Totting up the TCO

Is total cost of ownership about value for money or marketing ploy?

James Morgan is the editor of CW's sister title PMV Middle East
James Morgan is the editor of CW's sister title PMV Middle East

I’ve heard an awful lot recently about the total cost of ownership, or TCO as the financial types like to call it. Talk to any construction equipment manufacturer or dealer and they will tell you that the days of straightforward price-taggery are dead and gone.

Whilst this is all well and good, from a journalistic perspective, it’s becoming increasingly difficult to get a simple answer to a simple question. I often ask – out of a general sense of curiosity, if nothing else – how much machines cost. The responses I get, however, rarely contain any actual figures.

“We are all about reducing the total cost of ownership,” I am frequently told. Naturally, I applaud this sentiment, but as a fairly uncomplicated man, I like to begin with the initial cost of ownership and work my way up. Even when I persist with my line of questioning, I tend not to receive a concrete answer. I appreciate that the particulars of any deal will depend on the positions of the respective negotiators, but I am only asking for a ballpark figure.

Of course, I can understand my interlocutors’ general reluctance to give definite answers to the likes of me. After all, any salesperson worth his or her salt knows that I’m not about to shell out huge amounts on a new excavator. Even so, I do have a genuine reason for asking.

Perhaps I’m just being cantankerous. Maybe I’d do better to explore the benefits of TCO, of which there are many. For example, engine manufacturer Volvo Penta recently distributed an interesting article about the work that it is conducting to reduce TCO. Its formula – specifically for engines – is as follows:

Engine price + integration cost + cost of operation and service - resale value = TCO.

In line with this formula, Volvo Penta is working to improve fuel efficiency, reduce ventilation costs, simplify integration, and raise engine resale values. In this instance, TCO has driven genuine innovation. Another example of effective TCO strategy is MAN’s ProfiDrive training programme, which highlights the financial savings – not to mention safety gains – that can result from having well-trained personnel behind the wheel.

TCO is not just a clever marketing ploy to make prices seem more reasonable. When set out in a logical manner, it makes sense. It is no longer enough for products to be initially competitively priced as customers are becoming more discerning. More than ever, they demand robust, reliable equipment with high standards of after-sales support. This is driving manufacturers and dealers to think in more detail about reducing costs across the lifetime of a machine.

As such, the next time somebody speaks in vagaries when I ask them about the cost of a machine, I will avoid becoming annoyed and remind myself of the positive impact that the TCO trend is having on the PMV market. Even so, it would be nice to hear some numbers – if only occasionally.

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Construction Week - Issue 767
Sep 01, 2020