A digital transformation also includes a meaningful assessment of the business case. Even if the ideas are good and creative, you have to be able to earn money with them in the end. The method presented below relates to the cost side of the business case and is intended to help avoid overlooking or forgetting any costs in a structured manner.
Total Cost of Ownership (TCO) is a valuation method designed to help companies estimate all the costs incurred by investments (such as software and hardware in IT). The idea is to obtain a cost assessment that includes not only the acquisition cost, but also aspects of prior initiation and subsequent use (energy costs, repair and maintenance) of all the components concerned. Thus, known cost drivers or even hidden costs can possibly be identified in advance of an investment decision.
The transaction of acquisition here is called order. The individual cost drivers or types can be referred to as cost components. After the cost evaluation, it is necessary to check how these costs are reflected in the income statement, for example. in the form of depreciation and amortization. Some important components are now described below.
Cost components before ordering:
– Specification preparation costs: drawings, specifications, technical data sheets, parts lists, delivery specifications, standards, certifications
- Source identification: procurement market analysis, creation of a Request for Information, supplier scouting, trade fairs
- Negotiations/conclusion of contracts: preparation of contracts, coordination with legal departments/lawyers, preparation and execution of negotiations, communication costs (travel, etc.)
- Supplier qualification: audit costs, travel costs, qualification costs, development costs, changeover costs (tool costs, initial sample inspection, special transport costs, samples), experts
Cost components during the order:
Material price: material price basis, possible indices, material shares, other surcharges
Service price: rate cards, service units, other surcharges
Price surcharges: Bonuses, discounts, Incoterms, exchange rates
Delivery and transport: packaging, freight, handling
Quantity: minimum order quantity, replenishment times,minimum solution size based on replenishment times, safety stock, inventory holding costs, vendor-managed inventory.
Costs per order: process costs for requisition, order, goods/service receipt posting
Quality control: costs of testing equipment (external, internal), incoming goods inspection, scrap costs, returns
Costs after the order:
Downtime: Machines, employees, services, external workers
Operating costs: energy, room/area, cleaning
Set-up costs: start-up costs, tool changes, retooling operations,locksmith work, etc.
Repair and maintenance: maintenance, troubleshooting, industrial cleaning, replacement of wearing parts, rework costs, special trips.
Inventory costs: storage for buffers, tools, material
Other costs: disposal costs, costs due to delay, disputes and project management, consultingDepending on the investment, specific costs can certainly be identified that have not been thought of here. It is important to think about the possible cost drivers in advance.
