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PO&G: 'Total Cost of Ownership Models'

nugget article by Ferrin&Plank (2002)

Katherina Wittke

on 28 November 2012

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Transcript of PO&G: 'Total Cost of Ownership Models'

Standard models feasible? Cost drivers Total Cost of Ownership (TCO) Findings ...is 'another measure
that is used to proportionally distribute the cost of activities to cost objects.'
(Geiger, 1999) effective selection of cost
drivers can focus management
attention on the process
attributes that create cost. a financial estimate whose purpose is to help enterprise managers determine direct and indirect costs of a product or system to value purchase opportunities. A TCO model should be based on a core set of cost drivers, along with an auxiliary set of cost drivers Direct AND indirect costs need to be considered Previous Research Ellram's transaction-sequence cost component structure ('93)
Standard model and unique model (Ellram, '94) Canvinato
Jackson and Ostrom (life cycle costing)
Degraeve&Roodhooft (hierarchical levels) Effective implementation of TCO modeling depends heavily on the use of activity-based costing. Barriers to TCO Discussion Ellram&Siferd ('98): case-based research
organizational culture
relevance and porper use of TCO data
the nature of a firm's costing system Criticism Only one participant per organization
low response rate
Not representative The Study focus on 3 issues:
1. Type of model required (standard or specialized)
2. More specific information on cost drivers
3. Improve classification of cost drivers quantitative and qualitative cost drivers
core drivers
modular drivers 13 categories derived from the study (e.g. operation costs, quality, logistics,...) There is no real standard model. TCO models will evolve into various possibilities: standardized, slightly modified or unique, No completely precise categorization scheme for TCO cost drivers. With a large number of cost drivers identified and the subjectivity of those, more complex classification may be useful. Personal Opinion Open-ended questions not suitable
positive: long-run orientation of TCO models A value-based TCO computation is suggested.
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