Total Cost of Ownership

Understand the elements of TCO and how it affects project budget.

Published April 2007 Through capital spend avoidance, you can reduce total cost of ownership.

There are three, not two, elements of Total Cost of Ownership – 1) construction and demolition, 2) maintenance and operations, and 3) recapitalization of major systems. Capital spend avoidance is the high yield action to reduce total cost of ownership. The use of TCO numbers (which tend to be large) will in themselves encourage more capital avoidance decisions. Over the life-cycle of a building 85% of the incurred cost is operating cost, and only 10% is the cost of the building. Spending more on the 10% to save on the 85% is a major cost-saving opportunity. Today you should be setting capital and operating budgets at least through 2015 – your forecast may be wrong, but for TCO you should be formally thinking at least that far out.

- From Tradeline's Lean Management Models for Facilities Management and Capital Projects Conference 2007