Question

Why might managers resist buying a more expensive piece of equipment that is known to have a lower TCO than a less expensive item?

Short answer

TCO refers to the total cost of ownership which is comprised of two costs. The first is an initial cost which is paid at the time of purchase while the second type of cost is the long-term cost which is paid as per requirement.

Step-by-step solution

Lower TCO 

Managers resist buying a more expensive piece of equipment that is known to have a lower TCOthan a less expensive item because the capital budget expenditure approved by senior management may be a constraint for spending more at present and to make savings for later.

Reasons behind buying a more expensive piece of equipment that is known to have a lower TCO than a less expensive item

Many managers do not want to continue with the same organization for a longer period as TCO is long-term equipment of ownership therefore they don’t consider that factor while decision making.

For saving the budget for future purposes the managers put checks on the current expenditure as they have to pay the cost associated with the equipment in the future.

One reason might be that the person is unaware of TCO assessment, making the increased purchase cost harder to explain. Also, for particularly big acquisitions, the actual effect on quarterly economic outcomes may be more important than the long-term ownership costs.