Table 2 TCO and ROV advantages and... | Emerald Publishing

Table 2

TCO and ROV advantages and disadvantages

	Advantages	Disadvantages
TCO	Incorporates numerous cost elements associated with a given strategy into consideration	Complex and time consuming
	Considers costs beyond acquisition price (purchase price comparison)	Static system
	Allows for the identification of costs that otherwise may remain hidden	Deterministic model relying mostly on uncertain data
	Provides a tool for negotiating with suppliers	Great effort in tracking and maintaining cost data
		Often focuses on costs and not revenues
		Often situation-specific
		Ignores flexibility benefits
ROV	Assesses the value created by the flexibility embedded in some strategies	Need for estimating uncertain elements
	Ability to model the decision-making process of the manager, even when quantitative and qualitative factors need to be considered	Computational complexity
	Focuses on cash flow and profit, not just cost minimization	Non-standardized calculation methods for option values
	Helps in comparing strategy performance (benchmark) against other approaches and self over time
	Opportunity to understand the impact of changes in the environment

	Advantages	Disadvantages
TCO	Incorporates numerous cost elements associated with a given strategy into consideration	Complex and time consuming
	Considers costs beyond acquisition price (purchase price comparison)	Static system
	Allows for the identification of costs that otherwise may remain hidden	Deterministic model relying mostly on uncertain data
	Provides a tool for negotiating with suppliers	Great effort in tracking and maintaining cost data
		Often focuses on costs and not revenues
		Often situation-specific
		Ignores flexibility benefits
ROV	Assesses the value created by the flexibility embedded in some strategies	Need for estimating uncertain elements
	Ability to model the decision-making process of the manager, even when quantitative and qualitative factors need to be considered	Computational complexity
	Focuses on cash flow and profit, not just cost minimization	Non-standardized calculation methods for option values
	Helps in comparing strategy performance (benchmark) against other approaches and self over time
	Opportunity to understand the impact of changes in the environment