Daily Archives: June 7, 2009

The Total Cost of Ownership Equation in a Green Economy

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A recent article on building an actionable framework for Green Purchasing did a great job of outlining the the true total cost of ownership calculation for any purchase when sustainability is taken into account. Simply put:
TCO = Purchase Cost + Overhead + Environmental Costs + Social Consequences where

  • Overhead Costs and operating costs include:
    • labor requirements
    • utility costs
    • maintenance costs
    • rent
    • depreciation
    • production/utilization costs
  • Environmental Costs include:
    • regulatory reporting costs
    • remediation
    • pollution control costs
    • waste management costs
    • unused inventory disposal costs
    • labeling
    • environmental insurance
    • accident cleanup costs
    • future compliance costs
  • Social Consequence Costs include:
    • customer relationship costs
    • regulator relationship costs
    • lender relationship costs
    • worker health and safety costs
    • corporate image and brand costs
    • litigation costs

In other words, the best price is not the best price if:

  • the product costs more to use, maintain, and own
  • the product costs more to insure, dispose of, and clean-up after
  • the product could damage your reputation with customers, lenders, and regulators.