TCO

Total Cost of Ownership

An holistic view of enterprise level costs related to one particular subject, good or service. Its objective is to account for all costs (i.e. spanning idea inception, development or acquisition, usage / operations and maintenance including warranty) entailed throughout the entire value chain of the company. It contrasts with the purchase price because it strives to include the cost of quality (e.g. rework) and thus increase transparency on real cost. It may be applied to internal (e.g. IT) or external activities (e.g. suppliers).

TCO is reported as complex but the benefits of its implementation outweigh its difficulties. Its benefits are associated with performance measurement and benchmarking, decision making, communication, insight / understanding and support for continuous improvement.

For example, for capital equipment, postpurchase costs involve everything from maintenance, repairs, downtime, and obsolescence through to the ultimate disposal of the asset. For a component or material, total cost includes failure costs of the item once in use, such as warranty claim costs, lost goodwill, replacement, and similar costs.

Ellram, 1993, p. 2

• David et al., 2002

• Ellram, 1993

• Hurkens et al., 2006

• TCO (Dictionary Entry) Acronym