What is Total Cost of Ownership (TCO) and why should I care?
Cost is everywhere, from the cost of employing people, owning computer hardware and software, running a service and supporting your customers. It all mounts up. Companies and finance teams look at costs and talk about budgets, forecasts and spend then they talk about cost savings or cost reductions.
However, companies rarely talk about Total Cost of Ownership (TCO). Comparing budget, to forecast, to actual – that is what finance live with every day.
So, is that all that is needed to be tracked?
Well not really… Have you ever tried to write a business case without knowing your current state total costs? If you have, that never ends well as you will have massive holes in your business case that are open to challenge! That is why we call it baselining.
Tracking your cost base with the budget approach usually results in tracking the cost of an item, a unit cost or a widget cost and whether that cost is increasing, reducing, staying the same or on track as per budget.
Costs are treated like separate rooms in a house but the total cost of running and owning the house by tracking everything in this way will never be understood unless everything is brought together and apportioned correctly as to who uses it, how much is consumed, then when and how they consume it.
In business if you consider everything separately and never apportion cost correctly the total cost of your service will never be known and the business will never be able to understand the real cost of a service or the profit of that service, or even more importantly, how much the service is losing and how unprofitable it is. Or more positively, how profitable it is and why.
So why do businesses not talk TCO analysis?
Well the problem is calculating, and apportioning costs can be difficult and not straight forward to do.
CoStratify performs TCO analysis baselining and TCO studies to inform organisations what their full cost of ownership is and importantly rolls this up and apportions TCO as shared costs as to how it contributes to a business outcome or process. This is not just about the purchase price; it is the full lifecycle and ownership cost apportioned and allocated correctly.
I hope that by reading this it helps align TCO to be one of your strategic goals moving forward from now on and your business cases become stronger. We love to help people achieve this and our process and application CoStratification can enable you to do this on a repeatable basis.
If you don’t believe me, why not see what the UK government says and why this is important. This was a document was written 10 years ago 2011 !
So why is this not having the airtime it deserves?
With so many other people writing about it as well ?
It would be great to get your views!
The question we would love to get feedback on is…
Do you feel that getting a baseline of your current costs and performance is essential before you embark on a change programme and why is it important?
We are also always keen to hear from people who don’t think it is important as well.
CoStratify – Forming strong evidence for change