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Total Cost of Facility Ownership

Transportation asset management is built around competing goals, metrics, objectives, and expectations. These factors can cause tension or conflicts between units and departments, even when everyone is seeking a successful outcome. The purpose of a Total Cost of Facility Ownership (TCFO) analysis is to find the lifetime costs of acquiring and operating a facility or asset. TCFO analysis is based on the notion that there can be a large difference between the initial price of something and its long-term costs. Decisions should be based on the total cost of ownership over time, not just the initial costs.

 TCFO uses life-cycle cost analysis, taking into account all costs of acquiring, owning, and disposing of a building or other type of facility. Then a team estimates the overall costs of project alternatives, and selects a design or product that provides the lowest overall cost of ownership consistent with its quality and function.

TCFO analysis can be used to support acquisition and planning decisions for a wide range of assets that carry significant maintenance or operating costs across a long usable life. Examples include vehicles, buildings, pavement installations, bridge construction, and more.

TCFO analysis can have a place in:

  • Budgeting and planning;

  • Asset life-cycle management;

  • Prioritizing capital acquisition proposals;

  • Vendor selection;

  • Lease versus purchase decisions.

This type of analysis is useful when two or more project alternatives fulfill the same performance requirements, but differ in initial costs and operating costs; the analysis can compare the alternatives and help in selecting the alternative that maximizes net savings. By estimating the total cost of operating over the life of a facility, and by using this information as part of the budgeting and decision making process, an agency is more likely to arrive at a better decision: one that may include additional up-front funding to design and build a more efficient facility, or purchase a more robust product.

TCFO Cost Calculations
Life-cycle costing analysis takes a component-by-component approach to the initial cost, maintenance costs, energy costs, and replacement for refurbishment costs of equipment over the life of a facility or product. The goal is to determine the lowest total cost of the alternatives. A simple two-dimensional matrix whose cells represent cost categories can represent a TCFO analysis. The vertical axis represents asset resource categories, and the horizontal axis represents asset life-cycle stages. Each axis covers the complete set of categories for that dimension that are useful to decision makers and planners.

Sample matrix showing life-cycle costs for several alternatives
Life Cycle Cost Analysis Handbook; State of Alaska Dept. Of Education; 1999
TCFO Cost Calculations

The TCFO model is successful if the cost categories capture the obvious costs, but also less-obvious, or "hidden" costs. After identifying all costs by year and amount and discounting them to present value they are added together to arrive at a total life-cycle cost for each alternative.

The most challenging task of a TCFO analysis is to determine the economic effects of alternative choices, and to quantify these effects and express them in dollar amounts. This is done in the matrix by constructing scenarios which show the cost differences between corresponding line items on two or more alternatives.




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