# TOTEX and cost of ownership: the real price of an asset

> Adding up investment and operation across the whole service life: TOTEX and TCO reveal what an asset really costs, far beyond its price tag.

- Source : https://industryhub.site/en/learn/economics/totex-tco
- Track : Industrial economics
- Level : Practitioner
- Reading time : 6 min
- Language : English

## From TOTEX to TCO

In the previous lesson we separated CAPEX (the purchase) from OPEX (operation). But a decision is rarely made on one or the other: it is made on **both together**. That is the role of two closely related notions: TOTEX and TCO.

## TOTEX — adding the two pockets

TOTEX means *Total Expenditure*. It is simply the sum:

$$\mathrm{TOTEX} = \mathrm{CAPEX} + \mathrm{OPEX}$$

The term comes from network industries (water, electricity), where regulators wanted to stop pushing companies to capitalise everything. Reasoning in TOTEX makes you **neutral** between buying and operating: only the total cost matters.

## TCO — the cost over the whole life

TCO, *Total Cost of Ownership*, goes one step further: it adds **all** spending over the **whole life cycle**, that is CAPEX plus the sum of annual OPEX and the end-of-life cost:

$$\mathrm{TCO} = \mathrm{CAPEX} + \sum_{t=1}^{n} \mathrm{OPEX}_t + C_{\text{end of life}}$$

- acquisition (CAPEX);
- operation and maintenance (OPEX), year after year;
- downtime, lost production, obsolescence;
- end of life: decommissioning, recycling, clean-up.

For long-lived assets you discount the OPEX (a euro in 15 years is worth less than today). TCO is the **real basis of comparison** between two solutions; asset management makes it a central principle, formalised in the [ISO 55000](/en/standards/iso-55000) standard.

## An example that overturns intuition

Compare two variable-speed drives for the same motor:

| | Economy drive | Premium drive |
|---|---|---|
| Purchase (CAPEX) | €2,000 | €3,200 |
| Energy + maintenance (OPEX/yr) | €1,800 | €1,300 |
| Service life | 7 years | 12 years |
| **TCO over 12 years** | ≈ €25,600* | **≈ €18,800** |

\* it must be replaced after 7 years: a second purchase falls within the 12-year window.

The "economy" drive is **cheaper to buy but markedly more expensive to own**. That is the whole point of TCO: it makes visible what the purchase price hides.

## The reflex to acquire

Faced with two quotes, never compare the "price" lines. Always ask three questions:

1. How much does it consume and cost **per year**?
2. How long does it **last**?
3. What does **end of life** cost?

The cheapest to buy is rarely the cheapest to own.

## Key takeaway

TOTEX = CAPEX + OPEX. TCO adds the entire service life, end of life included. Comparing two solutions on purchase price alone is a mistake; you must compare their total cost of ownership.