experience with life cycle cost analysis in the netherlands

Experience with Life Cycle Cost analysis in the NetherlandsMarcel Smit

Colloquium Life Cycle Costing

RHID, Brussels, Belgium7 March, 2012

Outline

TNO What is LCC ?LCC support in Life Cycle phasesTNO’s role in acquisition programsFEL SALDO methodology Uncertainty analysisExamples LCC studiesCost analysis in in-service phaseInternational co-operationQuestions

March 07, 2012M.C. SmitLCC-analysis in NLD

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TNO facts & figuresFounded by law in 1932

Applied research for government and business

Independent of public or private interests

Defence research started after WWII

Multidisciplinary

Not-for-profit

4189 employeesin 2010

564 M€


Themes and innovation areas

4March 07, 2012M.C. SmitLCC-analysis in NLD

Areas of expertise

To safeguard the consistency and quality of TNO’s knowledge and

resources, the following areas of expertise have been identified:

Technical Sciences

Behavioural and Societal Sciences

Earth, Environmental and Life Sciences


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TechnicalSciences

Behavioural and Societal

Sciences

Earth, Environmental

and Life Sciences

MOBILITY

INFORMATION SOCIETY

HEALTHY LIVING

DEFENCE, SAFETY AND SECURITY

INDUSTRIAL INNOVATION

ENERGY

BUILD ENVIRONMENT

Themes:in charge of

projects and impact

Expertise areas:in charge of knowledge and resources

Our organization


TNO in the NetherlandsGroningen

Eindhoven

Den Helder

The Hague

Rijswijk

Delft

Apeldoorn

Leiden

Enschede

Hoofddorp

Utrecht

Soesterberg

Zeist

Helmond


What is LCC ?

Life Cycle Costs (LCC): all costs made by the owner of equipment as result of acquisition, operation and support at a required standard of performance, and

disposal..

Life Cycle Cost Analysis (LCC-analysis):Systematic process of estimating and analysing the LCC and evaluating alternatives.


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LCC support in life cycle phases

Focus on support in acquisition phase new systems NL MoD


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Feasibility, Research &Development, Production

Acquisition In-service

Why LCC analysis in acquisition phase ?Why LCC analysis in acquisition phase ?

Obligedin all phases of the NL Defence Materiel Process (DMP)

Better selection processpossibility to compare alternatives (relative and absolute)

Risk reductiongain insight into not only acquisition costs, but also in costs for operation and supportinsight into the main factors of influence /cost driverscost risk and uncertainty analysis


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Types of LCC analyses in acquisition phase

Estimate total costs new equipment.

Compare LCC for different options to fulfil requirements:more than one candidatedifferent options per candidatedifferent ways to introduce new system (efficiency study)different options to organize maintenancedifferent options to organize training

Sensitivity analyses on important factors of influence.


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TNO’s role in acquisition projects: support the acquirer (NL MoD)

Way of involvement:the more complex acquisition projects(assist in) composing questionnaires to be answered by industry as partof RFI, RFQ or RFPevaluating answers from industry: LCC analysisdesk research and meetings with industrycomparing alternatives or candidates on costsperforming sensitivity, cost risk, uncertainty analysespart of multidisciplinary support to NL MoD project team with: Operational, Technical and Logistic Studies and Multi Criteria Analysis

Reason:independentdevelopers of step-by-step method (FELSALDO)


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FEL-SALDO (Step-by-step approach for Analysis of Life cycle cost within the Defence Organisation)FEL-SALDO (Step-by-step approach for Analysis of Life cycle cost within the Defence Organisation)

Developed by TNO together with Defence organisationEnables LCC-analysis in each phase ofDefence Materiel Process (DMP)Has become standard within the defence organisation Facilitates a uniform, systematic and repetitive wa yof life cycle cost analysisFive steps: planning, definition, development, anal ysis and report


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Five steps of FEL-SALDO

1 PlanningLCC-objectivesconstraintsproject teamavailability datadetailed planning

2 Definitionsystemutilisationmaintenance

3 Developmentcost breakdown structureestimating methodcollect data

4 Analysisestimate LCCsensitivity analysisuncertainty analysiscost drivers

5 Reportinterpret resultsreport/ present results


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Example CBS


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Procurement or development cost

Initial logistic support cost

Cost testing and acceptance

Cost installation the system

Project costs

Preparation cost

Other acquistion cost

Acquisition cost

Operating personnel

Operators training

Operating documentation

Operational infrastructure/facilities

Consumables

Other operation cost

Operation cost

Maintenance personnel

Maintenance training

Maintenance facilities

Spare/repair parts incl. stocks

Test & support cost

Maintenance documentation

Computer resources

Infrastructure

Packing, Handling, Storage & Transportation

Contracting out maintenance

Modification/Upgrading

Support cost

Exploitation cost Disposal cost

LCC


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Methods for estimating the costMethods for estimating the cost

Analogy

Costold Costnew

“comparable”

Parametric

Statistics

Heuristics

Rules of thumb

Expert opinion

Engineering

)1)/*

*((**

+oursNumberDirHNumberFHNumberHeli

MMHAFHTRUNCLifeCycleMidsomA

Costs maintenance personnel level A =

Simulation

Cost estimates are most of times combination of these methods

Uncertainty analysis

Requirement to identify uncertainty in results cost analysis:Estimates are uncertain!

Uncertainty about the future

No or missing data or information

Unclear data or information

Doubts about the accuracy of data or information

How to conduct uncertainty analysis?

Aim to determine bandwidths for parameters with uncertain values

Panel of experts

Individual estimates experts

Consensus on (1) most likely, (2) lower, (3) upper value (Delphi

approach).


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Uncertainty analysis:Applying bandwidths

Bandwidths for all uncertain

parameters are combined using

Monte Carlo simulation.

Result: cost distribution per

candidate for LCC


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Example results uncertainty analysis –Multiple candidates

candidate 1

candidate 2

candidate 3

Some examples LCC studies in acquisition phase


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Developments in LCC Analysis in the Netherlands

Until some years ago LCC analyses to support acquisition new systems.

Now.. more attention for cost analysis in in-service phase

LCC analysis not a one time job: monitoring of costs and expenses is required.

Comparison actual O&S costs with results LCC-study.

Estimate changes in costs as a result of changes in operations, technics or maintenance

policy.

Use O&S costs of current system as reference point for O&S costs new system.


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Life cycle system

Feasibility, Research &Development, Production

Acquisition In-service

LCC analysis in in-service phaseChallenges

LCC estimates to support acquisition decision not often used for planning and controlLCC estimates for acquisition phase not monitored or evaluated in in-service phase.

Reasons:Different cost structures used in acquisition and in-service phase.Information systems not suitable.Responsibilities for acquisition and in-service Anticipated versus actual use of equipment.

Other nations face the same problems


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International co-operation in Cost Analysis

NATO-RTO

SAS-028: Generic Cost Breakdown Structure

SAS-054: Methods and models for Life Cycle Costs (chair)

SAS-063: Benchmarking study and capability costing

SAS-069: Booklet Codes of Best Practice LCC (chair)

SAS-076: Independent Cost Estimate & Capability Portfolio Analysis

SAS-095: Cost Benefit of Military Training

NATO AC/327:

WG 3: NATO Guidance on Life Cycle Cost (ALCCP-1)

NATO Missile Defence

Cost Analysis Team for ALTBMD Feasibility study (chair)

Cost Analysis Team for MD Feasibility Study (chair)


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March 07, 201224

SAS-069: Booklet code of practice.

Lead: Mr. Marcel SMIT

SAS-076: Practicing guideline with Independent Cost

Estimates Lead: Dr. Brian Flynn

SAS-028: Cost Breakdown Structure for NATO

Lead: Dr. Gérard Seguin

SAS-054: Methods and Models for Life Cycle

Costing.Lead: Mr. Marcel SMIT

Overview of Process for Estimating Risk and Uncertainty

(CARD, checklists, engineering judgment, analogies, brainstorming)

Deterministic model inputs from CARD

Stochastic model inputs from CARD, data analysis, &

expert opinion

Data Collection & Analysis

For each WBS element, choose or estimate: 1. Type of probability distribution 2. Parameters of the distribution (e.g., µ, σ²) 3. Correlation with other WBS elements

µ2 - µ1 = Risk$

Baseline Cost Estimate

µ1

µ2

Risk-Adjusted Cost Estimate

Fixed Xs Stochastic error terms Monte Carlo Simulation

Stochastic Xs Discreet risk events

2007-2008

2008 -2011

2004 to 2006

NATOCost Analysis Improvement

AC/327 SG 3 WG 3 onLife-Cycle Costs: ALCCP-1

Lead: Prof. Ticocar Ciobotaru

2005 to 2007

2000 to 2003

M.C. SmitLCC-analysis in NLD

Summary


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More information ?

TNOBehavioural and Societal SciencesStrategic Business Analysis

M.C. (Marcel) Smit, M.Sc.

Brassersplein 22612 CT DelftThe Netherlands

Phone: +31 88 866 39 09Mobile: +31 6 211 343 54Email: [email protected]


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experience with life cycle cost analysis in the netherlands

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