Life Cycle Costing Challenges and Tools SCAF February 2012

Transcription

1 Life Cycle Costing Challenges and Tools SCAF February 2012

2 AGENDA TODAY Life Cycle Costs Challenges & Tools Background What is LCC? What you should already know Examples Challenges Data needs Logistics factors Other challenge influences Tools Summary 2

3 BACKGROUND 3

4 Life Cycle Cost (LCC) Definition LCC = Acquisition Cost + Operating & Support (O&S) Cost LCC = Development Cost + Production Cost + O&S Cost TOC= LCC + all other Direct & Indirect Costs of Ownership (Total Ownership Costs) 4

5 WHAT YOU SHOULD ALREADY KNOW 5

6 Strategic Sectors where LCC are of interest Defense Space Aeronautics Information Systems These are the types of Products that persist and require consideration of Operation & Support costs 6

7 Life Cycle Costs - influence 100 Typical Cost Profiles Costs fixed Cumulative Cost % Initial Gate Main Gate Costs Incurred 0 Concept Assessment Demonstration Manufacture In-Service Disposal PROJECT PHASE

8 Typical LCC for simple one shot devices

9 Typical LCC small aircraft EQUIPMENT PURCHASE EQUIPMENT OPERATION & SUPPORT A Project Like a Trainer Aircraft e.g... TUCANO 90 % of whole life costs can be incurred after Acquisition OK so it s not a Tucano picture!

10 CHALLENGES 10

11 Estimating Accuracy the Traditional View Higher cost Broad order estimates Bid data analysis Contracts Contract changes Invoices Post costing Lower cost Concept Assessment Demonstration Manufacture In-Service Phase Upgrades Disposal IG MG

12 A good estimate is good for business: The Freiman Curve FINAL PROJECT COST Frank Freiman, Inventor of Parametrics, x REALISTIC ESTIMATES MINIMIZE FINAL COST 1 UNDERESTIMATES LEAD TO DISASTER - insufficient resources - panicked decisions - unrealistic expectations OVERESTIMATES LEAD TO DISASTER - under-utilized resources - excess capacity - un-competitive pricing 1 ESTIMATED COST 2x 12

13 Estimating Accuracy the amended View Higher cost Broad order estimates Bid data analysis Contracts Contract changes Invoices Post costing Lower cost Concept Assessment Demonstration Manufacture In-Service Phase Upgrades Disposal IG MG

14 Parametrics As Basis-of-Estimate (BoE) Today the use of parametric techniques as basis of economic analysis is widely accepted by Industry and Government organisations and growing. Some of the more common applications are: Development of independent cost estimates (ICE) (e.g., "sanity checks" on the primary estimating methodology ), Rough Order Of Magnitude estimates (ROMs), life cycle cost estimates (LCCEs), and BoE. Economic basis for trade studies such as Design-To-Cost (DTC), Cost as An Independent Variable (CAIV), Total Ownership Cost (TOC) and Reduced TOC (RTOC) analyses. Parametric techniques are also used to perform cost or price analyses. In fact, the US Federal Acquisition Regulation (FAR) identifies parametrics as an acceptable price analysis technique in (b)(2)(iii). Basis of Estimate for cost proposals 14

15 Decrease risks and save money on Programs 2 main roots causes of project failure Bad estimation cost estimation should be embedded in the cost management process Bad project control should implement EVM methods US G.A.O. (Government Accountability Office) stated that: The ability to generate reliable cost estimates is a critical function Without this ability, agencies are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls 15

16 ESTIMATING Boundaries?

17 Life Cycle Boundaries - Define What is included? Development? Production? Service Personnel? Service Personnel Training? Basic training Operator Training? Maintainer Training? Maintenance Facility costs Site Security? Services (electricity, gas etc) Maintenance facility upkeep? Where is the boundary line drawn exclusion list 17

18 Typical cost breakdown for Aircraft Life Cycle Cost LCC Concept Operation Support Disposal Assessment Air Crew Maintenance of A/C Residual Value Demonstration Ground Crew Station O/Hds Disposal Costs Manufacture & PI Fuel PDS Test Equipment Munitions Software Maintenance Support Equipment Ageing Allowance IP Spares Ongoing Training LSA, Training, Ground Facilities, etc LSA etc Internal resource Maintenance of Support Equip Internal resource

19 PBS - Equipment Hierarchy (can you expect this detail for costing 2030?) Platform System/ sub-system Part Line Replaceable Unit (LRU) Module 19

20 Maintenance Levels Equipment On-Equipment Maintenance No Work Shop Often performed by crew Organization (Direct Support) Performed by using organisation on its assigned equipment Intermediate (General Support) Facility with Controlled Environment and Automated Test Equipment Depot Government or Contractor The challenge here is the blurring of Traditional support by availability or power by hour style contracting and/ or the replacement of Service personnel by Contractor staffs delivering traditional support. See later slide 20

21 Maintenance On-Equipment Maintenance Maintenance performed on the end item (i.e., air vehicle, ship, tank etc) Possible Maintenance Actions Remove and Replace LRU Remove and Replace Module Remove and Replace Part Note there are two types of maintenance action Scheduled or Preventative (lifed items, engine mandatory servicing etc) Unscheduled, this is mostly random failure driven 21

22 Spares money pit Initial Spares Initial stock required to fill maintenance pipeline or supply chain Produced concurrent with mission equipment Quantity based on repair cycle times and failure rates Replenishment Spares Spares needed to replenish stock of initial spares Also known as Balanced Consumed spares Total spares minus initial spares 22

23 OTHER CHALLENGING INFLUENCES 23

24 Two key Maintenance Drivers Scheduled or Preventative For major platforms this is usually: Routine test, cleansing or POL changes 400/ 800 mandatory servicing (aero engines etc) Fatigue life replacements Fixed overhaul & upgrade cycles (ships/ submarines) These are not dealt with in detail by commercial cost models and can be very large cost items Unscheduled, this is dealt with and calculated in some detail by commercially available models: Driven by 3 key drivers Maintenance Concept Mean Time Between Failures Mean Times to Repair 24

25 Platform Scheduled Scheduled Maintenance Cycles Often Customer and Operational Tempo dictated Capacity and alignment of individual platform overhauls challenging for larger fleets One of the Fleet Operational Non-Operational 25

26 Life Cycle Key Input data Mean Time Between Failure Hours assigned to MTBF can be the average time between such events as: Equipment Failures (Including Induced Failures) Overhauls (Restore To Like New) Confidence Testing (Such As Missiles and Rockets) Scheduled Replacements (Critical Items) Re-Fueling Where does all of this data come from? Almost certainly not the Support contractor databases! In changing contracting type environments just how relevant is this data anyway? Staff knowledge in these areas is normally limited 26

27 Life Cycle Key Input data 27

28 Life Cycle Platform/ Equipment/ LRU Key Input data 28

29 Life Cycle Inputs Logistics Data 29

30 Life Cycle Key Input Logistics Data 30

31 Existing Platform/ System support New contract types Transfer of risks from Customer to Provider AGE! (not PC but crucial) 31

32 Elements of O&S With Age Effects It has been observed that there is an AGE effect in some elements of O&S costs, including: Scheduled Overhaul Repair Parts Other POL Centrally Provided Materials The AGE effects in Scheduled Overhaul, Repair Parts, and Other POL were presented at SCEA in June 2003: Ship Scheduled Overhaul Costs Over Time, Summerville, Coleman, Dameron, Leach. Since that paper was written there have been changes to the Scheduled OH, Repair Parts, and Other POL methodologies. Another paper, presented since, at the 37 th ADoDCAS, has also shown age effects in high-level O&S costs: Analysis of the Impact of OPTEMPO on Navy O&S Cost, Octeau, Hardin

33 AGE - Discovery of Overhaul Cycles Cost (FY03$M) $12 $10 $8 $6 $4 $2 $- 1 st overhaul Cost vs. Avg. Age Avg. Age 2 nd /3 rd overhaul The steam ships may be on a different OH cycle. More data is required to know if the steam ships have 2 or 3 overhauls in their lifetime. CG 16 CG 26 CG 47 DD 963 DDG 51 DDG 993 FFG 7 The line is a 5 th degree polynomial. The 2 peaks are believed to be caused by Navy policy - scheduled overhauls are set to be a given number of years apart. 33

34 Operating & Support Costs Over Time SCEA 2006 O&S Regression Results $90,000 Total O&S vs weight & age The coefficients were converted for raw data to produce this graph. O&S cost ($K) $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 Note: Color bands are just visual aids to show y-axis regions $10,000 $0 30 age weight

35 Finally One last subject which tends to be glossed over! 35

36 Software Support Software Support Cost for War Fighting Systems Increases with Size Increases if it is Safety Critical Decreases with Age Software Support for Non-War fighting Systems Increases with Age Increases with the presence of Software Of Unknown Pedigree (SOUP) Decreases if it s a Training/Testing System My (safe) bet is that no-one is collecting suitable metrics! Note: War Fighting software is software which would critically affect the mission (e.g. terminate it if failed).

37 TOOLS 37

38 A general guide to Method Vs Phase Cost Forecasting Cost Estimating Pre-concept Concept and Assessment Development and Demonstration Manufacture and Entry Into Service In-Service Operation & Support Analogy [near neighbour] Parametric Top down or Bottom up Engineering [Bottom - Up] [Extrapolation From] Actuals Note the above is a guide, no tool is exclusive in a particular phase 38

39 Commercially Available tools CASA EDCAS OPUS OSCAM (Air/ Land/ Sea) PRICE SEER FACET First three bullets are not parametric models, OSCAM is a systems dynamics model, PRICE & SEER are parametric models and FACET is Bayesian. They all do a job and require significant amounts of input data with the exception of FACET They all have gaps in coverage so one or more may be needed with assistance from bespoke Excel models to achieve a complete predictive capability 39

40 Why use Parametric methods? Model(s) is traceable and objective Once set up it is quick & easy to use For given inputs the output is repeatable May quickly be adjusted for changes to the system or subsystem or other global parameters Important for sensitivity analysis and design trades Useful for economic analysis Statistical results relating to the model Includes t statistics, F statistics, R 2, coefficient of variation (CV) Objective measures of validity May be used in risk analysis

41 A Complex Model build your own? Asks for typically more pieces of information than a CER. A typical CER uses one, two, three, or perhaps four pieces of parametric information - including O&S costing can increase this data ten fold! Algorithmically robust compared to a simple CER Generally provides more information in its output Complex models are not simplistic, rather they are sufficiently flexible to handle the dynamics of well defined programs CERs often have much broader scope, rules of thumb that are broad generalizations 41

42 Development of Complex Tools Considerations: Data and cost drivers Product operating environment Project team composition Project team environment Labour, overheads, Profit rates etc Mathematics and logic CERs Algorithms Outputs Phasing and spreads Inflation Cost Allocations Monte Carlo simulation Scheduling Learning Earned value management Special adjustments. You really do not want to be trying this in Excel BUT YOU MAY HAVE NO CHOICE FOR SOME COST ELEMENTS! 42

43 SUMMARY 43

44 LCC demands a consistent framework There is no single LCC tools that covers everything that needs to be estimated Use a Cost framework which enables organisations to set and manage a Base line program from the starting point to the end LCC estimation will require collection and use of data for: Product Breakdown Structure and the Work Breakdown Structure Platform, system, LRU reliability data Logistics loop Resources/ Budget Operational deployment & usage Ovehaul / Fatigue Cycles Maintenance Policy 44

45 A Cost Frame work: The Analytic estimation application software 45

46 Any Questions? Andy Nicholls Phone: +44 (0) Mobile: +44 (0) PRICE Systems Ltd. PRICE House, Meridian Office Park Osborn Way Hook, Hampshire RG27 9JY 46