Changing model for Total Cost of Ownership

05 April 2013

Total cost of ownership (TCO), which seeks to calculate the full cost of business equipment and systems including acquisition, operation, maintenance and training etc, is undergoing an evolution, according to information supplied by Siemens Financial Services (SFS).

Apparently, an increasing proportion of financial managers are now starting to incorporate two further factors into the TCO model:
1. The time cost of money and free cash flow issues (characterised as ‘frozen capital’).
2. savings through energy efficiency.

Previous SFS research demonstrated that considerable sums lie ‘frozen’ in capital equipment acquisition, especially in the healthcare and industrial sectors. Similarly, SFS studies have also shown that organisations in industry, commerce, healthcare and the public sector can often make savings of over 25% on their energy costs, depending on the technology application.

The inclusion of these new factors highlights the need for TCO models to consider the most financially efficient way of acquiring and using equipment, in addition to simply calculating the cost of equipment. As a result of TCO analysis, many organisations choose to employ asset finance techniques, as they can often free up frozen capital as well as facilitate investments in energy-efficient equipment.

Such finance plans are increasingly designed to make energy efficiency investments affordable, by making monthly payments equal to, or lower than, the energy savings – in many cases delivering savings and net positive cash flow immediately.

The SFS paper was based on internal research and business insight in equipment financing, such as leasing and rental and energy-efficient investments, complemented by references to third party sources.

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