The TCO formula laid out in USPS Supplying Practices Process Step 1: Identify Needs still applies:
TCO = P + Present Value of (O + T + M + W + E — S)
Where:
P = Purchase costs; purchase price of a product or service.
O = Operating costs; costs to run a product or service.
T = Training costs; costs to train users.
M = Maintenance costs; costs to maintain the product or support the service.
W = Warehousing and distribution costs.
E = Environmental costs; costs to upgrade to environmentally friendly standards.
S = Salvage value; costs to scrap the product or service at the end of its useful life.
During the Prepare Project task of USPS Supplying Practices Process Step 2: Evaluate Sources, it is essential to analyze and adjust the cost element against newly acquired information since the development of the preliminary TCO estimate. Figure 2.1 summarizes the possible cost elements and potential sources.
Figure 2.1
Cost Elements and Potential Sources
Cost
Source of Reference
RFI
Unsolicited Proposal
Item Purchase History
RFP, SOO, SOW, Specifications, and Product Description
Project Plan
Resource Assessment
Logistics Support Plan
Business Justification
Purchase
✓
Operating
Training
Maintenance
Warehousing and Distribution
Environmental
Salvage
If the updated TCO exceeds funding objectives, the purchase/SCM team should adjust the requirement or obtain additional funding from the client to ensure that objectives become financially feasible. Such analysis and adjustment should take place before proceeding to the Formulate Project Budget and Request Funding topic of the Prepare Project task of USPS Supplying Practices Process Step 2: Evaluate Sources.
