What Is TCO in Facilities Management?

TCO (Total Cost of Ownership) is a financial estimate of the costs associated with owning, operating, and maintaining an asset throughout its entire lifecycle. It accounts for both direct and indirect expenses, including acquisition, installation, maintenance, repairs, downtime, and eventual replacement or disposal.

Whether you’re a facility manager or not, seeing all of the costs related to owning an asset isn’t new. For instance, anyone who has purchased a car knows that the upfront cost is one thing, but the cost of maintaining that vehicle is entirely another.

While the concept on its own is relatively straightforward, managing, optimizing, and calculating TCO as a facility manager can get complicated. Many hidden fees can appear unexpectedly long after your initial purchase, and indirect costs related to any one asset can be quite unexpected.

To help you better predict the overall costs of your next purchase, we will look at TCO in further detail and show you what tools you can use to make your facility’s TCO analysis much easier.

What Does TCO Stand For & Why Does It Matter in Facility Management?

TCO stands for Total Cost of Ownership, and it matters to FM because it provides a full view of the potential financial impact of a particular asset beyond its initial purchase. Having that kind of visibility into all these costs is important because it helps leaders make smarter, data-driven decisions about where and how to invest resources.

For example, if data analytics reveal that equipment from a certain brand is more likely to need frequent repairs compared to other brands, it may be best to seek alternatives, even if the initial purchase costs are higher. The lower cost/higher failure rate brand will have a higher TCO despite having a lower purchase price.

What’s the Difference Between TCO vs. Initial Purchase Price?

Your initial purchase price is simply how much it costs you to buy the asset. By comparison, TCO involves all of the direct and indirect costs related to owning that asset over time. When you compare the total cost of ownership to the upfront price, you get a clearer picture of long-term value.

Of course, it’s easy to focus on the lowest purchase price when budgets are tight. Many finance and procurement teams fall into this trap, only to discover later that maintenance, downtime, and inefficiency inflate the true cost, resulting in little or no actual savings.

Avoiding this pitfall is all about transparency and planning. Look beyond the initial invoice and consider later service fees, replacement cycles, energy consumption, employee training costs, resale value, and the impact on productivity gains or losses.

How Is TCO Calculated?

Total cost of ownership (TCO) is calculated by adding all direct and indirect expenses that occur throughout an asset’s lifecycle and subtracting its residual value.

Think of it using this formula:

For example, if a rooftop HVAC unit costs $25,000, plus $5,000 for installation and $2,000 per year in operation and maintenance over 5 years, with $3,000 total downtime cost, $1,000 disposal, and $2,000 resale value, the formula would be as follows:

25,000 + 5,000 + (2,000 × 5) + 3,000 + 1,000 − 2,000 = $42,000 TCO

Maintenance Best Practices That Help Reduce Overall Ownership Costs

Schedule Preventive Maintenance

Stay ahead of costly breakdowns by scheduling maintenance based on asset data like usage hours or performance readings. When maintenance is tracked this way, you know exactly when equipment was serviced and by whom.

That record also becomes proof if a part fails while it’s still under warranty, which gives you a chance to recover costs from the manufacturer instead of paying for an emergency repair out of pocket.

Use Data to Decide When to Repair or Replace Equipment

Compare repair costs, downtime, and asset age to determine when replacement is the smarter investment. Doing so keeps you from pouring money into equipment that’s past its useful life.

Measure Provider Performance

Track how fast and how well each provider completes work orders. When you have a clear analysis of performance data, you can assign more work to high performers and spend less on underperformers.

Track Compliance

Log refrigerant use, leak checks, and required certifications. Keeping these records means you can prove compliance at any time an audit occurs. It also helps you identify assets that may need replacement because they drain costs through inefficient refrigerant use or frequent leaks.

Monitor Energy Usage

Review utility data from HVAC, lighting, and refrigeration systems to identify equipment that consumes more energy than expected. Once those assets are flagged, you can schedule tune-ups, adjust runtimes, or replace inefficient units to save on energy costs. If tracking this data is challenging, you can use digital tools, like ServiceChannel, to store all utility data in one place.

Automate Dispatch

Use automation to route maintenance requests to the right provider based on trade, skill, and proximity. This practice reduces time-to-fix, avoids duplicate calls, and controls costs tied to delays or overtime.

What Does TCO Optimization Look Like for Various Equipment?

Sometimes, it’s hard to picture what the benefits of TCO analysis are without concrete examples. Here are a few fictitious scenarios based on real assets that your facility probably has.

HVAC System

A 10-ton rooftop HVAC unit costs about $12,000 to replace. Skipping annual preventive maintenance might save $600 per year, but performance declines over time, which increases energy use by 10–15% and shortens the unit’s lifespan by 3 years. By comparison, regular maintenance keeps the unit running at peak performance, which keeps energy costs low and extends its useful life.

Refrigeration

A commercial walk-in cooler uses refrigerant costing $80 per pound, with a full charge of 25 pounds. An undetected leak drained the system over a few months. Repair and refill costs exceeded $3,000, not including spoiled inventory. A simple $400 annual refrigerant inspection could have prevented these costs.

Kitchen Fryer

A commercial fryer that costs $6,500 averages $900 per year in repair expenses after its 5th year. Over 3 years, those repairs total $2,700, nearly half the cost of a new unit. Replacing at year 6 instead of year 8 cuts energy use by 20% and lowers overall ownership costs by about $1,500.

See How You Can Lower Your Total Cost of Ownership Through ServiceChannel

Managing TCO across an enterprise with many locations is undoubtedly a challenge, but it doesn’t have to be a shot in the dark. With the right data, tools, and processes in place, businesses and facilities teams can make the best data-driven decisions to calculate and manage TCO and use their money most efficiently.

Use ServiceChannel’s tools to track assets across all business locations, including key data points such as location, age, condition, warranty status, and service requests. Having visibility into past repair data, processing times, and overall costs can help you plan for upcoming budgets and identify better suppliers that could positively impact your operations.