Life Cycle Costing: From Myth to Reality Cyril Heckel What is LCC - - PowerPoint PPT Presentation

Life Cycle Costing: From Myth to Reality

Cyril Heckel

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What is LCC ? What is LCC ? What is LCC ? What is LCC ?

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What is LCC ? What is LCC ? What is LCC ? What is LCC ?

direct costs indirect-variable costs

Reference: NATO RTO Reference: NATO RTO Reference: NATO RTO Reference: NATO RTO-

• TR

TR TR TR-

• SAS028

SAS028 SAS028 SAS028

Allocable to Defence System Allocable to several Defence Systems for procurement, O&S, disposal.

direct costs indirect-variable costs

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Why LCC ? Why LCC ? Why LCC ? Why LCC ?

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Why ? Why ? Why ? Why ?

Members Participating States

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Why ? Why ? Why ? Why ?

Establishment of a Cost Plan Management of existing budgets Development of future expenditure profiles prior to contract negotiations Testing of parameters and assumptions by means of sensitivity analysis

Traditional benefits Traditional benefits Traditional benefits Traditional benefits

Quantitative cost risk analyses input for the Risk Management process.

Link to Risk Management Link to Risk Management Link to Risk Management Link to Risk Management

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Why ? Why ? Why ? Why ?

TO PROVIDE DECISIONAL ELEMENTS TO TO PROVIDE DECISIONAL ELEMENTS TO TO PROVIDE DECISIONAL ELEMENTS TO TO PROVIDE DECISIONAL ELEMENTS TO PROGRAM MANAGERS PROGRAM MANAGERS PROGRAM MANAGERS PROGRAM MANAGERS AND AND AND AND DECISION MAKERS DECISION MAKERS DECISION MAKERS DECISION MAKERS

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How ? How ? How ? How ?

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How ? How ? How ? How ?

1.345.678 €

Myth Reality

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How ? How ? How ? How ?

Myth

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How ? How ? How ? How ?

Data and assumptions collection Cost Structure Modelling Risk and uncertainty analysis Study & Report

Reality

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When ? When ? When ? When ?

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When ? When ? When ? When ?

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When ? When ? When ? When ? OCCAR EXAMPLE: BIO EDEP

• LCC analysis for Business Case
• Impact on the decision to launch the Demonstration Development

LCC for PREPARATION phase LCC for PREPARATION phase LCC for PREPARATION phase LCC for PREPARATION phase

• Assess Affordability

Assess Affordability Assess Affordability Assess Affordability -

• Assess cost of a technology

Assess cost of a technology Assess cost of a technology Assess cost of a technology -

• Dedicated studies for demonstrators

Dedicated studies for demonstrators Dedicated studies for demonstrators Dedicated studies for demonstrators -

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When ? When ? When ? When ?

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When ? When ? When ? When ? OCCAR EXAMPLE: MUSIS

• Assess affordability
• Prepare negotiation for realisation phase

LCC for DEFINITION phase LCC for DEFINITION phase LCC for DEFINITION phase LCC for DEFINITION phase

• Assess Affordability

Assess Affordability Assess Affordability Assess Affordability -

• Budgeting

Budgeting Budgeting Budgeting -

• Evaluate alternatives

Evaluate alternatives Evaluate alternatives Evaluate alternatives -

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When ? When ? When ? When ?

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When ? When ? When ? When ? LCC for DEVELOPMENT phase LCC for DEVELOPMENT phase LCC for DEVELOPMENT phase LCC for DEVELOPMENT phase

• Evaluation of Common Support Activities

Evaluation of Common Support Activities Evaluation of Common Support Activities Evaluation of Common Support Activities -

• Budget for Production

Budget for Production Budget for Production Budget for Production -

• Sensitivity analyses

Sensitivity analyses Sensitivity analyses Sensitivity analyses -

• Production contract negotiations

Production contract negotiations Production contract negotiations Production contract negotiations -

• Cost impact of risks

Cost impact of risks Cost impact of risks Cost impact of risks -

• A400M – Common Support Solution
• Cost drivers
• Evaluate alternatives

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When ? When ? When ? When ?

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When ? When ? When ? When ? OCCAR EXAMPLES: TIGER – Common Spare Pool

• evaluate alternatives

FSAF – ISS Negotiation

• “should cost” negotiation

COBRA – Initial spare provisioning for Common Spare Pool

• ISS Strategy

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When ? When ? When ? When ? LCC for PRODUCTION phase LCC for PRODUCTION phase LCC for PRODUCTION phase LCC for PRODUCTION phase

• Evaluate alternatives

Evaluate alternatives Evaluate alternatives Evaluate alternatives -

• “should cost” negotiations

“should cost” negotiations “should cost” negotiations “should cost” negotiations -

• ISS Strategies

ISS Strategies ISS Strategies ISS Strategies -

• Cost impact of risks

Cost impact of risks Cost impact of risks Cost impact of risks -

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When ? When ? When ? When ?

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When ? When ? When ? When ? LCC for ISS phase LCC for ISS phase LCC for ISS phase LCC for ISS phase

• Evaluate alternatives (cooperation, operative scenarios)

Evaluate alternatives (cooperation, operative scenarios) Evaluate alternatives (cooperation, operative scenarios) Evaluate alternatives (cooperation, operative scenarios) -

• “should cost” negotiations

“should cost” negotiations “should cost” negotiations “should cost” negotiations -

• Cost impact of risks

Cost impact of risks Cost impact of risks Cost impact of risks -

• OCCAR EXAMPLES:

COBRA

ISS Process Model & Cost Effectiveness Cost Effectiveness = Ao / LCC

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When ? When ? When ? When ?

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When ? When ? When ? When ? LCC for DISPOSAL phase LCC for DISPOSAL phase LCC for DISPOSAL phase LCC for DISPOSAL phase

• “should cost” negotiations

“should cost” negotiations “should cost” negotiations “should cost” negotiations -

• Cost impact of risks

Cost impact of risks Cost impact of risks Cost impact of risks -

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Communication & Reliability Communication & Reliability Communication & Reliability Communication & Reliability

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Communication about LCC Communication about LCC Communication about LCC Communication about LCC

• TRANSPARENCY -
• CLEAR -
• PRESENTED -

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LCC is reliable if… LCC is reliable if… LCC is reliable if… LCC is reliable if…

• DATA CONSOLIDATION -
• OBJECTIVES OF STUDY WELL DEFINED -
• USABLE FOR DECISION MAKERS -
• LESSONS LEARN PROCESS -

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