Total cost of ownership
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The document outlines an agenda for a workshop on total cost of ownership (TCO). The agenda includes an introduction to TCO, understanding TCO, a group discussion, case study, and closure. It then provides examples of costs that must be considered when calculating the TCO of a bus, computer network, or other purchase beyond the initial price. These include maintenance, repairs, staffing needs, and more. Finally, it shares the TCO calculation and results for a 16-ton tipper truck over 8 years, finding the net TCO is approximately 11.3 million Indian rupees.
Total cost of ownership
- 1. CeeKay CeeKay Consulting – Realize Vision TOTAL COST OF OWNERSHIP Right Way of Decision making
- 2. CeeKay • Introduction 15 Mins • Understanding of TCO 45 Mins • Group Discussion 25 Mins • Break 15 Mins • Case Study 60 Mins • Closure 15 Mins Jai Shri Krishna Agenda
- 3. CeeKay • What will you buy – A car costing 5000 $ with 16 miles/litre milage or a car costing 6500 $ with 21 miles/litre mileage Few Questions
- 4. CeeKay Total Cost of Ownership UPFRONT COST RECURRING COST
- 5. CeeKay Total Cost of Ownership UPFRONT COST RECURRING COST Transportation Warehousing Packaging Utilization Inventory R & D Capacity Specification Data Warehousing Field Failures Purchase process Cost Opportunity Purchase price
- 6. CeeKay • If you buy a bus, you must also budget for: Gasoline Maintenance Repairs Increased Insurance Premiums Another Driver TCO
- 7. CeeKay • If you build a network or purchase computers, you must also budget for: Software Maintenance & Repairs Increased Utility Costs Support Staff Development Replacement Costs ALSO….
- 8. CeeKay • TCO (total cost of ownership) is a type of calculation designed to assess both direct and indirect costs and benefits related to the purchase of any component. The intention is to arrive at a final figure that will reflect the effective cost of purchase, all things considered. • TCO looks at the complete cost from purchase to disposal. It adds to the initial purchase price other costs expected to be incurred during the useful life of the product, such as service, repair, and insurance. • When making a financial comparison between two choices or among several choices, smart managers look at the total cost of ownership (TCO) not just the purchase price. Total Cost of Ownership
- 9. CeeKay Understand all of the costs that will need to be covered to support technology adequately Understand the potential long-term costs of a particular approach Understand direct and indirect (“hidden”) costs Help develop a technology vision you can support for the long term Continue to evaluate the choices you’ve made How Total Cost of Ownership Analysis Can Help
- 10. CeeKay • Decision – To Build internally – Or License • Fundamentals of decision – Maximise Shareholder Value – Maximise ROI on investment • Three Pillars of ROI Analysis – T.C.O – Functional Capabilities – Project Risk TCO – Critical to Decision Making
- 11. CeeKay 1. TCO analysis enables organizations to identify, project, measure, and track direct and indirect costs of a localization technology initiative. 2. As the TCO of a project increases, the ROI decreases. 3. There is an inverse relationship between TCO and ROI. A low TCO not only reduces an organizations operational costs, but also effects the financial success of a localization technology initiative as measured by ROI. TCO Vs ROI
- 12. CeeKay An ROI Case Return on Investment Requested by those focused primarily on operating budget who want to save money Generally limits you to a strict “hard dollar” view – if it won’t show up in the expenses lines, it won’t be in the case - Tougher for applications like mobility for sales force productivity A TCO Case Total Cost of Ownership Requested by those aligned with business strategy, marketing, lines of business who want to justify an investment to enhance the business Opens up the possibility for productivity and revenue benefits - Often the focus in contact center sales • The majority of the effort is identical for both types of analysis. • The more that the investment delivers productivity and revenue benefits, the more likely the focus will need to be on ROI The basics of TCO and ROI cases
- 13. CeeKay Total Cost of Ownership Reduction Approach Standardization CentralizationAutomation
- 14. CeeKay CeeKay Consulting – Realize Vision • Tipper (16 Ton) • Personal Computer 14 TCO Examples
- 15. CeeKay T C O Deployment The Blade PC desktop and server-side computing models have significantly higher deployment costs than the rich client computing models. Power The Terminal/Presentation server model has the lowest power costs. Power costs for all models however, account for only a small fraction of the overall TCO. Manageability Manageability costs are lowest with server-side and Blade PC desktop computing models. Productivity/ User experience • The shared nature of server-side platforms and the slow nature of Blade PCs hinder user experience and productivity, particularly in the case of knowledge or power users. • Combining well-managed rich clients with application streaming and/or OS streaming can provide all the benefits of server-side computing models without significantly affecting productivity. • Productivity loss can be significant for knowledge or power users on server-side and Blade PC desktop models. • Because lost user productivity can easily be higher than any of the other costs in this analysis, enterprises need to consider those costs carefully. Total cost TCO is the sum of acquisition costs and sustaining costs. TCO for server-side and Blade PC desktop computing models is higher than for client-side computing models primarily due to deployment costs and productivity losses. Security All other platforms we examined offer considerable security improvements over Typically managed rich desktops. Future proofing/ rich application support Client-side computing models based on rich desktops and notebooks offer significant future-proofing benefits over server- side and Blade PC desktop models. Notably, server-side models offer limited multimedia and rich collaboration support as well as limited Flash-based Internet usage. Desk-side environmental Smaller and usually cooler and quieter than rich clients, thin clients used in server-side and Blade PC desktop models have less of an impact on the desk-side environment. Compliance All other computing models we examined offer significant compliance benefits over Typically managed rich desktops. Performance Client-side computing models showed impressive performance gains over server-side and Blade PC desktop models in our tests. Mobility True mobility support is available only with the application streaming computing model. Total Cost of Ownership - PC
- 16. CeeKay • Depreciation Cost • Financing Cost • Insurance Cost • Taxes (Road, State etc) • Fuel Cost • Tires Cost • Maintenance Cost • Repairs Cost • Drivers Salary • Management & Overhead Cost Cost Elements of Tipper TCO
- 17. CeeKay • Straight Line Method of depreciation considered • Total Interest calculated @ 15% reducing balance and equally spread over 8 Years • Insurance cost calculated on Book Value each year • Running of 15 Hrs/day for 300 Days in a year and mileage of 5Km/Litre with running of 200 Km/day considered • ` 30/Litre considered as rate of fuel (Diesel) • 16 Ton vehicle considered with 6 Tire vehicle (2 front & 4 back) • Consumption of 2 tires per year per hub considered • Repair & maintenance spread on BV across 8 years (costs to be minimal in first 3 years) • 2 drivers considered to be taken with ` 10,000 CTC/Month • Overhead considered on Employee and other costs • Inflation cost not adjusted TCO Calculation of Tipper: Assumptions
- 19. CeeKay TCO Tree for Tipper 19
- 20. CeeKay TCO Calculations 20 Net TCO for the Vehicle = TC – Salvage = `11,361,476
- 21. CeeKay • TCO for a Tipper costing ` 2,500,000 is ` 11,361,476 for 8 years • For leasing the payout, without considering margins and service tax, should be ` 118,349 per month inclusive all Results 21
- 22. CeeKay Chand Krishan Raina B.E. Mechanical (REC Surathkal/ NITK) MBA Finance (ICFAI) chandkd@yahoo.com in.linkedin.com/in/chaandkraina