Total cost of ownership (TCO) is the sum of all costs and expenses related to buying, implementing, and managing your software solutions (either directly or indirectly). This value includes the entire lifecycle from the time of purchase.
The value of the TCO concept
TCO is a good concept because it activates thinking around the future costs of decisions made now.
For example, “Band-Aid” tech solutions may cost little up front and provide solutions in the short term. However, long term, such short term solutions may create data debt for users, be difficult and expensive to maintain, and have the risk of causing bugs.
Price vs TCO, and composition
Price is different to TCO. The directly-related cost (once off or recurring) paid to a system provider is the price. The total cost of ownership, on the other hand, includes all additional expenses to operate this new system, such as maintenance, related hardware and software acquisitions, subscriptions, training, onboarding, ongoing support, upgrades, etc. TCO also encompasses other costs such as time spent by management to manage system-related processes (ranging from product decisions to developer management), loss in productivity due to system errors and downtime. These factors are easily ignored, but, priced correctly, can add up to large numbers – resulting in different decisions.
Thus, while price is an important factor, TCO should be the driving force behind your tech stack decisions. And your tech stack decisions are all ultimately about return on investment, or the correct deployment of (financial and human) capital