Definition

TCO (total cost of ownership)

TCO (total cost of ownership) is a type of calculation designed to help consumers and enterprise managers assess both direct and indirect costs and benefits related to the purchase of any IT component. The intention is to arrive at a final figure that will reflect the effective cost of purchase, all things considered. When you decide to buy a computer you may go through a TCO analysis: for example, the greater cost price of a high-end computer might be one consideration, but one that would have to be balanced by adding likely repair costs and earlier replacement to the purchase cost of the bargain brand.

TCO analysis originated with the Gartner Group several years ago and has since been developed in a number of different methodologies and software tools. TCO analysis performs calculations on extended costs for any purchase - these are called fully burdened costs. For the consumer's purchase of a computer, the fully burdened cost may include costs of purchase, repairs, maintenance, and upgrades. For the business purchase of a computer, the fully burdened costs can also include such things as service and support, networking, security, user training, and software licensing. The TCO has to be compared to the total benefits of ownership (TBO) to determine the viability of the purchase.

This was last updated in September 2005
Posted by: Margaret Rouse

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