What do you understand about "total cost ownership"?

Question

We will be having a conference at work about Total cost Ownership and i need some tips on it and also Scoring Board.

Answer 1

"Buzz Word "used (typically) by Microsoft advocates in an attempt to refocus attention away from the cost of Licences (when confronted with an Open Source solution).

Say, for example, you propose to replace your MS Windows 2003 Internet Servers with a Linux/Apache system and start by showing a saving of £20,000 a year in MS Licences (plus halving the number of boxes you need)

Well, the TCO approach will make statements like 'but you will have to employ 6 new Linux Sever Managers at £60k per year' or 'you will have to retrain your Staff at a cost of £10k each' and so on and so on ... (in other words, make assumptions about 'knock on costs' without considering 'knock on' savings)

When I hear a Salesman spouting TCO arguments I know his solution is seriously un-competitive in terms of Licence costs

Answer 2

Total cost of ownership covers the cost of a project or purchase from inception through to disposal. So for a large project this will mean the costs of: Design, development, production/building, maintenance and running costs, decomissioning and finally disposal. Not sure what your mean about scoring board but if its related to the tender assessment then you need to produce weighted scores that cover all the essentials of both the business and technical requirement.

Answer 3

Total cost of ownership (TCO) is a financial estimate designed to help consumers and enterprise managers assess direct and indirect costs commonly related to software or hardware. It is a form of full cost accounting.

TCO analysis originated with the Gartner Group in 1987 and has since been developed in a number of different methodologies and software tools. A TCO assessment ideally offers a final statement reflecting not only the cost of purchase but all aspects in the further use and maintenance of the equipment, device, or system considered. This includes the costs of training support personnel and the users of the system, costs associated with failure or outage (planned and unplanned), diminished performance incidents (i.e. if users are kept waiting), costs of security breaches (in loss of reputation and recovery costs), costs of disaster preparedness and recovery, floor space, electricity, development expenses, testing infrastructure and expenses, quality assurance, boot image control, marginal incremental growth, decommissioning, e-waste handling, and more.

Therefore TCO is sometimes referred to as total cost of operation. When incorporated in any financial benefit analysis (e.g., ROI, IRR, EVA, ROIT, RJE) TCO provides a cost basis for determining the economic value of that investment.

The TCO concept is widely used in the automobile industry. In this context, the TCO denotes the cost of owning a vehicle from the purchase, through its maintenance, and finally its sale as a used car. Comparative TCO studies between various models help consumers choose a car to fit their needs and budget.

TCO can and often does vary dramatically against TCA (total cost of acquisition), although TCO is far more relevant in determining the viability of any capital investment, especially with modern credit markets and financing. TCO also directly relates to a business's total costs across all projects and processes and, thus, its profitability.

Total cost of ownership in software

Since software is not "owned" but licensed, it has been argued that the "total cost of ownership" is a misnomer. Technically, the initial "total cost of ownership" for a software product will be the total cost of acquisition for that product.