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Many aspects to working out the real cost of ownership

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Michael Powell, product marketing manager at Kyocera Mita South Africa, outlines what is involved in calculating the real total cost of ownership (TCO).

The traditional way of doing things was really very simple – too simple, in fact.
A manager would pull out a calculator and factor in the cost of equipment, spread over its expected lifespan, and the projected costs of consumables, like paper and toner. The best models would also look at maintenance contracts as part of the overall TCO.
The typical benchmark was always a cost per page – for many companies, it still is.
The problem with this approach is that it is does not give a true reflection of the results. At best, it can be used as a guideline – but this may significantly differ from the real costs. Multiplying the length of time that equipment is used before it is completely replaced, one can end up with an entirely false picture of what that equipment has cost.
The question then becomes how to build a better model of TCO.
Stemming from awareness of the maintenance overheads, progressive companies started to build a more dynamic model, realising that there were other factors which a simple model failed to take into account.
Initially, these included the reliability of the equipment and the overhead on internal support required in addition to the need for external service and maintenance. This could also include some allowance for the impact that downtime has on the business – what are the costs of lost productivity when machines are down?
A primary aspect here is the length of maintenance cycles. How often does a machine need to be serviced? Beyond that, what is involved in the service procedure? Maintenance might be done with internal staff, or on site by an external contractor – or it might involve taking the machine away for a day or two. When that work is done, how many parts need to be replaced and are these costs covered in the contract or charged separately?
This model is already more sophisticated than the traditional one.
The next step is to work out what downtime is costing. How often does the equipment need planned maintenance and how long does that operation take? While it is happening, what is the productivity overhead? In a worst-case scenario, production stops for a few hours – even a day or so. The more likely situation is that staff will be inconvenienced and forced to use other machines, maybe in other departments.
Even in an ideal situation, where there are redundant machines and additional capacity, there is an overhead to be taken into account, as the work done by those machines increases and their maintenance cycles become more frequent.
One can often recognise the lack of planning in these situations when a company is using a costly colour printer as a backup every time a cost-effective monochrome machine is out of action. That is a real false economy – especially since the cheaper machine is often the one with a more frequent maintenance cycle.
Another relevant question is how many minor problems have to be attended to by on-site staff, typically well-paid IT support staff who are diverted from their core responsibilities to do printer support.
Lastly, power usage needs to be considered. This has always been a selling point in the industry but not a really compelling argument in this country, where electricity is cheap by global standards. It has now been dramatically highlighted by supply problems and the looming prospect of penalties for consumers who do not cut their energy usage – not to mention the general trend towards green business practices.
What is required to get a real measurement of TCO is a truly holistic view of all the factors involved. Working out cost of ownership is a multi-faceted process and the exact factors that must be considered – those that have major impact – will often be different for every individual customer.
This includes a number of less visible costs – such as lost productivity – which really get into the realm of risk analysis, rather than standard bookkeeping.
The main factor for almost any customer is maintenance – how often it happens, how long it takes and what additional costs might be involved.
Fortunately, manufacturers, vendors and dealers are very aware of this and there is a serious move throughout the industry to offer better packages, tailored to individual needs, which make maintenance more predictable and better managed than ever before.
This really helps people make the right buying decision. But they have to do the math properly in the first place.