Why might a business underestimate its TCO?

Underestimating Total Cost of Ownership (TCO) can occur when a business focuses solely on direct costs. Direct costs might include initial purchase prices or immediate expenses associated with acquiring technology or resources. However, TCO encompasses a broader range of expenses, including indirect costs over time such as maintenance, support, training, and potential downtimes that may arise.

By concentrating only on direct costs, a business overlooks supplementary expenditures that contribute significantly to the overall cost of ownership throughout the product or service's lifecycle. This narrow focus results in a skewed understanding of what the true financial impact will be, leading to budgeting that does not adequately prepare for the total financial commitments involved in owning and operating the asset.

Recognizing the necessity to evaluate all costs associated with a technology or resource—beyond just the initial price—enables more accurate financial planning and resource allocation in the long term.