© 04/08/20011 logistics systems engineering system cost analysis ntu sy-521-n smu sys 7340 dr....
TRANSCRIPT
© 04/08/2001 1
Logistics Systems EngineeringSystem Cost Analysis
NTUSY-521-N
SMUSYS 7340
Dr. Jerrell T. Stracener, SAE Fellow
© 04/08/2001 2
System Cost Analysis
• Definitions• Cardinal Principles• Scope of Life Cycle Cost (LCC)• LCC Model Structure & Analysis Flow• LCC Applications• LCC Phases• LCC Analysis• LCC Tracking
• Summary
© 04/08/2001 3
Definitions
• LCC: The total cost to the customer of acquisition and ownership of a system over its full life. It includes the cost of development, production, operation, support and where applicable, disposal.
• Cost Effectiveness: Consideration of performance, mission reliability, operational readiness (availability), etc., along with LCC to evaluate competing design or support approaches.
© 04/08/2001 4
Definitions
• Life Cycle Costing: An analytical study of a system’s live cycle cost- not an exact science.
• Design to Cost (DTC): Cost is a design parameter receiving consideration along with performance, schedule, etc. DTC is a management tool to integrate cost into the design process.
© 04/08/2001 5
Cardinal Principles
• Not an exact science - numerous estimations
• No right or wrong - reasonable or unreasonable
• No such thing as an LCC expert - too broad and deep
• Not a good budgeting tool - effective as comparison/trade-off tool
© 04/08/2001 6
Cardinal Principles
• Requires a project team approach - need specialized expertise
• Should be integral part of the design and support processes - DTLCC
© 04/08/2001 7
Scope of LCC
• LCC analysis can be applied on commercial as well as government programs
• Existing government programs require LCC analysis - increasing frequency is expected
• LCC analysis is applicable across all phases of a program - development, production and use
© 04/08/2001 9
Typical LCC Model Structure
ACQUISITIONCOST
D & DCOST
NONRECURRINGINVESTMENT
COST
AcquisitionCost
Insert Model
© 04/08/2001 10
LCC Analysis Flow
Doctrines•Procurement•Operational•Maint./Support
SystemCharacteristics
StandardFactors
InputData
EstimatesCost
Model
Estimateof
LCC
BestEstimateof LCC
Sensitivity Analysis
© 04/08/2001 11
LCC Applications
• Customer:– Affordability studies - measure impact of a
system’s LCC on the system budget– Source selection - compare LCC among
competing systems (suppliers)– Design trade studies - influence design
aspects of systems that impact LCCEvaluate design alternativesEvaluate support alternativesEstablish reliability and maintainability
levels
© 04/08/2001 12
LCC Applications
• Customer (continue):– Repair level analysis– Warranty pricing and cost effectiveness
• Supplier– Identification of cost drivers for emphasis
during program - sensitivity– Comparison of competing design and support
approaches - ranking– Estimate of total LCC - tracking– Marketing tool - new and modified programs
© 04/08/2001 13
Life Cycle Costing in Sys. Acquisition
SAE RM&S Workshop-April, 1989
70%
85%
95%
By end of concept studies
By end of system def.
By end of full scale devlp.
Cu
mu
lati
ve
Perc
en
t of
LCC
100
0System Life Cycle
50
© 04/08/2001 14
LCC by Program Phase
Determinationof
Mission Need
•Conceptual Studies
•Investigation of Alternative Solutions
Phase IDemonstration
andValidation
Phase IIEngineering andManufacturingDevelopment
Phase 0Concept
Exploration andDefinition
Phase IIIProduction
andDeployment
Phase IVOperations
andSupport
•Identification/ Analysis of Major System Alternatives
•Competitive Demonstration
•Design and Test Selected System Alternative
•Design Tradeoffs
•Rate Production of System
•Warranty
•User Support
•Modifications/ Product Improvement
© 04/08/2001 15
Phased Lice Cycle Costs
D&V FSD
DevelopmentCosts
Acquisition Costs
•Production Items•Support Items
Acquisition Costs
Ownership Costs
Operational andSupport Costs (O&S)
Impact on•Force Structure Equipment/Personnel•Logistical Support SystemsConcept
An
nu
al C
ost
Life Cycle Phases
© 04/08/2001 16
LCC Analysis
• LCC Analysis Applications• Types of LCC Analyses• LCC Baseline Analysis• Operating and Support Costs• LCC Tradeoff Analysis
© 04/08/2001 17
LCC Analysis Applications
• Marketing Effort: conducted to demonstrate the cost advantage of a proposed system compared with existing equipment or competitors equipment
• Proposal Effort: Conducted per customer’s requirements and used as a customer evaluation tool
© 04/08/2001 18
LCC Analysis Applications
• Required Contractual Effort: Conducted per customer’s requirements and used to evaluate different alternatives or to monitor LCC as design matures
• General Program Support: conducted to assist internal management in deciding among alternative approaches to solving a problem or in evaluation the risk associated with particular decision
© 04/08/2001 19
Types of LCC Analyses
• Baseline LCC Analysis: Evaluates the life cycle cost for a particular system configuration for a given operational and maintenance environment
• Sensitivity Analysis: Determines the sensitivity of the output results ot key input parameters in order to identify ocst drivers which will require special controls and monitoring as well as improved model input accuracy
© 04/08/2001 20
Types of LCC Analyses
• Tradeoff Analysis: Evaluates different alternative approaches and selects a preferred candidate based upon a decision criterion such as cost, performance, availability or a weighted combination of these factors
© 04/08/2001 21
Types of LCC Analyses
• LCC Tracking: Monitors the life cycle cost of a system over an extended period of time, noting variances from an established baseline and from the previous estimate and relating these changes to hardware/software modifications, maintenance policy changes, scenario fluctuations or other factors
© 04/08/2001 22
LCC Baseline Analyses
• Sensitivity Analysis:– Pinpoints hardware/software, cost categories,
and input parameters with greatest impact on LCC - drivers
– Establishes thresholds for the drivers
• Reference point for subsequent LCC analysis
• Frequent drivers - from experience– Unit Production Cost (UPC) - The average cost
per unit for defined quantities
© 04/08/2001 23
LCC Baseline Analyses
• Frequent drivers-from experience (cont.)– Mean Time Between Failures (MTBF) - with
operating hours, estimates the expected number of failures per unit in a defined time frame
– Mean Time To Repair (MTTR) - with labor rate, estimates the active maintenance labor cost per failure - determined for each maintenance level
© 04/08/2001 24
Operating & Support Cost: 20 Year Distribution
0.0
0.2
0.4
0.6
0.8
1.0
Fuel 75%
Sch Maint 2%Trans 5%
Uns Maint 15%
Spares 3%
Operating & Support Cost Unscheduled Maintenance Cost
PartsConsumed
Labor RepairMatl
Elements of Cost
50%
40%
10%
© 04/08/2001 25
LCC Tradeoff Analysis
• Identifies preferred design/support candidate from LCC standpoint
• Provides ranking of candidates with respect to LCC - minimal emphasis on magnitude of LCC for each candidate (concentrate on difference(s))
• Through sensitivity analysis, identifies thresholds on input data drivers where ranking of candidates is changed
© 04/08/2001 26
LCC Tradeoff Analysis
• Evaluates other tradeoff criteria, i.e., performance, operational readiness and mission reliability, and combines these with LCC for overall cost-effectiveness figure of merit
© 04/08/2001 27
LCC Tracking
• Indicates trend of total system LCC every 6 months - compare with baseline estimate
• Provides feedback to design and support engineers - status against assigned goals
• Control of LCC drivers related to the hardware/software - must meet specs
• Definition of tradeoffs to balance LCC drivers to control total LCC - triggered by increasing LCC over previous estimate
© 04/08/2001 28
LCC Tracking
• Minimize importance of absolute magnitude of LCC estimate - trend is the key issue
• Provides interval estimates for LCC prediction purposes - cost-risk analysis
© 04/08/2001 29
Life Cycle Cost ForecastingMargin of Error
LCCUncertainty
LCC
Time - YearsSAE RM&S Workshop-April, 1989
© 04/08/2001 30
Relationship Between LCC and MTBF
Cost($)
MTBF (Hours)
Total Life Cycle Cost
Operating and Support Cost
Development and Acquisition Cost
© 04/08/2001 31
Conclusion
• LCC can be controlled on government and commercial programs through the diligent application of sound LCC Analysis Process
• DTLCC is a management tool to integrate LCC into the decision process
• DTLCC is not well defined and depends on ingenuity to make it work
• Tradeoffs are the cornerstones
© 04/08/2001 32
Conclusion
• Team concept is the vehicle for a successful DTLCC program - communication and cooperation
• Emphasis must be placed on the LCC drivers early in the design phase
• Cost must be traded off against performance to satisfy the true intent of DTLCC
• LCC Results must be related to the hardware/software to implement DTLCC