What Really Drives the 46% TCO Cut?

What Really Drives the 46% TCO Cut?

Ada re-derives this chapter’s own numbers step by step, at full precision

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Ada ADA · CALCULATION AUDIT

What Really Drives the 46% TCO Cut?

A campus facilities manager weighs two proposals for replacing 50,000 aging fixtures: buy the LEDs outright for a $31.75M 15-year total, or take Lighting-as-a-Service for $17.1M. That $14.65M gap is the headline 46% TCO cut, which the chapter credits primarily to energy savings rather than the eliminated $10M of upfront CapEx. So what really drives the 46% cut — the efficiency clause, or the avoided hardware bill?

Companion to the chapter Business Model Case Studies — every number here comes from that chapter.

See the relationship before changing it

The figure reads from left to right. The blue card is energy savings. The middle card applies the page rule. The green card is share of total savings. Walk the arrows once: set the input, apply the rule, then read the result with its unit.

Energy savings changes share of total savings An input card leads through the rule share = energy savings / 14.65 million x 100 to the share of total savings result. INPUT PAGE INPUT APPLY THE RULE predict calculate check units OUTPUT RESULT
Walk the arrows. Energy is the larger savings driver, but only while the stated energy baseline holds.

Derive the baseline in four named moves

  1. 1

    Name the input. The chapter baseline is 9 million USD.

  2. 2

    Name the relationship. share = energy savings / 14.65 million x 100

  3. 3

    Substitute with units. 9.0 / 14.65 x 100 = 61.43%

  4. 4

    Read the result. Keep the unit beside the value. Use it only inside the technical boundary on this page.

Predict, then change energy savings

Try Predict the direction of share = energy savings / 14.65 million x 100. Test another energy savings, then compare share of total savings.

9 million USD
Chapter baseline
Share of total savings

Observe Energy is the larger savings driver, but only while the stated energy baseline holds. Reset energy savings to 9 and compare share of total savings.

Explain Energy is the larger savings driver, but only while the stated energy baseline holds.

Check yourself

What should you do before trusting a moved-control result?
Answer: Predict its direction, apply the shown relationship, keep the units, and reset to the worked baseline.
What does this small model leave out?
Answer: Only energy savings moves here. Field effects named in the technical boundary stay fixed.

Honesty note. This teaching model changes only energy savings. It is not a field prediction.

TryCompare the $31.75M ownership case with the $17.1M service case for 50,000 fixtures, then activate Check derivation.
ObserveThe total-cost gap displays $14.65M, or about 46%; the energy line accounts for roughly 61% of that saving.
ExplainThe efficiency guarantee dominates the difference because avoided energy accumulates through all 15 years, while avoided hardware is a single initial charge.

Ada: The proposal lands on a 46% TCO reduction and credits energy as the primary driver. Both claims are checkable from the section’s own totals, so let me confirm the sums, then split the $14.65M savings into the piece energy actually contributes.

Totals first:

  • Proposal A: 10 + 3.75 + (1.2 x 15) = 10 + 3.75 + 18 = $31.75M
  • Proposal B: (0.540 x 15) + (0.6 x 15) = 8.1 + 9 = $17.1M
  • Savings: 31.75 - 17.1 = $14.65M
  • Reduction: 14.65 / 31.75 = 46.1%, matching the stated 46%

Now test the “energy is the primary driver” claim by decomposing that $14.65M:

  • Energy: 18 - 9 = $9.0M saved, which is 9.0 / 14.65 = 61.4% of the total
  • Everything else (A’s $10M hardware plus $3.75M maintenance = $13.75M, against B’s $8.1M service fee): 13.75 - 8.1 = $5.65M saved, which is 5.65 / 14.65 = 38.6%

So energy is indeed the larger share — 61.4% against 38.6% — and the Key Insight holds under arithmetic rather than assertion.

One caution for a careful reviewer: the parenthetical offered for A’s $1.2M/year energy line — “$0.12/kWh, 200W average per fixture, 12 hours/day” — does not reconcile with $1.2M. Across 50,000 fixtures those figures give 0.2 kW x 12 h x 365 x $0.12 x 50,000 = $5.26M/year; the stated $1.2M instead corresponds to about 46W per fixture. The TCO rests on the $1.2M input, so treat the bracketed parameters as illustrative and do not back-derive the energy line from them. The design lesson survives either way: because energy is 61% of the savings, this contract’s economics live or die on the guaranteed efficiency reduction, not on the eye-catching removal of the $10M upfront CapEx — so the 50%-energy commitment is the clause a reviewer should scrutinise hardest.

Technical boundaries
The TCO comparison deliberately does not simulate discounting, inflation, tax, failure risk, demand growth, depreciation, or uncertainty in energy prices; it totals the chapter's fixed fifteen-year line items.

Work the audit first, then check the displayed derivation.

Every number above is taken from the chapter’s own material and re-derived step by step.