What Does Total Cost of Ownership (TCO) Mean?
Total cost of ownership (TCO) has two connotations, a general definition and a definition that applies to information technology (IT). Generally, this definition refers to a financial estimate of all direct and indirect costs associated with a purchased or acquired asset over its entire lifetime, life expectancy or life cycle. It is intended to aid consumers and business entity managers determine the total costs of owning a given product, system or other asset.
Techopedia Explains Total Cost of Ownership (TCO)
Credit is often given to the Gartner Group for originating TCO analysis in 1987. However, the concept actually originated much earlier: the Manual of American Railway Engineering Association (1929) referenced the total cost of ownership as part of its financial calculations. Total cost of ownership provides a cost basis for any financial analysis of an anticipated or actual investment. This may involve such determinations as rate of return, economic value added, return on investment or a rapid economic justification – a term with no formal definition. TCO may be used by credit market and financing agencies to determine the financial viability or profitability of a business entity by including such accounting methodologies as total cost of acquisition and operating costs. The business entity may also use TCO for a product or asset comparison analysis.
Servers, workstations and network hardware and software, and their installations
Costing analysis for hardware and software and installation
Associated warranties and licenses
Compliance costs, such as tracking licenses
Migration expenses
Risk assessment concerning:
Various vulnerabilities
Availability of upgrades
Future licensing policies
Other similar risks
Security costs and failures such as breaches, damaged reputation and recovery costs
Utility expense, especially electricity for electronic equipment, HVAC (heating, ventilation and air conditioning) and electronic equipment cooling
Infrastructure (buildings/data centers or floor space lease/rental)
Insurance
Information technology personnel
Executive oversight/management time
System testing
Downtime
Slow processing performance, especially user dissatisfaction and the associated decrease in revenue
Backup and recovery processes
Personnel training
Internal and external auditing expenses
Upgrades and scalability expenses
Equipment replacements
Decommissioning equipment and facilities
Various vulnerabilities
Availability of upgrades
Future licensing policies
Other similar risks
