Total Cost of Ownership

TCO, which seeks to calculate the full cost of business equipment and systems including acquisition, operation, maintenance and training etc, is undergoing an evolution, according to a new paper from Siemens Financial Services (SFS). An increasing proportion of financial managers are now starting to incorporate two further factors into the TCO model:- the time cost of money and free cash flow issues (characterised as ‘frozen capital’) as well as savings through energy efficiency.

Previous SFS research has shown that considerable sums lie ‘frozen’ in capital equipment acquisition, especially in the healthcare and industrial sectors. Similarly, SFS studies have also shown that organisations in industry, commerce, healthcare and the public sector can often make savings of over 25 per cent on their energy costs, depending on the technology application.

The inclusion of the new factors highlights the need for TCO models to consider the most financially efficient way of acquiring and using equipment, in addition to simply calculating the full costs of equipment. As a result of TCO analysis, many organisations choose to employ asset finance techniques, as they can often free up frozen capital as well as facilitate investments in energy-efficient equipment.