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Exploring Life Cycle Costing Policy Deployment Challenges Within - - PowerPoint PPT Presentation

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Exploring Life Cycle Costing Policy Deployment Challenges Within the Belgian Armed Forces Geert Letens Baudouin Heuninckx Peter Baelen Life Cycle Costing Symposium IRSD Brussels - March 7, 2012 Exploring Life Cycle Costing Policy Deployment

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Exploring Life Cycle Costing Policy Deployment Challenges Within the Belgian Armed Forces

Geert Letens Baudouin Heuninckx Peter Baelen

Life Cycle Costing Symposium IRSD Brussels - March 7, 2012

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Objectives and Agenda

  • Clarify the Need for this Work
  • Provide an overview of NATO research on Life

Cycle Costing (LCC)

  • Analyse LCC implementation challenges within

the Belgian Armed Forces (BAF)

  • Define policy deployment challenges
  • Describe opportunities for future research
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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

LCC Analysis during concept and development

  • Previous research has demonstrated the importance of

Life Cycle Costing (for the military) (Farr, 2010)

  • Critical to take LCC analysis into account during concept and

development phases

– Concept determines 70% of the LCC – Decisions during the definition phase determine ‘only’ 15 % of LCC; decision during the in-service phase determine ‘only’ 10% of LCC

OCCAR’s Mission

To facilitate and manage collaborative European armament Programmes and Technology Demonstrator Programmes

Organisation for Joint Armament Cooperation

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Illustration OCCAR

  • Whole Life Cycle Costing is an essential process to

support OCCARs decision making

Requirement Phase PLA Phase Assessment Contract Negotiation DPP Phase Time

Tenders Submission A400M, C-130J, C-17, An-7X

05/2003 07/2000 01/1999 04/1996 Development and Production Pre-Launch Activities 1985

A400M selected A400M selected MOU and DPP Contract signature Programme assigned to OCCAR MOU and DPP Contract signature Programme assigned to OCCAR

Western European Armaments Group (WEAG) Drafting of European Staff Requirement (ESR) Western European Armaments Group (WEAG) Drafting of European Staff Requirement (ESR)

Low WLC a key in A400M selection

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

LCC Analysis: Opportunities within the BAF

  • Previous research has demonstrated the importance of Life Cycle

Costing for weapon systems

– Wrong acquisition decisions for weapon systems (expensive, 30 year+ life-cycle) have an important impact

  • In-service (fuel, maintenance, etc.) costs can be 50-70% of LCC
  • What initially seems to be the cheapest system may not necessarily be so in

the long term

  • New defense challenges suggests new opportunities for LCC

– LCC needs to be updated regularly to optimise support concept throughout the whole system’s life – LCC should support:

  • Downsizing decisions that optimize the overall portfolio of Defense

capabilities

  • Disposal/renewal decisions
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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Need for this work

  • LCC calculation is an interesting matter

– LCC analysis necessary during all phases of the life-cycle of an equipment

  • Must be a continuous process
  • Must be a key factor in influencing decisions
  • Unfortunately LCC is:

– Quite simple in theory – Quite complex in practice

  • Requires collecting lots of data
  • Requires being structured and systematic
  • Requires making best judgement assumptions

– Requires cross-disciplinary teams

  • This work aims to explore policy deployment challenges within the

BAF

– What are the challenges when doing a LCC analysis for owned weapons systems

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Foundations for this work

  • Studies performed by NATO Research & Technology

Organization – System Analysis and Studies Panel

– Cost Structure and Life Cycle Costs for Military Systems (2003)

  • Includes generic Cost Breakdown Structure (CBS)

– Methods and Models for Life Cycle Costing (2007)

  • Comparative analysis of methods used by partners

– Code of Practice for Life Cycle Costing (2009)

  • Practical guide to support the calculation of LCC

– Independent Cost Estimating and its Role in Capability Portfolio Analysis (ongoing)

  • Applies findings of previous studies on specific weapon systems
  • Best practices from OCCAR
  • Contacts with industry
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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Case study: LCC Analysis for the BAF LMV

  • LMV has been purchased 5 years ago –
  • perationally used since 2008
  • Objective: identify challenges for performing a

LCC analysis:

– Define Cost structure

– Trace available cost information » Source » Reliability – Build a Master Data and Assumptions List (MDAL)

– Define who does what

– The main players – The stakeholders / data holders

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Analysis of Cost Structure Information

ILIAS Contract Other Low Medium High

  • 0. LCC LMV

€ 217.026.724,00

  • 1. INVESTERINGSKOSTEN

X € 104.312.256,07

48,06% 1.1. MATERIEELKOSTEN X € 104.164.719,69 48,00%

1.1.1. Aanschafkosten materieel X X € 62.871.200,00

28,97%

1.1.1.1. LMV X X € 56.012.000,00

25,81%

1.1.1.2. RPK X X € 6.859.200,00

3,16%

1.1.2. Ontwikkelingskosten materieel X X € 32.500,00

0,01%

1.1.2.1. IK VRC 103 X X € 17.500,00

0,01%

1.1.2.2. IK Jammer X X € 15.000,00

0,01%

1.1.3. Verzekeringskosten X € 29.498.499,69

13,59%

1.1.4. Kosten van invoerrechten, belastingen e.d. X X € 11.762.520,00

5,42% 1.2. INITIELE LOGISTIEKE ONDERSTEUNINGSKOSTEN X € 141.110,20 0,07%

1.2.1. Initiële opleidingskosten gebruikers en onderhoudspersoneel X X € 50.920,00

0,02%

1.2.2 Initiële reserveonderdelen en gebruiksmiddelen X € 0,00

0,00%

1.2.3. Initiële gereedschap- en testapparatuurkosten X € 0,00

0,00%

1.2.4. Initiële documentatiekosten X X € 65.700,00

0,03%

1.2.5. Initiële infrastructuurkosten X € 0,00

0,00%

1.2.6. Bijkomende belastingen X X € 24.490,20

0,01% 1.3. VOORBEREIDINGSKOSTEN X € 6.426,18 0,00%

1.3.1. Projectkosten X X € 6.426,18

0,00% Reliablility Cost Structure Source Value Pareto Col:or Coding

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Analysis of Cost Structure Information

ILIAS Contract Other Low Medium High

  • 2. EXPLOITATIEKOSTEN

X

€ 112.714.467,93

51,94%

2.1. GEBRUIKSKOSTEN X € 19.383.765,50 8,93%

2.1.1. Personeelskosten € 0,00 0,00% 2.1.2. Opleidingskosten gebruikers en onderhoudspersoneel X X € 4.485.800,00 2,07% 2.1.3. Documentatiekosten € 0,00 0,00% 2.1.4. Verbruiksmiddelen X X € 14.897.965,50 6,86% 2.1.4.1. Brandstof X X € 14.613.885,00 6,73% 2.1.4.2. Oliën en Smeermiddelen X X € 284.080,50 0,13%

2.2. INSTANDHOUDINGSKOSTEN X € 93.330.702,43

43,00% 2.2.1. Kosten onderhoudspersoneel X X € 16.358.697,53

7,54%

2.2.2. Reserveonderdelenkosten X X € 30.511.800,00 14,06% 2.2.3. Voorraadkosten X X € 1.679.972,90 0,77% 2.2.4. Gereedschaps- en testapparatuurkosten € 0,00 0,00% 2.2.5. lnfrastructuurkosten € 0,00 0,00% 2.2.6. Uitbestedingskosten onderhoud € 0,00 0,00% 2.2.7. Modificatie/Upgradingskosten X X € 44.780.232,00 20,63%

  • 3. AFSTOTINGSKOSTEN

€ 0,00

0,00%

Reliablility Cost Structure Source Value Pareto Col:or Coding

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Analysis of LCC Process

Should be led by MatMan Specialised contractor Prime contractor Colleagues of MatMan Should be led by MatMan Specialised contractor Prime contractor Colleagues of MatMan

Objectives

  • f LCC

calculation System under analysis Select LCC model Define Cost Breakdown Structure Collect data Internal data (often past experience) External data (contractors, commercial) Make assumptions Financial aspects Customize model Feed data into model Ascertain uncertainties Calculate results Verification & validation Collect benchmark data

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Insights Based on the Collected Data

  • The creation of a Master Data and Assumptions List (MDAL) is

critical

– Repository of your data – Lists all assumptions and conditions – Explains the source of data

  • Identified challenges:

– Find the right stakeholder for each cost element

  • Internally: multiple sources (Mat, HR, Infra)
  • Industry: prime contractor, subcontractor, commercial databases

– Requires investment – Reliability can still be an issue!

  • Partners: can be used for process benchmarking but inputs from industry

remain critical

– Databases:

  • Scattered databases: Mat, HR, Infra
  • Data reliability in ILIAS is a considerable issue: no systemic data collection

process

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Data reliability in ILIAS

78%

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Insights Based on the Collected Data

  • LCC Tool

– No tool available for updating of data elements

  • Mat Mgt system (ILIAS) only is not enough

– MDAL is currently a descriptive file, but should be linked to integrated LCC database

  • Assessing the reliability of each data element

– Difficult to do: should be done by cross-functional team using a Delphi approach – Requires support of specialized software/expertise (OPUS 10) but as well enhanced modeling of the Logistic Support Concepts – Improved cost management needed: currently immature process

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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Costs and Budget Management

  • Costs that support budget planning by material

manager

– Initial acquisition budget – In-service support budget – Disposal budget

  • Budget planning

– Budget planning in Belgian Defence is a yearly cycle:

  • Budget approved yearly, but for planning purpose estimated
  • ver the next five years

– LCC should support budget planning, including projections

  • ver whole life cycle
  • Expected life duration estimates are often unreliable: budget

planning must be coherent with LCC analysis

  • Portfolio Analysis would now be unfeasible
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Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

LCC Deployment Challenges

  • Enhanced guideline LCC is needed

– Current guidelines define importance of life cycle phases but lack details with regard to the

  • verall process and the cost structure

– This implies a refinement of roles and responsibilities

  • No LCC tool available

– Mat Management System (ILIAS) is insufficient

  • Lacking information
  • No integration of MDAL
  • Enhanced modeling of Support Concepts is needed

– Ad-hoc Tools needed (Opus 10) – Input from Industry (contractors) is a must, but is not miracle either

  • The full deployment of LCC is a socio-technical problem

– Besides significant technical challenges – Even more important social challenges

  • Various stakeholders
  • Cross-fuctional meetings
  • Shared ownership
  • Revision of bugetplanning process

– Need for cooperation and benchmarking with external partners

BAF