Whole-life cost

It is also applied to comparisons of actual costs for similar asset types and as feedback into future design and acquisition decisions.

The primary benefit is that costs which occur after an asset has been constructed or acquired, such as maintenance, operation, disposal, become an important consideration in decision-making.

This may be the compulsory re-location of people living on land about to be submerged under a reservoir or a threat to the livelihood of small traders from the development of a hypermarket nearby.

If such investment has been made without proper analysis of the standard of service required and the maintenance and intervention options available, the initial saving may result in increased expenditure throughout the asset's life.

The process requires proactive assessment which must be based on the performance expected of the asset, the consequences and probabilities of failures occurring, and the level of expenditure in maintenance to keep the service available and to avert disaster.

Use of the term "TCO" appears to have been popularised by Gartner Group in 1987[5] but its roots are considerably older, dating at least to the first quarter of the twentieth century.

A TCO assessment ideally offers a final statement reflecting not only the cost of purchase but all aspects in the further use and maintenance of the equipment, device, or system considered.

When incorporated in any financial benefit analysis (e.g., ROI, IRR, EVA, ROIT, RJE) TCO provides a cost basis for determining the economic value of that investment.

In this context, the TCO denotes the cost of owning a vehicle from the purchase, through its maintenance, and finally its sale as a used car.