Total Cost of Ownership (TCO)

Total Cost of Ownership (TCO) is the total cost of a system, service or asset over its entire lifecycle, from acquisition through operation to replacement. The approach prevents decisions from being made solely on the basis of the purchase price.

Components include acquisition and implementation, ongoing operation with staff, maintenance, energy and support, licenses, further development, as well as migration and decommissioning. A simplified annual example: €200,000 infrastructure, €320,000 operation, €80,000 licenses and €50,000 depreciation result in a TCO of €650,000 per year. How the approach can be applied to internal charging is described in the article Total Cost of Ownership in IT billing.

TCO must be distinguished from period-related Service Costs: they show the costs of an accounting period, whereas TCO provides the lifecycle view for investment, sourcing and portfolio decisions.