Total Cost of Ownership (TCO) Analysis Template

Multi-year TCO comparison of options by cost category, with NPV discounting, sensitivity, break-even and recommendation

Arsitektur & Desain SistemStandartco analysis mathDiperbarui 20 Okt 2026

Cara menggunakan: Use when choosing between options whose costs differ in timing or type, such as self-hosting versus SaaS. Fix scope, horizon, currency and discount rate first, then fill every cost category for every option. The main pitfall is under-counting people and exit costs; keep all arithmetic visible.

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Total Cost of Ownership Analysis: [Solution or decision name]

Total cost of ownership (TCO) analysis comparing two or more options over a fixed horizon: scope, cost categories (acquisition, implementation, operations, licences, people, infrastructure, exit), year-by-year cost tables, discounting to net present value, sensitivity analysis, assumptions and a recommendation. Based on common industry practice for TCO and discounted cash-flow comparison. Replace every [bracketed] value and every figure marked Example. This is a format for analysis, not financial advice; agree the discount rate and accounting treatment with your finance team.

Field	Value
Document ID	[TCO-001]
Decision supported	[e.g. Self-host versus SaaS for the observability platform]
Version	[0.1]
Status	[Draft / In review / Approved]
Owner	[@architect]
Finance reviewer	[@finance-partner]
Last updated	YYYY-MM-DD
Related	[Technology selection TS-NNN], [ADR-NNN], [Business case]

1. Scope and horizon

[Describe the capability, the user population and the volumes being costed. List anything explicitly out of scope.]

Example: Observability platform (logs, metrics, traces) for 140 services, 2 TB of logs per day, 30-day hot retention, 400 engineers with read access. Out of scope: security information and event management (SIEM), which has its own budget line.

Parameter	Value
Options compared	Example: A = self-hosted open-source stack; B = SaaS observability vendor
Horizon	Example: Year 0 (set-up) plus 3 operating years
Currency and basis	Example: USD thousands, nominal (includes expected price rises)
Discount rate $r$	Example: 8% per year, supplied by [finance]
Timing convention	Example: Year 0 costs at start; Years 1 to 3 costs at year end
Volume growth	Example: Flat volumes; growth tested in section 5

2. Cost categories

Category	Includes	Excludes
Acquisition	Hardware purchase, perpetual licences, one-off vendor fees, procurement costs	Recurring subscriptions
Implementation	Design, build, configuration, data migration, integration, training, consultants	Run-state staff
Licences	Subscriptions, support contracts, usage-based fees	One-off perpetual licences
Infrastructure	Compute, storage, network egress, backup, environments	Vendor-hosted costs inside the subscription
People	Loaded cost of staff who operate, maintain and support the solution	Implementation project staff
Operations	Monitoring, incident tooling, audits, certificates, minor tooling	Staff time (counted under people)
Exit	Data export, parallel running, decommissioning, contract termination fees	Costs of the successor solution

Hidden costs to check for each option: [list]. Example: egress fees, premium support tiers, compliance audits, on-call allowances, retraining when staff leave, and the cost of the old system running in parallel.

3. Cost tables per option

3.1 Option A: [Self-hosted open-source stack]

Values in USD thousands. Year 0 is set-up; Years 1 to 3 are operating years.

Category	Year 0	Year 1	Year 2	Year 3	Total
Acquisition	Example: 40	0	0	0	40
Implementation	120	0	0	0	120
Licences (support contract)	0	10	10	10	30
Infrastructure	30	60	60	60	210
People (1 FTE platform engineer, loaded)	0	150	150	150	450
Operations	0	20	20	20	60
Exit	0	0	0	30	30
Total	190	240	240	270	940

Notes: [sources]. Example: infrastructure from the cloud cost calculator for 18 storage-optimised nodes; people cost at the internal loaded rate of 150 per FTE-year.

3.2 Option B: [SaaS observability vendor]

Category	Year 0	Year 1	Year 2	Year 3	Total
Acquisition (onboarding fee)	Example: 10	0	0	0	10
Implementation	80	0	0	0	80
Licences (subscription, +5% per year)	0	180	189	198	567
Infrastructure	0	0	0	0	0
People (0.33 FTE administrator)	0	50	50	50	150
Operations	0	10	10	10	30
Exit (data export, dual running)	0	0	0	40	40
Total	90	240	249	298	877

Notes: Example: subscription from vendor quote Q-2291 dated YYYY-MM-DD, with the 5% annual uplift in the draft contract; Year 3 uplift rounded to 198.

3.3 Option [C]: [Name]

[Repeat the table for each further option, or delete this subsection. Include a "do nothing" option when the current solution has a running cost that would continue.]

4. Discounting and net present value

The net present value of the cost stream of an option is

\text{NPV}_{\text{cost}} = \sum_{t=0}^{T} \frac{C_t}{(1+r)^t}

where $C_t$ is the total cost in year $t$ , $r$ is the discount rate and $T$ is the last year of the horizon. With $r = 8\%$ the discount factors are $1.0000$ , $0.9259$ , $0.8573$ and $0.7938$ for Years 0 to 3.

Year $t$	Factor $1/(1.08)^t$	Option A cost	Option A PV	Option B cost	Option B PV
0	1.0000	190	190.0	90	90.0
1	0.9259	240	222.2	240	222.2
2	0.8573	240	205.8	249	213.5
3	0.7938	270	214.3	298	236.6
Total		940	832.3	877	762.3

Example result: Option B has the lower NPV of cost by $832.3 - 762.3 = 70.0$ thousand, about 8% of Option A. Present values are computed with unrounded factors and then rounded to one decimal.

Cost per unit of value, where useful: [e.g. cost per GB ingested, per user, per transaction]. Example: Option B costs $877 / (2 \times 365 \times 3) \approx 0.40$ thousand USD per TB ingested over the horizon, about USD 400 per TB.

5. Sensitivity analysis

Scenario	Change	Option A NPV	Option B NPV	Lower cost
Baseline	As in sections 3 and 4	832.3	762.3	B
Example: Vendor uplift 10% per year	B licences 180 / 198 / 218	832.3	785.9	B
Example: Self-host needs 1.2 FTE	A people 180 per year; Year 3 total 300	909.6	762.3	B
Example: Discount rate 5%	Factors 0.9524 / 0.9070 / 0.8638	869.5	801.8	B
[Scenario]	[Change]	[ ]	[ ]	[ ]

Break-even: [state the value of the key input at which the options cost the same]. Example: holding everything else at baseline, Option B's Year 1 to 3 subscription would have to be about 70.0 / (0.9259 + 0.8573 + 0.7938) $\approx$ 27 thousand per year higher, that is roughly 207 instead of 180 in Year 1, before Option A becomes cheaper.

Qualitative factors not priced: [list]. Example: SaaS removes on-call burden for the platform; self-hosting keeps data in our own account, which simplifies some customer audits.

6. Assumptions

ID	Assumption	Value	Source	Confidence
AS-01	Example: Loaded cost per platform engineer FTE-year	150	HR finance rate card YYYY	High
AS-02	Example: Log volume per day	2 TB, flat	90-day average from current platform	Medium
AS-03	Example: Vendor annual price uplift	5%	Draft contract clause	Medium
AS-04	Example: Exit costs incurred in final year	Yes	Architecture team estimate	Low
AS-05	Example: Discount rate	8%	Finance policy	High
[AS-nn]	[Assumption]	[Value]	[Source]	[H/M/L]

7. Recommendation

Example: Choose Option B. It has the lower NPV of cost in every tested scenario (762.3 versus 832.3 thousand USD at baseline), removes a dedicated on-call rota, and the break-even subscription increase of about 15% gives a reasonable margin. Conditions: cap the annual uplift at 7% in the contract, and re-run this analysis if daily log volume exceeds 3 TB, because usage-based fees then dominate.

Field	Value
Recommended option	[Option]
NPV of cost advantage	[Amount and %]
Key conditions	[Conditions]
Decision owner	[@name]
Re-run trigger	[Event or date]

8. Approval

Role	Name	Decision	Date
Architecture owner	[@name]	[Approved / Changes requested]	YYYY-MM-DD
Finance partner	[@name]	[Decision]	YYYY-MM-DD
Budget holder	[@name]	[Decision]	YYYY-MM-DD

Standard and licence note

Based on common industry practice for total cost of ownership analysis and discounted cash-flow (net present value) comparison. Original text written for this collection; example figures are illustrative. This template is a format for analysis, not financial advice. Template licence: MIT.

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