Total Cost of Ownership Modeling

• Total Cost of Ownership Modeling is a method that quantifies all lifecycle costs by integrating both direct and indirect expenses.
• It employs cost entity mapping and parametric tools to link design changes with financial impacts in manufacturing and enterprise systems.
• TCO modeling supports early decision-making by enabling rapid cost recalculations, investment justification, and operational cost minimization.

Total cost of ownership (TCO) modeling is a methodological approach to quantify all costs associated with an asset, process, or system across its entire lifecycle, extending beyond initial acquisition costs to include operational, maintenance, and—where relevant—environmental and end-of-life costs. In research and industrial contexts, rigorous TCO modeling enables early design space exploration, operational cost minimization, technology selection, investment justification, and optimal resource allocation under uncertainty. This article surveys leading TCO modeling frameworks, mathematical formulations, algorithmic solutions, and their associated limitations, with a particular focus on applications in manufacturing and enterprise systems as exemplified in sand casting foundry operations (Perry et al., 2010).

1. Core Principles of TCO Modeling

TCO aggregates costs typically divided into two main components:

• Direct costs—expenditures directly traceable to the creation or operation of a product (e.g., raw materials, labor, machine use).
• Indirect costs—overhead or support costs not directly attributable to a single product (e.g., tooling amortization, product design, administrative support).

The objective is to evaluate

$$C_\text{total} = C_\text{direct} + C_\text{indirect}$$

with direct costs frequently broken down as

$$C_\text{direct} = C_\text{material} + C_\text{machine} + C_\text{labor}$$

and the cost per part typically computed by

$$\text{Cost per part} = \frac{C_\text{machine} + C_\text{labor}}{\text{Production Rate}}$$

This formulation supports the early identification of cost drivers and links design or process adjustments directly to downstream cost implications.

2. The Cost Entity Concept in Manufacturing

The “cost entity” approach groups homogeneous resources consumed by a manufacturing activity, leveraging the use of a single cost inductor for modeling resource consumption associated with process units (Perry et al., 2010). Key aspects include:

• Mapping production process phases (alloy melting, mould preparation, core production, finishing, etc.) into cost entities that collect both direct and partially indirect costs.
• Attaching economic semantics to CAD features, enabling early-stage “Design to Cost” workflows by associating technical design attributes with economic parameters.
• Enabling inter-disciplinary communication by formalizing the expertise required for accurate cost calculation within and across design, production, and management.

This methodology operationalizes TCO modeling by making costs visible and adjustable during the design process, thereby facilitating rapid recalculation of TCO in response to design changes (such as altering section geometry or core number).

3. Enterprise Modeling and Limitations

Applying TCO at the enterprise level surfaces several methodological and practical challenges:

• Complexity and Granularity: The fine-grained modeling required to accurately account for all cost drivers can result in overwhelming model complexity, especially when attempting portability across diverse enterprise environments.
• Indirect and Overhead Costs: Many enterprise models capture direct production costs accurately but omit critical indirect costs—especially those associated with upstream activities (tool design, development, administrative overhead). For TCO modeling to be holistic, such overheads must be incorporated, which remains a limitation of current approaches in practice.
• Data Heterogeneity: Reliable input data for cost parameters (per-machine cost, production rates, loss ratios, etc.) is often lacking, non-standardized, or company-specific, which hinders model generalization and accuracy.

These challenges constrain the universality of enterprise-wide TCO models and emphasize the trade-off between specificity and portability.

4. Tool Support and Methodological Constraints

Practical implementation often relies on cost modeling software (e.g., Cost Advantage). Such tools:

• Focus on parametrized input (dimensions, rates, process attributes) at the operational modeling layer and allow for the rapid prototyping of cost models.
• Typically lack integration of global, indirect cost factors (e.g., design, logistics, cross-functional support) essential for full TCO analysis.
• Provide only a minimal “skeleton” model aimed at generality, requiring substantial organization-specific calibration and domain knowledge input to reflect real-world operations.

Calibration and regular customization are thus essential for accurate TCO representation across different manufacturing settings.

5. Implications for Design Decision-Making and TCO Integration

TCO modeling, particularly in the cost entity framework, embeds cost reasoning into the design and manufacturing process, enabling the quantification of cost implications at the earliest project phases. Its principal contributions include:

• Enabling design modifications with immediate insight into cost impact, supporting lifecycle cost minimization.
• Providing a structured basis for benchmarking, cross-enterprise decision analysis, and deployment of “Design to Cost” methodologies.
• Allowing for multi-level TCO decomposition—process-level (e.g., core production cost entities), material-level, and feature-level—for hierarchical cost analysis and optimization.

However, approaches that do not sufficiently integrate indirect costs or that oversimplify resource heterogeneity may fail to capture the full ownership cost landscape.

6. Model Extension, Limitations, and Research Directions

Current TCO frameworks in sand casting and related manufacturing domains are bounded by:

• Inadequate incorporation of design and development overhead within operational cost entity models.
• Challenges in balancing model genericity for cross-company applicability with the specificity needed for accurate local optimization.
• Tool limitations, which preclude comprehensive integration of all relevant enterprise costs and restrict modeling to user-input operational parameters.
• Data availability issues, leading to potential gaps in capturing the actual cost structure.

Future research and development may address these limitations by:

• Developing integrated frameworks that seamlessly couple design, production, and support cost drivers.
• Advancing tool support for indirect cost modeling and cross-functional data standardization.
• Enabling finer granularity in multi-level cost entity schemes for more nuanced TCO analysis, particularly in multi-product, multi-site environments.

7. Summary Table: Methodological Capabilities and Challenges

Aspect	Typical Implementation	Limitation/Challenge
Direct cost modeling	Homogeneous cost entity mapping	Easy for operational costs
Indirect cost modeling	Limited, often omitted	Difficult to generalize, data gaps
Tool support	Parameterized SW (e.g., Cost Advantage)	Lacks global cost coverage
Portability	Minimal skeleton, generic approach	Needs considerable customization
Early design integration	CAD-feature cost mapping	Indirect cost integration weak

In conclusion, while cost entity–based TCO modeling offers a concrete scheme for integrating cost reasoning into design and manufacturing (notably in sand casting foundries), current modeling and software tool limitations restrict the approach’s ability to deliver full-lifecycle, organization-wide TCO analysis. Achieving robust, portable, and comprehensive TCO frameworks demands further methodological innovation and advances in enterprise-wide cost data integration (Perry et al., 2010).