total benefit of ownership (TBO)

Total benefit of ownership (TBO) is an estimation of how much value an acquisition brings to a business.

TBO is used as a counterbalance to total cost of ownership, which includes all the expenses of a given acquisition, to determine potential ROI. While TCO sums up what a company spent or will spend in a given scenario, TBO sums up the returns the company saw or will see from making the investment.

Benefits of ownership are quantitative and qualitative monetary returns from acquiring assets and/or personnel, operating a building or other business expenses. Benefits are improvements over 'business as usual', or how the company would perform without the investment or acquisition. Benefits of an acquired product include increased productivity; more agile and faster product development; lower facility, travel or logistics expenses; increased repeat customers or other measurable improvements to an operation. Some benefits are less tangible, such as a lower chance of a security breach or improved average customer satisfaction with their transaction.

Enterprise decision makers perform benefit analysis, paired with cost analysis, to estimate the actual value of an investment or strategic venture. This can occur prior to a purchase to decide between competitive offerings. For example, data center server A costs 20% more than server B, but can process twice as many transactions per hour than server B. The company's analysis will show that the productivity gain, a benefit of ownership, outweighs the purchase price difference. The return on investment is faster with server A.

To calculate total benefit of ownership after an acquisition, the decision makers add up all the assessed benefits. In a simplified example, a widget maker spends $100,000 to deploy secure transactional servers and $90,000 annually on an administrator to support them. The company realized $30,000 in additional profits annually due to an easier online purchasing process for customers. This is the quantitative benefit of the server acquisition. The company also was able to track customer interest in different products thanks to online ordering, and used this information to direct development of the next-generation widgets. This is a qualitative benefit of ownership that can be assigned a monetary value in a TBO assessment.

Procurement decisions cannot depend solely on the initial acquisition price. With total benefit and total cost of ownership estimations, businesses can protect against wasted or underperforming investments and improve operations. However, assessments are not an exact science, and perceived benefits can unduly skew an analysis.

This was last updated in May 2015

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