Updated: November 21, 2023
Total cost of ownership (TCO) quantifies the cost of the purchase across the product’s entire lifecycle. It is an estimation of the expenses associated with purchasing, deploying, using, and retiring a product, piece of equipment, or property.
The concept of TCO was adapted to the construction and maintenance of university campuses in the 1980s by Doug Christensen, who highlighted the need for a complete TCO analysis of the lifetime costs of new constructions. Since then, this concept has been used in private and commercial constructions. This concept can be transferred to properties in Portugal to lower property costs over a long time frame to save you money in the long run. So, whether you are considering snapping up a property in Lisbon, buying land close to Sintra, or perhaps even on the islands of Madeira and the Azores, the TCO is certainly something to bear in mind.
What is the total cost of ownership (TCO)?
A TCO analysis (also referred to as Life Cycle Cost Analysis) refers to the lifetime costs of a building from initial construction through its decades of operation.
You may be surprised to find out that the bulk of a building’s costs come after the construction has been completed. Indeed, the initial expense of construction accounts for only around 10 percent of the TCO associated with a new build.
The three main components to consider when calculating the TCO are the purchase price, maintenance costs, and repair costs.
How is TCO calculated?
The TCO is determined by considering all aspects of the initial construction and the lifetime costs associated with a building, including factors such as long-term facility maintenance and systems repair and replacement.
When the lifetime costs are considered, an appropriate TCO can then be determined. This calculation provides an accurate assessment of the lifetime value of a property. In addition to this, a TCO also makes room for cost-saving improvements during the preconstruction phase.
Optimizing Your TCO
The initial planning stage of a project is referred to as preconstruction. This is the best time for a Total Cost of Ownership analysis to be completed. During this phase, the scope of the project is detailed, timelines for procuring materials are drawn up, building schedules are created, and the cost estimation is completed. This is the phase in which potential issues are identified and rectified before they become costly construction mistakes. If you are building a property in Portugal, ensure that the TCO is being taken into account.
An example of TCO: A lightbulb
Providing you with a Total Cost of Ownership example is perhaps the best way to understand TCO, and we’ll provide you with the example of a lightbulb.
Before LEDs (Light Emitting Diodes) were prevalent, buildings contained large tubes of Compact Fluorescent Lights (CFLs) in their overhead fixtures. After LEDs became increasingly common, builders needed to choose whether the switch made sense – and for this, they analyzed the length of burn time against the upfront cost and energy expense for many structures.
They concluded that while the upfront cost of an LED lightbulb was more or less four times higher than a CFL, the TCO for an LED lightbulb is approximately $10 less for each one.
Depending on the size of the building, this can significantly save costs in the long run.
Total Cost of Ownership (TCO) for Existing Builds
Total Cost of Ownership should be included in the preconstruction phase of new builds, and a comparable assessment can also be conducted for existing buildings.
This analysis encompasses the anticipated lifetime expenses of an already constructed building, in addition to suggestions on how to minimize TCO.
Improving energy efficiency serves as a prime example of actions that can reduce overall expenses over the long term, and considering Portugal’s growing emphasis on sustainable construction, it is generally feasible to implement such measures in buildings across the country.
Improving energy efficiency in existing buildings
As we mentioned, the Total cost of Ownership formula can also be applied to existing buildings. Retrofitting systems in existing buildings can greatly enhance the TCO, going one step further than simple changes, such as transitioning from CFL to LED lightbulbs.
By implementing modifications to various systems, whether heating, ventilation, air conditioning, sensor-based lighting controls, or heat capture and reuse, amongst others, the long-term reduction of costs can be significant.
Yes, the Total Cost of Ownership model is a significant way to reduce costs over the lifespan of a property. If you are considering building a property in Portugal or already own one, running a TCO can help you save money to ensure that the property is running as efficiently as possible.
Goldcrest: Who We Are and How We Can Help You
Goldcrest is a buyer’s agent that is based in Lisbon. We provide expert, impartial advice on real estate investments and how to buy property in Portugal. From scouting out the perfect property through to property acquisition, we have you covered throughout the process.
If you are looking to purchase property in Portugal, don’t hesitate to get in touch. Our team of skilled experts is available to solve all your real estate doubts, offering insightful expertise and strategic advice. A crucial difference between a real estate developer and a buyers agent is that a buyers agent will work on behalf of the client, ensuring that you get the perfect investment and the best possible purchase price.
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Frequently Asked Questions about the Total Cost of Ownership
What is the Total Cost of Ownership with an example?
TCO (also referred to as Life Cycle Cost Analysis) refers to the lifetime costs of a building from initial construction (initial purchase price) through its decades of operation. It is basically an estimation of the expenses associated with buying, deploying, using, and retiring the building and quantifies the cost of the property over its entire lifetime.
The bulk of a building’s costs come after the construction has been completed, and the initial expense of construction accounts for only around 10 percent of the TCO associated with a new build. Therefore, it is important to understand the lifetime costs of the property and how you can reduce costs in the long run. Direct costs and indirect costs are included in the TCO, in addition to operational costs.
To provide you with an example, the upfront cost of an LED (Light Emitting Diode) lightbulb is more or less four times higher than a CFL (Compact Fluorescent Light). The TCO for an LED lightbulb is approximately $10 less for each one.
What are the three costs of ownership?
The TCO The three main components to consider when calculating the TCO are the purchase price, maintenance costs, and repair costs.
Note that the purchase price is only the tip of the iceberg. It is best to consider the costs throughout the lifespan of the property and not simply the initial purchase price.
What is the Total Cost of Ownership model?
Total Cost of Ownership (TCO) is a calculation that estimates the costs related to the acquisition, implementation, utilization, and disposal of a product or equipment. TCO, also known as actual cost, measures the overall expenses incurred throughout the entire lifespan of the purchased item, including operating costs and direct and indirect expenses, and not simply the initial purchase price.