Total Cost of Ownership (TCO) Estimation (3–5 Years)
governance
indirect
systemic
This metric estimates the total cost of ownership (TCO) of a system over a period of three to five years. It aggregates all relevant cost components across the system lifecycle, including infrastructure, operations, maintenance, licensing, and cloud usage. The metric supports long-term, sustainability-aware business decisions by making future cost implications visible early.
In a Green Agile context, TCO Estimation connects technical decisions with economic sustainability. Architectural choices, technology stacks, automation levels, and operational practices directly influence long-term costs. By explicitly estimating TCO, teams can compare solution options not only by short-term delivery cost, but by their long-term economic and organizational impact.
Classification
- Category: Governance, Reporting & Compliance
- Measurement Frequency: semi-annually
- Responsibility: Product Lead
Impact
Tracking the TCO over multiple years supports informed investment and prioritization decisions. A decreasing TCO per unit of delivered value indicates more sustainable and maintainable solutions. Increasing TCO trends highlight rising operational complexity, growing maintenance burden, or cost-intensive infrastructure choices.
Because this metric aggregates effects across multiple cost dimensions and time horizons, it represents a systemic impact. It strengthens governance by encouraging lifecycle thinking and aligning product strategy with long-term financial and sustainability goals.
Calculation
The Total Cost of Ownership is calculated as the sum of all relevant cost components over the selected time horizon:
\[\text{TCO} = \sum (\text{CapEx} + \text{OpEx} + \text{Maintenance} + \text{Licensing} + \text{Cloud Costs})\]To enable meaningful comparisons, teams should relate TCO to a unit of benefit (e.g. users served, transactions processed, or business value delivered). The desired direction is a falling TCO per unit of benefit.
Example
Assume a system has the following estimated annual costs:
- Infrastructure & cloud usage: €120,000
- Operations & monitoring: €60,000
- Maintenance & bug fixing: €80,000
- Licensing: €40,000
The total annual cost is:
\[120{,}000 + 60{,}000 + 80{,}000 + 40{,}000 = 300{,}000 \text{ €}\]Over a 4-year horizon, the estimated TCO is:
\[4 \times 300{,}000 = 1{,}200{,}000 \text{ €}\]If a redesign reduces maintenance and operational costs, the TCO per delivered value unit decreases, indicating a more economically sustainable solution.