Total ownership cost use in management

Abstract

Total ownership cost (TOC) is being adopted by government and industry to manage business processes. Total ownership cost provides managers actual costs and the causes of these costs. Actual costs are often visible to management after some rollup from lower levels has taken place. This rollup process often obscures the causes or cost drivers and leaves the manager without the information needed to drive down costs. Knowledge of the high cost drivers is the first step in driving down costs. The second step is the process of defining alternatives in sufficient detail that the investment and operating and support costs can be determined considering technical, schedule, and cost risk. The third step is the computation of the return on investment, payback period, and cost savings/growth associated with each alternative. This paper describes the use of total ownership cost and the decision support tools in government and industry.