Financial Management

Total Ownership Cost (TOC)

The Total Ownership Cost (TOC) is the summation of the cost of acquiring and owning or converting an item of material, piece of equipment, or service and post-ownership cost, including the disposal of hazardous and other manufacturing waste.  It also includes the cost of lost sales as a result of a reputation for poor product quality causes by defective materials or purchased services that are incorporated in the end product or service. [1]

Guide: Navy Total Ownership Cost Guidebook – Jun 14

DoD Definition: Total ownership cost includes the elements of a program’s life-cycle cost, as well as other related infrastructure or business processes costs not necessarily attributed to the program in the context of the defense acquisition system. Infrastructure is used here in the broadest possible sense, and consists of all military department and defense agency activities that sustain the military forces assigned to the combatant and component commanders. Major categories of infrastructure are support to equipment (acquisition and central logistics activities), support to military personnel (non-unit central [“school-house”] training, personnel administration and benefits, and medical care), and support to military bases (installations and communications/information infrastructure). [3]

The best time to reduce total ownership cost and program schedule is early in the acquisition process.

Reduce Total Ownership Cost (R-TOC) Program in the Department of Defense

The Department of Defense (DoD) wide effort to reduce total ownership costs (R-TOC) grew out of numerous reviews and discussions at Program Executive Officers/Systems Command (PEO/SYSCOM) Commanders’ conferences, the Defense Science Board, and others. The R-TOC program was established in response to longstanding concerns about the adverse impact of defense budgetary and operational trends on force structure and readiness. Declining procurement funds are resulting in a rapidly aging (and potentially inefficient and unsupportable) inventory. Rising operations and support (O&S) costs can consume higher portions of defense budget and leave even less available for modernization. [2]

Total Ownership Cost (TOC) Approaches

The DoD focus on three (3) general R-TOC approaches:

  1. Reliability and maintainability (R&M) improvements
  2. Reduction of supply chain response time and reduction of logistics footprint
  3. Competitive product support


AcqLinks and References:

Updated: 7/21/2021

Rank: G5.9

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