n the healthcare setting, capital equipment purchases need to last seven to ten years, and at times even longer. While the initial cost to purchase the product is an important aspect for budget planning, the ongoing cost to operate and maintain a product can have an equally significant budget impact albeit on separate budgets across the organization. To fully understand the global budget impact, a product’s Total Cost of Ownership (TCO) or lifecycle cost analysis must be understood at the time of acquisition.

Beyond the acquisition cost, ownership costs take many forms including financing, staff training, software license fees, associated consumables, maintenance, warranty, service agreements and repairs.

The purchase method and accounting treatment impact TCO through interest, deductions and depreciation. Accounting or finance staff can provide detail appropriate to each facility for a thorough TCO picture.

Staff training is an essential component for proper equipment utilization. New equipment frequently provides clinical or operational efficiencies which in turn reduce overall operating costs. At times, the efficiencies actually defray or outweigh the actual costs. For these reasons, proper staff training is an important aspect of ownership cost.

Consumables and license fees are recurring expenses over the useful life of the product. License fees typically increase over the product’s life so the rate of price increase over the anticipated term should be understood. Per use consumption for any disposable accessory must also be clearly understood as there is often waste associated with use that inflates the eventual cost beyond a 1 use = 1 disposable.

manufacturer and their customer that the product will perform satisfactorily over the warranty period. Multi-year warranty periods provide an indication of product reliability and quality with longer terms implying better product reliability reducing the risks associated with purchase. Improved reliability has the benefit of reducing repair expenses and at the same time increasing product availability to end users.

…a multi-year manufacturer’s warranty offers significant added value – especially when considering Total Cost of Ownership.

Product warranty, service agreement costs and repairs go hand-in-hand. While most firms offer a standard one-year warranty with optional service agreements at a set cost, a multi-year manufacturer’s warranty offers significant added value – especially when considering TCO. Manufacturers typically establish warranty periods based on product tests that determine the Mean Time To Failure (MTTF). The analysis provides assurance to both the

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TCO analysis typically focuses on the specific purchase or project without looking at the financial or other benefits to the organization. TCO is typically an element of a cost-benefit analysis looking at the product purchase in the context of the organization’s operation.

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