Total Cost of Ownership [TCO] refers to the full cost of acquiring, operating, and maintaining an item over its entire lifecycle—not just the purchase price. For Steve, the relevant elements are:
Purchase Price [A]: The initial acquisition cost.
Maintenance and Downtime [D]: Costs of repairs, spare parts, and losses during equipment downtime.
Training [E]: Expenses incurred in training staff to use new systems or equipment.
By contrast, Location and Supplier Relationship are important considerations but cannot be quantified as direct financial costs in the same way.
The TCO model is often illustrated as the Cost Iceberg, where the purchase price is only the visible tip, while hidden costs [e.g., energy use, repairs, obsolescence, disposal] represent the bulk. Understanding TCO enables procurement to make more informed decisions, ensuring long-term value rather than focusing narrowly on upfront cost.
[Ref: CIPS L5M6 Study Guide, p.9 – TCO and the Cost Iceberg]
