Concepts and Principles of Life Cycle Cost (LCC) and Effectiveness

Engineering
EThICS Technology, Intelligence
ENGINEERING
Consulting & Systems

EThICS 039.BC02E.07

RESEARCH, DEVELOPMENT AND INNOVATION

LIFE CYCLE OF PROJECTS AND PRODUCTS
- Concepts and Principles of LCC and Effectiveness -

Antonio Sallum Librelato - Director – EThICS Engineering - March - 2013

20/3/2013 Intellectual Property of EThICS Engineering 1

EThICS
ENGINEERING CONCEPTS AND PRINCIPLES OF LCC AND EFFECTIVENESS
EThICS 039.BC02E.07

PURPOSES OF THE MODULE

INTRODUCTION
Acronyms
Motivations for LCC and Effectiveness
Standards for LCC

BASIC CONCEPTS OF LCC
Elements of Life Cycle:
Life Cycle
Fig. 1: Model of Life Cycle of Projects and Products
Fig. 2: Initial Steps of RDI of Systems and Products
Acronyms of RDI
Elements of Life Cycle Cost:
Cost Driver
Cost Profile
CBS – Cost Breakdown Structure
Recurrent Costs
Non-Recurrent Costs
Fig. 3: Elements of Life Cycle Costs
LCC – Life Cycle Cost
Life Cycle Costing
TLC - Through-Life Cost
WLC - Whole-Life Cost
WLCC - Whole-Life Cycle Costing
TCO – Total Cost of Ownership
TCA – Total Cost of Acquisition
COO – Total Cost Of Operations
LAC - Life Acquisition Cost
LOC - Life Ownership Cost
LLC - Life Loss Cost
LCCA – Life Cycle Cost Analysis


EThICS
EThICS 039.BC02E.07

CONCEPTS OF EFFECTIVENESS MODELS OF LCC
Elements of Effectiveness Fig. 5: Summary Vision of Total Costs of the Life Cycle
Effectiveness Analysis Model of the Composition of the LCC
System Effectiveness Fig. 6: The (In)Visibility of the Total Costs
Fig. 4: FOM - Factors Of Merit Fig. 7: The Proportions of the Elements of the LCC
MOE - Measure Of Effectiveness Considerations about R&D Methods, Costs and Assurance
Operational Effectiveness Fig. 8: Elementary Cycle of Project Validation and Assurance
Elements of Operational Effectiveness Fig. 9: The Impact on Costs Due to Method Change
Operational Suitability Fig. 10: The Impact of Changes of |Method on Costs
MOS - Measure Of Suitability
Fig. 11: The Balance of Factors of Cost-Effectiveness
Operational Availability
Fig. 12: The Factors of Effectiveness and the Costs of the Systems
Operational Utility
Cost Effectiveness
APPENDICES
References
CONCEPTS OF PERFORMANCE
EThICS Engineering - Services and Areas of Action
Elements of Performance
Performance
System Performance
Level of Performance
Categories of Performance
Objective Performance
Subjective Performance
System Attributes
Attributes of Operational Performance
Physical Attributes
Functional Attributes
MOP - Measures Of Performance

Antonio Sallum Librelato - Director – EThICS Engineering - January - 2013


EThICS
EThICS 039.BC02E.07 [EE_039.BC02.06]

Purposes of the Module
The main purpose of this module is to present, in an introductory
way, concepts and models about LCC - Life Cycle Costs and its
relation to the steps and actions RDI - Research, Development and
Innovation and SPA - Systems and Products Assurance.
The concepts of performance and effectiveness of systems and costs
are also treated.
It will be shown the advantages of developing projects incorporating
solutions that meet the performance requirements, with warranty
and with balance between effectiveness and cost.


EThICS
EThICS 039.BC02E.07

INTRODUCTION


EThICS
EThICS 039.BC02E.07 INTRODUCTION [EE_039.BC02.06]

Acronyms
ACRONYM MEANING
CBS Cost Breakdown Structure
CISP Construction and Integration of Systems and Products
COO Total Cost of Operations
DoD, DOD Department of Defense
DPSP Definitive Project of Systems and Products
DSP Development of Systems and Products
EVCN Enterprise Vision and Clients Needs
FOM Figure Of Merit
HDBK Handbook
IEC International Electrotechnical Commission
ILS Integrated Logistical Support
LAC Life Acquisition Cost
LCC Life Cycle Cost
LCCA Life Cycle Cost Analysis
LCPP Life Cycle of Projects and Products
LLC Life Loss Cost
LOC Life Ownership Cost


EThICS
EThICS 039.BC02E.07 INTRODUCTION [EE_039.BC02.06]

Acronyms
ACRONYM MEANING
MIL Military
MOE Measure Of Effectiveness
MOP Measure Of Performance
MOS Measure Of Suitability
OT&E Operational Test and Evaluation
PPSP Preliminary Project of Systems and Products
PSP Production of Systems and Products
RDI Research, Development and Innovation
ROI Return On Investiments
ROI Return On Investment
SCR Systems Concepts Research
SPA Systems and Products Assurance
TCA Total Cost of Acquisition
TCO Total Cost of Ownership
TLC Through-Life Cost
TSR Technology and Systems Research
USP Use of Systems and Products
WLC Whole-Life Cost

EThICS
EThICS 039.BC02E.07 INTRODUCTION Ref.: [JONE_01]

Motivations for LCC and Effectiveness
The prediction (estimate) of the total costs that will occur over the life of a
system, device or product in demand is of great importance in the acquisition
process.
It lets to make choices and take decisions on various solution alternatives,
regarding the characteristics of the systems, infrastructure and physical
resources required to operate and maintain the system.
The concept of cost of ownership is used to project the future financial
obligations and charges that will be required to possess and use the system.
During the acquisition of systems and products, cost of ownership allows you
to focus on total costs over the life of the system, rather than focusing only
on the purchase price.
The methods of Supportability Engineering to estimate the cost of property
already in the process of acquiring and analyzing future agents which then
cost can be reduced without reducing the performance and operational
availability.


EThICS
EThICS 039.BC02E.07 INTRODUCTION Ref.: [JONE_01][KAWA_01][BARR_01][GIUD_01]

Standards for LCC
IEC 60300-3-3 Dependability management – Part 3-3: Application guide
– Life cycle costing. Second edition, 2004-07.
ISO 15663-1: 2000 Petroleum and natural gas industries - Life cycle
costing. Part 1: Methodology.
costing. Part 2: Guidance on application of methodology and calculation
methods.
costing. Part 3: Implementation guides.
MIL-HDBK-259 Military Handbook - Life Cycle Cost in Navy Acquisitions
(1 April 1983).
MIL-HDBK-276-1 Military Handbook - Life Cycle Cost Model for Defense
Material Systems, Data Collection Workbook (3 February 1984).
MIL-HDBK-276-2 Military Handbook - Life Cycle cost Model for Defense
Material Systems Operating Instructions (3 February 1984).

EThICS
EThICS 039.BC02E.07 INTRODUCTION Ref.: [JONE_01][KAWA_01][BARR_01][GIUD_01]

Standards for LCC
NORSOK O-CR-001 Common requirements - Life cycle cost for system
and equipment. Rev. 1, April 1996.
NORSOK O-CR-002 Life cycle cost for production facility, 1996
SAE-ARP 4293 Life cycle cost: Techniques and applications, 1992.
SAE-ARP 4294 Data formats and practices for life cycle cost information,
1992.


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EThICS 039.BC02E.07

BASIC CONCEPTS OF LCC


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [KOSS_01][KAWA_01]

Elements of Life Cycle Cost
Life Cycle:
It is the interval of time between conception and discarding a product.
[KAWA_01]
It is the evolution of the system or product, beginning with the identification
of a need perceived by the customer, and the activities resulting from
development, testing, manufacturing, operation, support and training,
continuing over several improvements or developments until the product, and
their related processes are discarded. [KOSS_01]


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [GRAD_01][EE_039.BC01.09]

Fig. 1: Model of Life Cycle of Projects and Products

RESEARCH, PRODUCTION INTEGRATED USE OF
DEVELOP & OF SYSTEMS LOGISTICAL SYSTEMS & outcomes
INNOVATION & PRODUCTS SUPPORT PRODUCTS
LCPP
EXPLORATION ACTIVITIES
OF NEW WITH
BUSINESSES CLIENTS

RESEARCHES
Tendencies • Innovations
Innovations • Technological and Competitive Analyses
PROJECTS
Knowledge
Needs • Continuous Feedback
EVCN
Requirements • Results of the Projects
Restrictions POTENTIAL MARKETS
Suppositions • New Needs
20/01/13
• Needs of Improvements


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [EE_039.BE01.07]

Fig. 2: Initial Steps of RDI of Systems and Products

SOURCES OF INFO &
KNOWLEDGE
RDI

TCI SAT TTA
TSR TECHNOLOGY & SYST RESEARCH MRP MANAG RDI PROGR
NSD STE TPP STE TME OME

SCR SYSTEMS CONCEPTS RESEARCH DSP DEVELOP SYST AND PROD SYST
Needs
NRA SCE SCD PPSP DPSP CISP &
&
PROD
Req

SRAA PRAA
26/11/11


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [EE_039.BE01.07]

Acronyms of RDI
MRP Management of RDI Programs
SMR Strategic Management of RDI
TMR Tactical Management of RDI
OMR Operational Management of RDI
TSR Technology and Systems Research
TCI Technological and Competitive Intelligence
SAT Strategic Analysis of Technologies
STE Special Technical Studies
NSD New Systems Development
TPP Technical Presentations of Projects
TTA Technology Transfer and Absorption
SCR Systems Concepts Research
NRA Needs and Requirements Analysis
SCE Systems Concepts Exploration
SCD System Concept Definition
SRAA Systems Risks and Assurance Analysis
DSP Development of Systems and Products
PPSP Preliminary Project of Systems and Products
DPSP Definitive Project of Systems and Products
CIPS Construction and Integration of Systems and Products
IPSP Installation Project of Systems and Products
PRAA Products Risks and Assurance Analysis


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [KAWA_01]

Cost Driver
It is the element of LCC that has a greater impact on life cycle costing.
[KAWA_01]
Cost Profile
It is a tabular or graphical representation showing the distribution of
costs over the life cycle (or part thereof) of a product. [KAWA_01]
CBS – Cost Breakdown Structure:
It ordered the deployment of cost elements to arrive at the cost of the
total life cycle of the product. [KAWA_01]


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [VARG_01]

Recurrent Costs
Are the repetitive costs, direct or indirect, that vary with the quantity
produced and the time of use. [VARG_01]
Non-Recurrent Costs
These are costs that occur only once, such as in developments and
investments. [VARG_01]


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Fig. 3: Elements of Life Cycle Costs

Concepts of elements of cost (source: IEC 60300 3-3)


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EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [KAWA_01][JONE_01][JONE_02]

LCC – Life Cycle Cost
It is the cumulative cost of a product throughout its life cycle.
[KAWA_01]
It is a technical process that compares the costs of the relative merits of
two or more options. [JONE_01] [JONE_02]
Life Cycle Costing
The process of economic analysis for the inventory cost of the life cycle
of a product throughout its life cycle or a portion of it. [KAWA_01]


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [JONE_01][JONE_02][BOUS_01]

TLC - Through-Life Cost
It is a budget process that estimates the financial cost of a certain option
over its intended life, in terms of budget categories and periods of
financial accounting. [JONE_01] [JONE_02]
It is a process of costing lifecycle where it emphasizes the role of
continuous funding over the life of the system, considering the forecasts
of costs, reviews, and compilations of actual costs.
WLC - Whole-Life Cost
It is an estimate of the total cost to acquire, equip, maintain and operate
a certain option throughout its intended life. [JONE_01] [JONE_02]
Equivalent to the LCC, including financial, environmental and social costs,
covering all the elements and agents costs, from "cradle" to "grave".


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [BOUS_01]

WLCC - Whole-Life Cycle Costing
It is a dynamic and progressive process that allows the stochastic
evaluation of the performance of built facilities, the feasibility to disposal
or sale. [BOUS_01]
The WLCC evaluation process takes into account the characteristics of
the facilities constructed, reuse, sustainability, maintainability and
obsolescence, as well as the capital, maintenance, finance, and the cost
and waste disposal. [BOUS_01]
The results of this stochastic evaluation form the basis of a series of
performance indicators for economic and non-economic, related to the
various stakeholder interests and goals throughout the lifecycle of a
project. [BOUS_01]


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [JONE_01][JONE_02]

TCO – Total Cost of Ownership
This is the total of costs incurred to get and use a capability, including
the costs of research and development, acquisition , operating, support ,
and disposal. [JONE_01] [JONE_02]
It is a financial estimate to help consumers and enterprise managers in
determining the direct and indirect costs of a product or system.
It is a management accounting concept that can be used in full cost
accounting or even ecological economics to include social costs.
The TCO analysis includes the total cost of acquisition and
operational costs.


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC

TCA – Total Cost of Acquisition
It is a management accounting concept that includes all costs associated
with the purchase of goods, services or assets.
COO – Total Cost Of Operations
Are recurring expenses associated with the operation of a business or
operation of a device, component, equipment or system installation.


EThICS

LAC - Life Acquisition Cost [KAWA_01]
Equipment purchase cost
Installation cost
Commissioning cost
Insurance spares cost
Reinvestment cost
Design and administration cost


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LOC - Life Ownership Cost [KAWA_01]
Man-hour cost
Corrective maintenance
Preventive maintenance
Servicing
Spare parts consumption cost
Corrective maintenance
Preventive maintenance
Servicing
Logistics support cost
Energy consumption cost
Insurance cost


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LLC - Life Loss Cost [KAWA_01]
Cost of deferred production
Hazard cost (Liability cost)
Warranty cost
Loss of image and prestige cost


EThICS
EThICS 039.BC02E.07 BASIC CONCEPTS OF LCC Ref.: [BLAN_02]

LCCA – Life Cycle Cost Analysis
It is the process of evaluating alternative configurations for system
designs, according to an economic perspective. [BLAN_02]
It is a procedure of economic analysis of LCC, based on engineering
data.
It is used for comparison of LCC alternatives considering all significant
costs.
Take the present value of the costs.


EThICS
EThICS 039.BC02E.07

CONCEPTS OF EFFECTIVENESS


EThICS
EThICS 039.BC02E.07 CONCEPTS OF EFFECTIVENESS

Elements of Effectiveness
The degree of success of a system and its mission depends on four
factors (subjective and objective):
If there is an operational need for the system by the market (window
of opportunity).
If there is a perception by users of the operational usefulness,
suitability and availability of the system.
If the system is able to perform the mission of the user, if there is
system's effectiveness.
If there is a return on investment (ROI) for the resources spent to
operate and maintain the system, if there is the cost effectiveness.


EThICS
EThICS 039.BC02E.07 CONCEPTS OF EFFECTIVENESS Ref.: [KOSS_01]

Effectiveness Analysis
It is an analytical approach used to determine how well a system
performs in its intended operational environment. [KOSS_01]


EThICS
EThICS 039.BC02E.07 CONCEPTS OF EFFECTIVENESS Ref.: [KOSS_01][BLAN_02][WASS_01][INCO_01]

System Effectiveness
It is a measure of the ability of a system to meet the operational
effectiveness of their intended uses when called to do so. [KOSS_01]
This is the extent to which a system is able to perform its intended
functions. [BLAN_02]
It is a quantitative measure of the extent to which a system is
expected to meet the needs and requirements of customers.
[WASS_01] [INCO_01]
It is a function of adequacy, dependability (reliability, availability,
maintainability), and capacity.
Represents the physical reality of performance and results, based on
the effects of the operation of the system, which can be viewed from
two perspectives:
Planned performance.
Actual performance.


EThICS
EThICS 039.BC02E.07 CONCEPTS OF EFFECTIVENESS Ref.: [BLAN_01]

Fig. 4: FOM - Factors Of Merit
They are forms of measures of effectiveness (MOE) that seek to take
into account both the technical factors as economic factors, such as:
[BLAN_01]

Performance x Availability Supportability
LCC LCC

FOM

System Capacity LCC
Revenues - Costs 21/01/13 Facility Space


EThICS
EThICS 039.BC02E.07 CONCEPTS OF EFFECTIVENESS Ref.: [KOSS_01][DoD 500.59-M]

MOE - Measure Of Effectiveness
It is a metric used to quantify the degree to which the performance
objectives of a given system, subsystem, or component are achieved.
[KOSS_01]
Are qualitative or quantitative measures of performance of a model
or simulation, or characteristic that indicates the degree to which it
performs the task or achieve the operational objective or requirement
under specified conditions. [DoD 500.59-M] [KOSS_01]


EThICS
EThICS 039.BC02E.07 CONCEPTS OF EFFECTIVENESS Ref.: [KOSS_01][WASS_01][INCO_01]

Operational Effectiveness
It is the overall degree of mission accomplishment of a system when
used in its operating environment. [KOSS_01]
It is a measure of test and operational evaluation (OT & E), which
measures the overall degree of mission accomplishment of a system
when used by personal representative, in the environment planned or
assumed for the operational use of the system, considering
organization, doctrine, tactics, survival, vulnerability and threat
(including countermeasures, initial effects of nuclear weapons,
threats of nuclear contamination, biological and chemical. [WASS_01]
[INCO_01]
Elements of Operational Effectiveness:
Are those witch define whether the goals and organizational objectives
were achieved in:
Results
Costs
Deadlines
Risks

EThICS
EThICS 039.BC02E.07 CONCEPTS OF EFFECTIVENESS Ref.: [WASS_01]

Operational Suitability
It is the degree to which a system can be implemented satisfactorily
for field use, considering the requirements of availability,
compatibility, transportability, interoperability, reliability, ... rate of
use, maintainability, safety, human factors, supportability to the work
force, logistics supportability, effects and impacts of the natural
environment, documentation and training. [WASS_01]
Characterizes HOW WELL a system or product: [WASS_01]
It is suitable for a specific user´s application in a given operating
environment.
Integrates and performs through the already existing user´s system.
MOS - Measure Of Suitability
These are objective measures of performance derived from subjective
criteria of users to evaluate the operational suitability of the system for
organizational applications and mission. [WASS_01]


EThICS
EThICS 039.BC02E.07 CONCEPTS OF EFFECTIVENESS Ref.: [BLAN_02][WASS_01]

Operational Availability
It is the probability that the system will operate satisfactorily when
requested at any instant in time under specified operating conditions
in a real environment and logistical support. [BLAN_02]
This means the system, product or service is ready and on demand
to carry out the mission, when assigned the task. [WASS_01]
The operational availability becomes a critical metric for assessing
the readiness of the system to perform the task. [WASS_01]
It is a function of reliability and maintainability of the system.
[WASS_01]


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Operational Utility
Users expect that systems and products have a degree of operational
utility to enable them to fulfill their missions and complete the
organizational goals and objectives. [WASS_01]
A system or product that has operational usefulness is one that:
[WASS_01]
It's the RIGHT system, product or service for the objective to be
achieved.
Has no unacceptable hazard or risk to safety, the environment or human
health.


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Cost Effectiveness
It is an objective way to measure the success of the system.
[WASS_01]
Does the system produce a performance based on its results and
performance and provide a return on investment (ROI) that justify its
continued use?
The cost effectiveness is a metric computed from:
Life Cycle Cost (LCC, TCO).
System Effectiveness.


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EThICS 039.BC02E.07

CONCEPTS OF PERFORMANCE


EThICS
EThICS 039.BC02E.07 CONCEPTS OF PERFORMANCE Ref.: [KOSS_01][WASS_01][IEEE 649-1998]

Performance
The degree to which a system or component may, within a given set of
constraints, perform their designated functions. [KOSS_01]
It is a quantitative measure that characterizes a physical or functional
attribute relating to the execution of an operation or function.
[WASS_01] [IEEE 649-1998]
System Performance
Represents the performance of the integrated system elements, such as
equipment, personnel, and resources of the mission that provide
capabilities, operations and system processes. [WASS_01]
Level of Performance
It is an objective and measurable parameter which serves to delineate
the ability of a system to perform a function based on a set of assumed
scenarios, initial conditions and operating conditions. [WASS_01]


EThICS
EThICS 039.BC02E.07 CONCEPTS OF PERFORMANCE Ref.: [WASS_01]

Categories of Performance [WASS_01]
Objective Performance :
Performance that produces measurable physical evidences of system
effectiveness based on pre-defined criteria.
Subjective Performance :
Performance indicated by a subjective quality that varies according to the
sensory values, interpretations or individual perspectives.


EThICS
EThICS 039.BC02E.07 CONCEPTS OF PERFORMANCE Ref.: [WASS_01][IEEE 649-1998]

System Attributes
Attributes of Operational Performance
Are the critical performance parameters of the system needed to achieve
the objectives in the different places of operation. They can include:
Quantity: how many, how much they cost
Quality: how well
Coverage: how much area, how far
Temporality: how often, how responsive
Readiness availability, mission and operational readiness
Other: according to each of systems operation
Physical Attributes
Quantitative and qualitative expressions about material aspects, such as
composition, size, finish, form, fit, and their respective tolerances.
[WASS_01] [IEEE 649-1998
Functional Attributes
Are measurable performance parameters including reliability,
maintainability and safety. [WASS_01] [IEEE 649-1998]


EThICS
EThICS 039.BC02E.07 CONCEPTS OF PERFORMANCE Ref.: [WASS_01]

MOP - Measures Of Performance
Are measures from the lowest performance level representing
subsets of measures of effectiveness (MOEs). [WASS_01]
Examples: speed, load, distance, time, frequency, or other attribute
or feature.


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EThICS 039.BC02E.07

MODELS OFF LCC


EThICS
EThICS 039.BC02E.07 MODELS OF LCC

Fig. 5: Summary Vision of Total Costs of the Life Cycle

TCO
Total Cost of Ownership

TCA COO
Total Cost of 21/01/13 Total Cost of
Acquisition Operation


EThICS
EThICS 039.BC02E.07 MODELS OF LCC Ref.: [BLAN_01]

Model of the Composition of the LCC
PREPARATION COSTS SUSTAINMENT COSTS
Costs of Schedule and
Cost of Use of
RDI Costs Replication Cost Cost of Investments Non-Schedules Disposal Costs
Facilities
Maintenance
Non-Recurring Recurring Non-Recurring Recurring Recurring Recurring
Occur for every Occur for each unit Occur for each unit
Occurs only once for Occur for each unit Occur only once for
installation of each installed and for each installed and for each
all units produced produced each unit installed
unit maintenance cycle operation cycle

TSR Technology and PSP Production of ILS Integrated Logistic
Installation Project Operation Legal Permission
Systems Research Systems and Products Support

Design and
SCR Systems Concepts Factory Acceptance Replacement and Training for Continued Demolition and
Construction of
Research Tests Renovation Operation Disposal
Infrastructure
Consumption of
Improvement of Modification of
DSP Development of Qualification and Energy , Water, Repairs and
Equipment and Systems and
Systems and Products Certification Communications and Restorations
Infrastructure Equipment
Other
SPA Systems and Improvement of Materials, Labor- Supply of Materials
Depreciation
Products Assurance Utilities Work, Charges and Consumables
Improving the
Trading and Systems Integration Transportation and
Rents Environmental
Contracting and Commissioning Insurance
Sustainability
Initial Preparations for
Outsourced Services
Operation
Management and Management and Management and Management and Management and Management and
Documentation Documentation Documentation Documentation Documentation Documentation
TCA TOTAL COST OF ACQUISITION COO COST OF OPERATION
TCO TOTAL COST OF OWNERSHIP


EThICS
EThICS 039.BC02E.07 MODELS OF LCC Ref.: [BATA_01][BLAN_01][BLAN_02][KAWA_01]

Fig. 6: The (In)Visibility of the Total Costs

The TCO is represented by the
Barely Part of the Total Cost of Acquisition complete “iceberg” of costs!
What is done here, at each
project and at each
produced unit,... Cost of RDI + PSP + Infra

Before having the full possession
...defines what happens
of the system or product, the
here, and that is repeated
at each acquisition and in Part of the Non-Recurrent client often does not realize the
Investments Costs costs beyond what is "visible.“
each period of the rest of
+ After the inauguration, he will
the life cycle of each one!
have to look the "invisible“ part
Most part of the TCO is
Recurrent Investment Costs of the iceberg.
associated to the Investments +
Costs and Sustainment Costs. Sustainment Costs
During the steps of the RDI and
PSP, those costs are often
neglected, when there is more Remainder of the Total Cost of
focus only on the purchase
costs.
Acquisition +
21/01/13 Total Cost of Operation


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Fig. 7: The Proportions of the Elements of the LCC

Use
Cost

Acquisition Discard

21/01/13
Time


EThICS
EThICS 039.BC02E.07 MODELS OF LCC Ref.: [EE_039.BG01.06] [EE_039.BG02.00]

Considerations about R&D Methods, Costs and Assurance
“Traditional” R&D Method:
Focus on lowest time and cost to obtain the prototype of the product
(R&D costs) to be reproduced (manufactured) and used by the
customers.
Tendency to start the project directly from the development steps (DSP),
ignoring the steps of the Systems Concepts Research (SCR).
Unconcern about the Total Cost of Ownership (TCO) of the systems and
product.
Strong confidence on past experience and on already used technologies.
Tendency to disregard risks due to hazards and uncertainties created by
the new solutions.
Tendency to react (a posteriori) to faults, errors and failures, instead of
being proactive (a priori) to select solutions that avoid them.
Considerations about product assurance limited to reliability, availability
and maintainability (RAM), non-integrated with each development step.


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Considerations about R&D Methods, Costs and Assurance
“New” Proposed R&D Method:
Focus on LCC and Effectiveness, aiming the best TCO.
Perform the TSR and SCR steps, before starting the DSP steps.
Look for strong knowledge about new technologies, compared with the
dominated technologies.
Exert deep analysis and actions to mitigate the risks of hazards and
uncertainties, since the initial steps of the project.
Promote the proactive actions of systems and products assurance,
integrated and simultaneous with the actions of SCR and DSP steps,
and at each elementary step of project (See Fig. 8).


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Fig. 8: Elementary Cycle of Project Validation and Assurance
Operational, Technical and Performance and SPA
Functional Requirements. Requirements.
PROJECT
Methods of Project. Methods of SPA.
EXECUTION
RDI Plan of the Project. SPA Plan of the Project.

Documentation EACH
of Project and of SOLUTION OF
Results. THE PROJECT

PROJECT
REVISION

V? = is the solution valid?
A? = is the solution assured?
V&A? NON
YES

EACH SOLUTION NEXT STEP
OF THE PROJECT OF THE
20/03/13 V&G PROJECT


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Fig. 9: The Impact on Costs Due to Method Change
Costs of Design Changes

Cost to change the
solutions, by using
the current practices
Costs to change the
solutions, by using
the new desired
practices 21/01/13

TSR + SCR PPSP DPSP + CISP PSP ILS USP
Major Program Phases


EThICS
EThICS 039.BC02E.07 MODELS OF LCC Ref.: [GROS_01][SOUT_02]

Fig. 10: The Impact of Changes of Method on Costs
N times the costs of these steps!
21/01/13

Curve of the
Curve of the
accumulated costs
accumulated costs by
by the traditional
the new proposed Saving!
method
LCC Accumulated

method

Reduced costs of production

Higher costs of development
Lower costs of support and usage

TSR + SCR PPSP DPSP + CISP PSP ILS USP
Major Program Phases
Non-Recurrent Costs Recurrent Costs

1~3 years 15~25 years


EThICS
EThICS 039.BC02E.07 MODELS OF LCC Ref.: [KAWA_01]

Fig. 11: The Balance of Factors of Cost-Effectiveness

ECONOMIC FACTORS TECHNICAL FACTORS

FACTORS OF FACTORS OF
COST EFFECTIVENESS

COSTS OF ACQUISITION FACTORS OF PERFORMANCE
+ +
COSTS OF SUSTAINMENT FACTORS OF ASSURANCE
21/01/13

The balance between cost factors and factors of
effectiveness must be achieved by the use of methods,
best practices and knowledge of engineering and
management.


EThICS
EThICS 039.BC02E.07 MODELS OF LCC Ref.: [BLAN_01][BLAN_02]

Fig. 12: The Factors of Effectiveness and the Costs of the Systems

COST-EFFECTIVENESS OF THE
SYSTEM

ECONOMICAL FACTORS 21/01/13 TECHNICAL FACTORS
(benefit/cost) (effectiveness)

Benefits (return on investments) Characteristics of performance
Costs of the life cycle: Factors of systems assurance:
1. Costs of R&D Quality
2. Costs of production or Reliability
construction Maintainability
3. Costs of operation and Human factors
maintenance
Safety and security
4. Costs of retirement or discard
Logistical support
Other factors

OBJECTIVE:
A balanced approach


EThICS
EThICS 039.BC02E.07 APPENDICIES

References
[BATA_01] BATTAGLIA, M. Design for supportability. Available at
<https://c3.nasa.gov/dashlink/static/media/other/Design4Supportability.pdf>. Accessed in
12/04/2011. 16p.
[BLAN_01] BLANCHARD, B. S. System engineering management. 4th ed. Hoboken NJ:
John Wiley, 2008. 539 p.
[BLAN_02] BLANCHARD, B. S.; VERNA, D.; PETERSON, E. L. Maintainability: a key to
effective serviceability and maintenance management. New York, NY: John Wiley, 1995.
537 p.
[BOUS_01] BOUSSABAINE, H.; KIRKHAM, R. Whole life-cycle costing: risk and risk
responses. Blackwell Publishing, 2004. 252 P.
[EE_039.BC01.09] LIBRELATO, A. S. EThICS 039.BC01.09: CVPP - Ciclo de Vida de
Projetos e Produtos - Visão Geral. Novembro, 2011. 13 p.
[EE_039.BC02.06] LIBRELATO, A. S. EThICS 039.BC02.06: CVPP - Conceitos e Princípios
de LCC e Efetividade. Dezembro, 2011. 55 p.
[EE_039.BE01.07] LIBRELATO, A. S. EThICS 039.BE01.07: PDI - Pesquisa,
Desenvolvimento e Inovação - Visão Geral. Novembro, 2011. 39 p.


EThICS

References
[EE_039.BG01.06] LIBRELATO, A. S. EThICS 039.BG01.06: GSP - Visão Geral. Abril, 2012.
30 p.
[EE_039.BG02.00] LIBRELATO, A. S. EThICS 039.BG02.00: GSP - Conceitos e Princípios de
GSP. Maio, 2011. 57 p.
[GIUD_01] GIUDICE, F.; ROSA, G. L.; RISITANO, A. Product design for the environment
- a life cycle approach. Boca Raton, FL: CRC Press, 2006. 471 p.
[GRAD_01] GRADY, J. O. System requirements analysis. Burlington, MA: Elsevier, 2006.
455 p.
[GROS_01] GROSSON, J. Integration of Systems Engineering & Supportability. NDIA
Technical Information Division Symposium, Lockheed Martin, 3 March 2005. 15 p.
Available at <www.dtic.mil/ndia/2005techinfo/grosson.ppt>. Accessed in 12/04/2011.
[JONE_01] JONES, J. V. Supportability engineering handbook: implementation,
measurement and management. USA: McGraw-Hill, 2007.
[JONE_02] JONES, J. V. Integrated logistics support handbook. 3rd ed. USA: McGraw-
Hill, 2006.
[KAWA_01] KAWAUCHI, Y.; RAUSAND, M. Life Cycle Cost (LCC) analysis in oil and
chemical process industries. RAMS Group, NTNU, Norway. 1999. 82 p.


EThICS

References
[SOUT_02] SOUTES, D. O. Custo Total de Propriedade (TCO): É importante? Para
quem? Anais do II Encontro Científico de Ciências Sociais Aplicadas de Marechal Cândido
Rondon. Perspectivas do Ensino, da Pesquisa e da Extensão nas Ciências Sociais Aplicadas,
Unioeste, outubro (15, 16 e 17), Editora Coluna do Saber, 2007. ISBN: 85-98475-22-X. 10
p.
[TAYL_01] TAYLOR, G. D. Logistics engineering handbook. Boca Raton, FL: CRC Press,
2008. 640 p.
[TAYL_02] TAYLOR, G. D. Introduction to logistics engineering. Boca Raton, FL: CRC
Press, 2009. 315 p.
[WASS_01] WASSON, C. S. System analysis, design and development: concepts,
principles and practices.. Hoboken, NJ: John Wiley, 2006. 818 p.


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