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Total Cost of Ownership

Total Cost of Ownership
The term "Total Cost Of Ownership" (the total cost of ownership or the cost of the life cycle of a building or structure) is the cost of the life cycle of a building/structure, starting with the initialization of construction and ending with decades of operation. Most customers are surprised to learn that the bulk of the cost of a building/structure arises after the completion of construction, which means that the high price associated with pre-construction, procurement of materials, construction and closure is only the tip of the iceberg.
In fact, the initial construction costs are only 10% of the total cost of ownership associated with new construction!

How to determine TCO
The total cost of ownership is calculated taking into account all aspects of the initial construction, as well as cost analysis for the entire life of the building. This includes factors such as:
- Energy efficiency
- Long-term maintenance of the facility
- Repair and replacement of systems, etc.
The preliminary design refers to the initial planning stage of the project. During this time, the scope of the project is detailed, building schedules are displayed, deadlines for purchasing materials are outlined, and cost estimates are completed. It is also the stage where potential problems are identified and resolved before they become costly construction errors. The preliminary design is the optimal time for the overall cost analysis of the project to be completed.
After all the costs for the entire service life have been taken into account, the corresponding total cost of ownership can be determined. This calculation not only gives the client a more accurate idea of the value of the property over the entire service life, but also the analysis of the total cost of ownership also makes it possible to optimize costs at the stage of preparation for construction.

Optimizing your TCO
A simple example: light bulbs
One of the easiest ways to illustrate TCO is the example of a light bulb.
Before LEDs (LED lighting) became ubiquitous, CFLs (Compact Fluorescent lamps) were installed in buildings. When LEDs became commonplace, builders had to decide whether such a switch was financially feasible.
For this purpose, for many structures, an analysis of the duration of gorenje compared with the initial costs and energy costs for each of them was carried out. Simplified analysis to date, taken from the website , will look like this:

Thus, although the initial cost of each LED lamp is 4 times higher than that of a fluorescent lamp, the total cost of ownership of LED lamps is $10 less per lamp. Depending on the size of the building, the total savings can reach hundreds of thousands of dollars.

TCO for existing buildings and structures
Despite the fact that the total cost of ownership should be included at the stage of preliminary estimates of the future project, a similar cost audit can be carried out for an existing facility. This type of analysis (financial and technical control) will include the current projected costs for the lifetime of the existing building, as well as recommendations on ways to reduce TCO. Again, a simple example of cost reduction for a lifetime can be found in improving energy efficiency.

                                                                TCO for 23 years

We analyze this and other topics in detail at our trainings on project management in construction and financial and technical audit in construction.

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Saniya Ayambekova
Advanced Controls & Project Management
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