Initial cost初期コスト is money spent only once, at the stage of introducing a system; it is also called upfront costイニシャルコスト.
Buying hardware and software, developing the system, and the labor for installation and initial setup all fall here. Once the system is in place, the same cost does not come up again.
AnalogyIt is like paying for furniture when you move into a new home. You pay it all at the start, and that expense does not return once you are living there.
How to rememberThe katakana イニシャル is the English word initial, as in the initials of a name, meaning "the very first." Tie it to the money paid that first time.
Exam points
ExamInitial cost初期コスト is one part of TCO; TCO is the total obtained by adding to it the costs of running and managing the system after introduction.
Operating cost運用コスト is money that keeps being spent to run and maintain a system for as long as it is in use; it is also called running costランニングコスト.
Electricity and communication charges, maintenance fees for hardware and software, and the wages of the staff who operate the system all fall here. These costs arise every month or year, so the longer the system is used, the larger the running total grows.
AnalogyIt is like the utility bills and repair costs of a home you live in. They come every month as long as you stay, and the sum swells the more years you live there.
How to rememberランニング is the English word running, "keeping on going." Remember it as the cost that never stops while the system keeps working.
Exam points
ExamWithin a system's total cost, the share paid continuously after it goes live 運用コスト grew relative to the share paid at introduction, and that is why people began looking at the total through TCO.
Mix-upEven for costs tied to the same piece of equipment, the purchase price counts as initial cost 初期コスト, while the maintenance contract fee after purchase counts as operating cost運用コスト. What separates them is whether the cost happens once or keeps recurring.
TCO (Total Cost of Ownership 総所有コスト) is the total amount spent on a system from its introduction until its disposal.
Option
Initial cost
Yearly operating cost
5-year TCO
Option X
1 million yen
0.6 million yen
1 + 0.6 × 5 = 4 million yen
Option Y
2.5 million yen
0.2 million yen
2.5 + 0.2 × 5 = 3.5 million yen
It is found by adding the initial cost paid at introduction to the operating cost paid while the system runs. An option with a low purchase price can end up costing more over the years of use if its yearly costs are high, so several options should be compared on their totals.
AnalogyIt is the same thinking as choosing a home appliance by adding several years of electricity bills to the sticker price, not by the price alone.
How to rememberOwnership means "having something." The term points to the cost across the whole time you have the system, not the moment you buy it.
Exam points
ExamTCO includes not only direct spending such as the price of hardware and software but also costs that come along with putting the system to use, such as training its users.
ExamWhether a cost belongs in TCO depends on whether it arose to introduce the system or keep it running. Costs of the business transactions carried out with the system are not included.
ExamThe total equals the upfront cost plus the yearly cost multiplied by the number of years in use. The option with the lowest upfront cost is not necessarily the cheapest in total.
TCO is the total cost of a system from introduction to disposal, found by adding the cost at introduction to the costs while it runs.
To compare the totals of several options, multiply the yearly cost by the years of use and add the upfront cost. The longer the period, the more the gap in yearly costs shapes the total.
Whether a cost counts toward TCO depends on whether it arose to introduce or maintain the system.
Cost-effectiveness (economy) is one criterion for evaluating a system, alongside performance and reliability.