Define the analysis period and alternatives
Use a period long enough to capture meaningful differences. Alternatives should provide comparable service or performance; otherwise the analysis needs explicit adjustments.
Common cost elements
- Purchase, design, implementation and commissioning
- Energy, subscriptions, consumables and staffing
- Preventive and corrective maintenance
- Downtime, lost capacity and support impacts
- Major replacements, upgrades and residual value
- Decommissioning, disposal or transition
Use present value carefully
Future costs can be discounted to a common date. Keep real and nominal assumptions consistent: if cash flows include general inflation, the discount rate should be compatible. Sensitivity testing is often more informative than debating one rate.
Include non-cost differences
Reliability, safety, service quality, flexibility and strategic risk may matter even when they are difficult to monetize. Present them alongside the financial model rather than forcing false precision.
Boundary warning: total cost of ownership changes substantially depending on which staffing, support, downtime and shared costs are included.