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

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 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 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 Organisation for Joint Armament Cooperation OCCAR’s Mission To facilitate and manage collaborative European armament Programmes and Technology Demonstrator Programmes 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 Tenders Submission A400M, C-130J, C-17, An-7X MOU and DPP MOU and DPP Contract signature Contract signature Programme assigned Programme assigned to OCCAR to OCCAR A400M selected A400M selected Requirement Phase PLA Phase Assessment Contract Negotiation DPP Phase Time 1985 04/1996 01/1999 07/2000 05/2003 Pre-Launch Development and Low WLC Activities Production a key in A400M selection Western European Armaments Group (WEAG) Western European Armaments Group (WEAG) Drafting of European Staff Requirement (ESR) Drafting of European Staff Requirement (ESR) 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 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 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 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 – operationally 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 Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Analysis of Cost Structure Information Source Reliablility Cost Structure Col:or Coding Value Pareto ILIAS Contract Other Low Medium High 0. LCC LMV € 217.026.724,00 X € 104.312.256,07 48,06% 1. INVESTERINGSKOSTEN X € 104.164.719,69 48,00% 1.1. MATERIEELKOSTEN 28,97% X X € 62.871.200,00 1.1.1. Aanschafkosten materieel 25,81% X X € 56.012.000,00 1.1.1.1. LMV 3,16% X X € 6.859.200,00 1.1.1.2. RPK X X € 32.500,00 0,01% 1.1.2. Ontwikkelingskosten materieel 0,01% X X € 17.500,00 1.1.2.1. IK VRC 103 0,01% X X € 15.000,00 1.1.2.2. IK Jammer 13,59% X € 29.498.499,69 1.1.3. Verzekeringskosten 5,42% X X € 11.762.520,00 1.1.4. Kosten van invoerrechten, belastingen e.d. X € 141.110,20 0,07% 1.2. INITIELE LOGISTIEKE ONDERSTEUNINGSKOSTEN 0,02% X X € 50.920,00 1.2.1. Initiële opleidingskosten gebruikers en onderhoudspersoneel 0,00% X € 0,00 1.2.2 Initiële reserveonderdelen en gebruiksmiddelen 0,00% X € 0,00 1.2.3. Initiële gereedschap- en testapparatuurkosten 0,03% X X € 65.700,00 1.2.4. Initiële documentatiekosten X € 0,00 0,00% 1.2.5. Initiële infrastructuurkosten 0,01% X X € 24.490,20 1.2.6. Bijkomende belastingen X € 6.426,18 0,00% 1.3. VOORBEREIDINGSKOSTEN 0,00% X X € 6.426,18 1.3.1. Projectkosten Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Analysis of Cost Structure Information Source Reliablility Cost Structure Col:or Coding Value Pareto ILIAS Contract Other Low Medium High X € 112.714.467,93 2. EXPLOITATIEKOSTEN 51,94% X € 19.383.765,50 2.1. GEBRUIKSKOSTEN 8,93% € 0,00 2.1.1. Personeelskosten 0,00% X X € 4.485.800,00 2.1.2. Opleidingskosten gebruikers en onderhoudspersoneel 2,07% € 0,00 2.1.3. Documentatiekosten 0,00% X X € 14.897.965,50 2.1.4. Verbruiksmiddelen 6,86% X X € 14.613.885,00 2.1.4.1. Brandstof 6,73% X X € 284.080,50 2.1.4.2. Oliën en Smeermiddelen 0,13% X € 93.330.702,43 2.2. INSTANDHOUDINGSKOSTEN 43,00% X X € 16.358.697,53 7,54% 2.2.1. Kosten onderhoudspersoneel X X € 30.511.800,00 2.2.2. Reserveonderdelenkosten 14,06% X X € 1.679.972,90 2.2.3. Voorraadkosten 0,77% € 0,00 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% X X € 44.780.232,00 2.2.7. Modificatie/Upgradingskosten 20,63% € 0,00 3. AFSTOTINGSKOSTEN 0,00% Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Analysis of LCC Process Financial aspects Objectives of LCC calculation Select Customize Feed data Calculate LCC model model into model results System under analysis Make Define Cost assumptions Breakdown Verification & Structure validation Collect Ascertain Should be led by MatMan Should be led by MatMan data uncertainties Collect Specialised contractor Specialised contractor benchmark Prime contractor Prime contractor data Colleagues of MatMan Colleagues of MatMan Internal data External data (often past (contractors, experience) commercial) 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 Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012

Data reliability in ILIAS 78% Exploring Life Cycle Costing Policy Deployment Challenges Life Cycle Costing Symposium IRSD 2012