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# Tco for webinar

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Total cost of ownership concept

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### Tco for webinar

1. 1. TCO What is it? How to identify applicability? How to organize data? How to calculate? How to compare? Additional comments If we acquire something today, based on future costs calculated by expectations and predictions, we are dealing with an experiment after all, despite of how much scientific and verifiable the estimation is. This estimation defines an action and a decision in actual time (today), and we compute it without any possibility of verifying which will be the real facts or what will happen in the future. cavanha.com 1
2. 2. TCO What is it? How to identify applicability? How to organize data? How to calculate? How to compare? Additional comments cavanha.com 2
3. 3. What is it? • TCO means Total Cost of Ownership • Equipments or systems that are influenced by costs during their utilization. • Method to take in consideration costs during useful life and they become part of the decision for acquisition. cavanha.com 3
4. 4. How to identify applicability? cavanha.com 4
5. 5. There is a series of goods or equipments that are highly influenced by costs during their use or useful life. Yet, there are others that suffer little a posteriori influence on costs, or even have identical or very close costs for different specifications. In this case, as shown in figure 43, there is only the cost / purchase price, at time zero, because the future costs do not exist or are insignificant along the useful life of the input/resource. For example, a gold nugget, a precious stone, or a stand full of books. cavanha.com 5
6. 6. In some other cases, even if costs incur across time, they will be identical or have the same order of magnitude. This would make it impossible to differentiate between the products in example A and those in B cavanha.com 6
7. 7. Our special interest rests on the identification of cases that contain the variables that influence the total cost, and on measuring the size of the differences. There is a strong interest in discovering the future costs in advance, in identifying and measuring these costs. cavanha.com 7
8. 8. • If we acquire something today, based on future costs calculated by expectations and predictions, we are dealing with an experiment after all, despite of how much scientific and verifiable the estimation is. This estimation defines an action and a decision in actual time (today), and we compute it without any possibility of verifying which will be the real facts or what will happen in the future. cavanha.com 8
9. 9. The most common factors that differentiate costs across the useful life of a production item are: cavanha.com 9
10. 10. How to organize data? cavanha.com 10
11. 11. Organization of available data time 0 1 2 3 4 5 n cavanha.com cost 100 Each cost must be referenced to his time of occurence 12 8 22 … 11
12. 12. How to calculate? • Move each future cost to be considered to the time zero, allowing sum all of them and have a single number that represents the whole costs cavanha.com 12
13. 13. Interest rate time time zero time original value moved value = -----------------------time (1+interest/100) After transfer each value to time zero, it is possible to sum them and obtain the NPV – net present value, that represents the series of data. cavanha.com 13
14. 14. How to compare? cavanha.com 14
15. 15. Interest rate time A time time B zero Interest rate time time cavanha.com After have the two Net Present Values, A and B as in the example, 15 the smaller number means the low cost and best choice.
16. 16. Additional comments • • • • • Identify 5 items most sensitive to the application of TCO; Analyze how others acquire these items; Identify the main cost variables; Obtain the average percentage values; Look for abundant documentation (lack of data distorts and invert decisions). cavanha.com 16