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

Life Cycle Costing: From Myth to Reality Cyril Heckel

What is LCC ? What is LCC ? What is LCC ? What is LCC ? 2

What is LCC ? What is LCC ? What is LCC ? What is LCC ? Reference: NATO RTO Reference: NATO RTO- -TR TR- -SAS028 SAS028 Reference: NATO RTO Reference: NATO RTO - - TR TR - - SAS028 SAS028 direct costs direct costs Allocable to Defence System indirect-variable costs indirect-variable costs Allocable to several Defence Systems for procurement, O&S, disposal. 3

Why LCC ? Why LCC ? Why LCC ? Why LCC ? 4

Why ? Why ? Why ? Why ? Members Participating States 5

Why ? Why ? Why ? Why ? Traditional benefits Traditional benefits Traditional benefits Traditional benefits 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 Link to Risk Management Link to Risk Management Link to Risk Management Link to Risk Management Quantitative cost risk analyses input for the Risk Management process. 6

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 7

How ? How ? How ? How ? 8

How ? How ? How ? How ? Reality Myth 1.345.678 € 9

How ? How ? How ? How ? Myth 10

How ? How ? How ? How ? Reality Modelling Cost Structure Study & Report Risk and uncertainty analysis Data and assumptions collection 11

When ? When ? When ? When ? 12

When ? When ? When ? When ? 13

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 - - - - 14

When ? When ? When ? When ? 15

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 - - - 16

When ? When ? When ? When ? 17

When ? When ? When ? When ? A400M – Common Support Solution - Cost drivers - Evaluate alternatives 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 - - - - 18

When ? When ? When ? When ? 19

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 20

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 - - 21

When ? When ? When ? When ? 22

When ? When ? When ? When ? OCCAR EXAMPLES: COBRA ISS Process Model & Cost Effectiveness Cost Effectiveness = Ao / LCC 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 - - - 23

When ? When ? When ? When ? 24

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 - - - - 25

Communication & Reliability Communication & Reliability Communication & Reliability Communication & Reliability 26

Communication about LCC Communication about LCC Communication about LCC Communication about LCC - TRANSPARENCY - - CLEAR - - PRESENTED - 27

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 - 28

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