A North Atlantic Treaty Organisation framework for life cycle costing

Abstract

There is a long and documented history of both cost growth and estimating optimism within military system acquisition programmes. This is particularly the case for multinational programmes. As the nature of future acquisition programmes will be more multinational oriented, a common approach is required to generate realistic and consistent LCC estimates for a future system. This article presents the findings to date of the NATO Research and Technology Organisation (RTO) to develop a framework for life cycle costing. This framework consists of a generic cost breakdown structure (CBS), methods and models to be used and a guideline for conducting a Life Cycle Cost (LCC) analysis in all stages of the system's life cycle. All this is summarised in a Code of Practice. The article concludes presenting the next step in the NATO cost improvement process, i.e. to exercise the guideline, for example, programmes. An independent cost estimate (ICE) is conducted on three systems to demonstrate proof of concept. The results of these ICEs will be further used to improve the guideline and the Code of Practice.

Keywords:

• cost analysis
• Life Cycle Costing
• NATO
• guideline

Acknowledgements

The author, who has participated in the aforementioned RTO working groups and has been the chairman of a number of these working groups, thanks the participating nations and, in particular, all the participants in the working groups for their valuable contributions. A special thank to NATO RTO, who gave the author the opportunity to present the results of these working groups to a broader audience.

Notes

1. The cost allocation percentage shown in this example should not be considered as being representative of all life cycle cost estimates.