What is Total Cost of Ownership or TCO?
The Total Cost of ownership (TCO) in information technology refers to the financial measurement of all expenses associated with a single component or an entire IT infrastructure. In the case of the cloud sector, it would refer to the costs associated with setting up an organisation’s cloud infrastructure. These expenses include both direct and indirect costs incurred due during setting-up, purchasing, installing, hardware and software. TCO allows businesses to have accurate estimates and helps them to determine the return on investment (ROI).
Points to Remember
- From an organisation’s perspective, the total cost of ownership for its cloud infrastructure may include all investments made on purchasing, training, upgrading, repairing, maintaining, etc. As a result, TCO is generally estimated to be 300% to 400% of the purchasing cost of equipment.
- Over the years, TCO estimation has become an important part of the financial planning in business. TCO analysis enables businesses to calculate IT budgets more accurately and saves them from acquiring components that are not financially viable for business.