The Procurement Glossary » Total Cost of Ownership (TCO)
Total Cost of Ownership (TCO)
Sourcing & RFx
Also known as: TCO
Definition
The full lifetime cost of a purchase — not just the price, but delivery, installation, operation, maintenance, downtime and disposal.
Explanation
TCO reveals that the cheapest purchase price is often not the cheapest overall. Comparing suppliers on TCO leads to better decisions, especially for equipment and services where running and support costs dwarf the initial price.
Example
The cheaper printer costs RM200 less up front but RM900 more per year in toner, so its TCO is higher.
Related terms
- Should-Cost Analysis — A bottom-up estimate of what a product or service ought to cost, built from its materials, labour, overhead and reasonable margin.
- Life-Cycle Costing — A costing method that sums all costs of an asset across its whole life, from acquisition through operation to disposal.
- Value Analysis — A systematic review of a product or service to improve its value — cutting cost without losing function, or adding function without adding cost.
- Cost Avoidance — Value from preventing a cost increase or future expense, rather than reducing current spend.
Related concepts
- Spend Analytics — Turning raw procurement transaction data into a clear, categorised picture of what an organisation buys, from whom, and where the savings are.
Frequently Asked Questions
What is Total Cost of Ownership (TCO)?
The full lifetime cost of a purchase — not just the price, but delivery, installation, operation, maintenance, downtime and disposal. TCO reveals that the cheapest purchase price is often not the cheapest overall. Comparing suppliers on TCO leads to better decisions, especially for equipment and services where running and support costs dwarf the initial price.
Can you give an example of Total Cost of Ownership (TCO)?
The cheaper printer costs RM200 less up front but RM900 more per year in toner, so its TCO is higher.
Back to the procurement glossary | Procurement concepts | Contact us