operational costs, etc. 
Gartner and Forrester Research present some typical TCO figures as per the adjacent image. Both firms indicate a purchase cost of about 33% of the TCO. Given the asset lifespan period, the longer the lifespan, the higher the TCO in absolute figures, but the purchase cost as % of the TCO gets lower. 
A key point of course is that the purchase/acquisition costs alone do not represent the most advantageous selection, from the financial point of view. It is the TCO Index. 
Calculating the TCO Index for each competitive bid is quite analytical but worth the effort during evaluation of supplier proposals. Contact ziconNET for more information and engagement on how to calculate the TCO Index for your current or next project. 
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