Differential method for TCO modelling: an analysis and tutorial. (1st January 2011)

• Record Type: Journal Article
• Authors: Hanson, John D.
• Is Part Of: International journal of procurement management. Volume 4:Number 6(2011)
• Page Start: 627
• Page End: 641
• Publication Date: 2011-01-01
• Subjects: total cost of ownership -- TCO -- life cycle costing -- LCC -- cost modelling; Industrial procurement -- Management -- Periodicals; Industrial procurement -- Electronic information resources -- Periodicals; Business logistics -- Periodicals; 658.7205
• DOI: 10.1504/IJPM.2011.043003
• Languages: English
• ISSNs: 1753-8432

Abstract

Cost models based on total cost of ownership (TCO) or life cycle cost (LCC) are widely advocated for procurement decisions, particularly those involving source selection or to make outsourcing decisions. Unfortunately, the standard treatments of these topics in textbooks and journal articles provide little guidance on how to actually set up and perform the analyses, in part because they tend to overlook the differential nature of these concepts. This article demonstrates that a TCO is not a property of a product or service but of a decision and thus lends itself to differential analysis. A template structure is proposed to assist in performing the analysis and presenting the results. The key benefits of this structure are: