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9.1.2 A Basic Primer in Life Cycle Cost Analysis
Author(s) -
Redman F. Quentin,
Crepea Andrew T.
Publication year - 2006
Publication title -
incose international symposium
Language(s) - English
Resource type - Journals
ISSN - 2334-5837
DOI - 10.1002/j.2334-5837.2006.tb02808.x
Subject(s) - procurement , investment (military) , total cost , total cost of ownership , process (computing) , spare part , business , operations management , modernization theory , operations research , computer science , risk analysis (engineering) , economics , engineering , marketing , accounting , politics , political science , law , economic growth , operating system
Life cycle cost (LCC) has become increasingly important as systems are designed with longer useful technological lives. In addition, deferred modernization due to limited budgets is causing many aging weapon systems to be extended, thus incurring greater support costs. This paper will present an overview of the process of life cycle cost analysis (LCCA). It will address the basic concepts and applications, along with a review of methodologies and some aspects of engineering economics. LCC is defined as the sum total of the direct, indirect, recurring, non‐recurring, and other related costs estimated to be incurred in the design, research and development (R&D), investment, operation, maintenance, and support of a system over its life cycle, i.e. its anticipated useful life span. It is normally organized into four phases: research, development, test, and evaluation (RDT&E); procurement (or acquisition), operations and support, and disposal. Economic Decisions are often made solely on initial investment or RDT&E and procurement cost. But this is only the proverbial tip of the iceberg – a portion of the total cost of ownership. More and more customers (especially government) are emphasizing and requiring an LCC perspective. To make intelligent acquisition decisions to meet a specific need, it is necessary to look beyond acquisition. In defense systems O&S costs can encompass up to 80% of the total LCC. LCC allows the evaluation of competing system proposals on the basis of total ownership cost and allows more effective budgeting of future funds such as O&S costs and disposal costs. A LCC perspective maximizes the benefit of applying strategies such as Cost as an Independent Variable (CAIV) and Design to Cost (DTC) Most LCCAs require a mix of estimating methodologies. The methods may be applied individually or in combination. Analogy and parametric tend to be most useful in the early stages of product development. As program and system design stabilizes parametric estimating becomes more useful. A detailed design facilitates engineering estimate and projection of actuals. In summary, this paper gives an overview of LCC as well as addressing many of the complexities of LCC analysis. More and more customers (especially government) are emphasizing and requiring an LCC perspective making LCC an increasingly important engineering design parameter. Total cost impact, not just initial near‐term cost, must be considered.