How to calculate TCO during a bid evaluation?
A TCO Index calculation method has been developed using the adjacent figure.
The model takes into account all related costs to be accounted for in a bid evaluation. The model also considers Asset Lifecycle duration and management aspects.
The TCO Index is a normalized figure in order to ensure confidentiality of financial figures presented by bidders.
There are two versions of the TCO Index calculation ...
1) a detailed model, and 2) simplified version.
A TCO Index example of 77.5 versus a base case of 100 for a lifecycle of 20 years is shown, in which lifecycle costs are allocated to CAPEX and OPEX types (e.g. acquisition, deployment, operation and support, retirement and replacement).
The Total Cost of Ownership (TCO) for capital investments, as for example an IT system, is allocated to various cost components e.g. purchase/acquisition costs, operational costs, replacement costs, etc.
Gartner and Forrester Research present some typical TCO figures as per the adjacent image. Both firms indicate the purchase cost being about >32% of the TCO. Given the asset lifespan period, the longer the lifespan, the higher the TCO in absolute figures, but the purchase cost as % of the TCO gets lower. That's why Life Cycle Management of IT assets is significant.
A key point of course is that the purchase/acquisition costs alone do not represent the most advantageous selection of a suppliers, from the financial point of view. It is the TCO Index.
Calculating the TCO Index for each competitive bid in IT is quite analytical but worth the effort during evaluation of supplier proposals.
The TCO Index is a normalized figure in order to ensure confidentiality of financial figures presented by bidders. 
