Total Cost of Ownership (TCO) indicates the total cost of owning and operating an asset over time. While in the beginning TCO appeared contextually with the entry of IT into industry and production processes in order to be able to assess the true cost of the systems used, today it is an indicator whose attention has expanded to all industries.
The history of TCO
Today’s concept of Total Cost of Ownership dates back to 1987, when the consulting firm Gartner Group devised and launched the concept of TCO in order to determine the costs of IT infrastructure.
Following this, TCO has been adopted on a wider scale, and different methods and software have been developed for its analysis and identification. Whatever the criteria or applications, the objective of the indicator always remains to determine and represent the true acquisition costs of an asset.
Why is TCO a key indicator?
Since TCO aims to indicate the total cost of owning an asset, it can be said that it is in fact an indicator that takes into account both fixed and variable costs tied to the purchase and use of the asset.
Assessing it as truthfully and timely as possible is, therefore, strategically essential because it allows for a precise idea of what the economic-financial effects the purchase of a piece of machinery may have on the company over time.
The result will then be to be able to make more informed assessments at the preliminary stage, to be able to determine the time required for there to be a return on investment.
The key points of TCO
Once the item or good to be purchased has been defined, to calculate the TCO it is necessary to identify the time frame, that is, whether it is necessary to consider its entire life cycle or only a set period of time. Costs associated with ownership (or use) of the asset, including “hidden” costs, should also be considered.
Therefore, in order to calculate TCO, it is necessary to focus on a few key points:
- Purchase cost
- Costs related to the project and installation well
- Cost associated with training for its use
- Maintenance costs
- Operating, service, and down-time-related costs
- Divestiture costs
The evaluation of TCO for automation machinery.
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