Definition

Totally Cost OF Ownership (TCO) is an accounting procedure, which was developed since center of the 80's by Consultants of the management consultation Gartner. The beginning serves to help consumers and enterprises thereby to measure all resulting costs of capital goods (in particular in the IT) as for example software and hardware. The idea is to receive an account which does not only contain the initial costs, but all aspects of the later use (energy costs, repair and maintenance) of the components concerned. Thus well-known cost drivers or costs also hidden can be possibly already identified in the apron of an investment decision. Most important basis for the further understanding of the TCO is the distinction between direct and indirect costs.

With each form of the computation should be noted that it concerns a Best Practice beginning in such a way specified. Contrary to many other characteristic numbers from the field of the economic science there is for this still no obligatory regulation, standard or Lehrmeinung. This circumstance is owed the enormous technical and organizational heterogeneity of the ITK industry. Therefore many different concepts exist for the computation of the TCO. A bench mark on the basis the TCO can be possible however in each case on basis of a uniform computation method. The methodology of the computation is usually based on the input of substantial parameters of an IT-organization within certain software Tools, which are offered meanwhile by many consulting firms as well as by Gartner themselves.

The TCO faces the TBO (total benefits OF ownership), by which the feasibility and the improvement of an acquisition are determined.

Cost categories

Direct costs

Direct costs are divided not in cost centres (like for example costs of a IT-coworker), but into processes, whose costs can to be able to be computed in principle by reallocation of other cost centres. Typically these costs with the procurement and support of result. From the economical point of view direct costs mark themselves by their Budgetierbarkeit. Thus a lasting effect of these costs, independent of is whether in the positive or negative sense, on the entrepreneurial success in principle demonstrably.

Direct costs by the example of a personal computer:

Hardware and software Costs:

Initial costs for hard and software (writings-off or leasing installments), costs from servicing contracts with manufacturers or Dienstleistern and costs of IT-infrastructure (networks, servers)

Operation Costs:

all processes from the range administration and support

Administration Costs:

Administration expense (e.g. eating management, elaboration of contracts, budget planning), co-ordination of training measures for IT-personnel as well as final user

Indirect costs

Indirect costs result not due to the acquisition or the guarantee of the enterprise of capital goods, but in consequence of unproductive use from the final user. It always concerns processes, procedures or situations, which restrain the final user in its productivity. Since these procedures can differ with all final users, the measurability of such a procedure is in principle problematic. Is disputed however, in which extent these costs of an enterprise payment and/or success effective are, thus in the form of in or disbursements the cash-flow affect. According to Krcmar these indirect amount to or also not budgetierten costs for instance between 23% and 46% of the total costs (see Krcmar "information management" 1998, P. 182).

Indirect costs by the example of a personal computer:

Peer support:

Support of another unbedarften user, also "Hey Joe effect "mentioned

Casual Learning and Self support:

Self-help and opportunity training

Formally Learning:

Training measures for the training of the final user in a certain application

File and DATA management:

Datenmanagement, as well as configuration of the Desktops

Application development:

Development of own applications (for example also Excel tables uvm.)

Downtime:

Unavailability of the regarded system (personnel expenditure and/or inclusive. Costs of escaped business activities

Criticism

Often calculatory portions for rent, energy costs and additional expenses of comparable kind are not considered. Further there are at present neither in the literature nor in the technical literature considerable beginnings to discuss the problem of the calculatory venture respectable the consideration of the business risk in connection with the TCO model obviously.

The largest deficit brings the TCO model however with itself, by not supplying any beginnings, in what respect an improvement of the TCO, particularly in the range of the indirect costs, can be actually success effective for the enterprise. Once assumed, which knows Downtime of all personal computers by on the average two hours on one hour is annually decreased, then the TCO should sink accordingly around half of the amount of the indirect costs estimated for Downtime. From the financialeconomical point of view would have itself now on different cost centres distributed or in the form of proceeds, in which however always for the cash-flow, a positive effect around exactly this amount result in sum. In practice this amount is estimated however in the lower measure the cash-flow to affect than in the TCO computation. A cause for it is among other things the different high meaning of personal computer and/or another for the creation of value of the enterprise. In addition final user operations differ also within an IT-organization. This is alone justified by the fact that each coworker has differently high IT-knowledge and/or it is able more or less efficiently to deal with hard and software.

further information

By the computer science strategy organ federation (ISB) of Switzerland was given a software for the computation of the TCO in order. The open SOURCE software is available with www.tcotool.org.

See also

• List of the Controllinginstrumente
• Life Cycle Costing

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