What is a Total Cost of Ownership (TCO)?
Total cost of ownership is the full life-cycle price of an option: acquisition plus operation, maintenance, training, upgrades, downtime, and eventual disposal or exit. Purchase price is routinely the minority of TCO — and every procurement decision made on sticker price alone is a decision to be surprised slowly.
In selection scoring, TCO belongs where "cost" appears; in business cases, it's the honest denominator for value comparisons.
Formula
TCO = acquisition + Σ(operating + maintenance + support + upgrade) + disposal − residual value
Worked example
Two excavator fleets: Brand A at $4.2M, Brand B at $4.9M. TCO over seven years reverses them — A's fuel burn runs 12% higher, its service intervals are shorter, and regional parts availability adds an estimated 3% downtime: A totals $9.8M, B totals $8.9M. The cheaper machine costs a million more. The procurement scoring sheet, which weighted TCO rather than price, caught it before the CFO had to.