Total cost of ownership (TCO) takes into account the cost of a product across its complete lifecycle. This process includes the costs associated with purchasing, installing, utilising and decommissioning the item. TCO considers direct and indirect expenses over a long-term perspective.
By taking an in-depth exploration into a product’s lifecycle and identifying hidden expenses at its different stages, we can support companies with understanding a product’s true cost rather than simply its purchase price. With this information, future procurement decisions are well-informed and data-led, driving cost efficiency, profitability and business growth.
To get a full picture of the TCO our cost of ownership consultants deploy a blend of our operational and sector-based knowledge alongside fully cleansed and transformed data through our digital platform. When calculating total cost of ownership we consider costs such as initial purchase price, installation, operation, maintenance, downtime and security.
Initial purchase price
This cost is simply the price tag at the point of purchase. For many products, it can represent a very small percentage of the total cost of ownership.
Installation costs include the resources required for getting your product ready for use. Once installed and any licences purchased, products typically require testing, and employees may need training on how to operate or use it. The more complicated the product, the greater these costs will likely be.
Operating costs are recurring throughout the lifecycle of the product. As well as any time required by employees to use or handle the product, professionals with specialist knowledge may be required to obtain optimum results. Other costs to consider here may be overheads, such as electricity or rental fees, ongoing training or updates.
Maintenance costs cover any repairs, cleaning or upkeep required to ensure the product remains in optimal condition. It also covers inspections needed for compliance with industry-specific standards or regulations.
The costs relating to the security required will depend on the product. For example, digital and IT systems will require ongoing levels of protection to prevent cyberattacks and data breaches.
Downtime includes any costs incurred when work is delayed or ceased due to a product issue. During downtime, employees’ work could be delayed, other stakeholders could be engaged to problem-solve, and business could be lost due to these interruptions.
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The benefits of best practice
By carrying out an in-depth TCO analysis, we can support our clients in determining the true cost of a product or system over and above its purchase price. Understanding the entire value a product brings provides many benefits, including:
Optimised procurement decisions and cost reduction
With insight into which products offer the best return on investment and support sustained business growth, companies can create a framework that guides their future purchasing decisions towards better cost-efficiency.
Improved profitability and business resilience
Uncovering all the costs associated with a product creates opportunities for savings and enhanced profitability. The understanding provided by TCO allows businesses to budget for their recurring and long-term costs in a more in-depth and informed way, providing resilience for the future.
Support for sustainable business growth
With the insights provided from total cost of ownership, financial forecasting is better informed, and the products with the best ROI can be identified and maximised. Together this information allows companies to devise future strategies for sustainable business growth.
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Supply chain deficits, such as semiconductor and chip shortages, have had a huge impact on businesses in recent years.