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This document contains intellectual properties copyrighted by SPAR Associates, Inc. Page 1

SPAR Cost Models Estimating Naval Ship Life Cycle Costs

EM-CM-002M

Revised August 2015

Email: Info@ SPARUSA.COM

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NOTICE

Users of a cost model are cautioned that it is intended to provide only preliminary design and cost

information and is not intended to provide detailed and accurate in-depth design and cost trade-off

conclusions. There are limits of the capabilities of these calculations beyond which results may not be

accurate.

While many ship design parameters are developed automatically by the model, users are encouraged to

provide as much specific design information as possible/practical and to not rely too heavily upon these

automated features. Users are expected to adjust the applied cost and pricing data so that they reflect

more accurately the cost and price performance anticipated for a specific shipyard.

SPAR ASSOCIATES, INC., MAKES NO WARRANTIES OF ANY KIND WITH REGARD TO THIS MATERIAL,

INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR A

PARTICULAR PURPOSE.

SPAR Associates, Inc., shall not be liable for errors contained herein or for incidental or consequential

damages in connection with the furnishings, performance or use of this material.

Copyright © by SPAR Associates, Inc.

All rights reserved.

reproduction or translation of any part of this document beyond that permitted by Sections 107 and 108

of the 1976 United States Copyright Act without the permission of the copyright owner is unlawful.

Requests for permission or further information should be addressed to SPAR Associates, Inc.

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Document Changes

September 2012

Initial revision from other documentation for the LCC Model

October 2012

Revised LCC Summary worksheet

November 2014

Major revisions to the LCC Cost Model Features

August 2015

Add Estimates of Annual Costs with Inflation

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Table of Contents NOTICE .......................................................................................................................................................... 2

Executive Summary ....................................................................................................................................... 6

1.0 Introduction ............................................................................................................................................ 7

2.0 Purpose of Life Cycle Costing .................................................................................................................. 9

2.1 Life Cycle Cost Estimating ................................................................................................................. 10

2.2 The Life Cycle of a Ship ..................................................................................................................... 10

2.3 Life Cycle Cost Work Breakdown Structure ...................................................................................... 15

2.3.1 Hardware Costs .......................................................................................................................... 20

2.3.2 Manning (Personnel) Costs ........................................................................................................ 21

2.3.3 Fuel Costs ................................................................................................................................... 22

2.3.4 Maintenance & Repair Costs ...................................................................................................... 22

2.3.5 Environmental Impact Costs ...................................................................................................... 23

2.3.6 Modernization & Equipment Upgrade Costs ............................................................................. 24

2.4 Total Life Cycle Costs ......................................................................................................................... 24

2.4-1 Life Cycle Costs per Planned Ship Operational Hour ................................................................. 27

2.4.2 Cost of Out-of-Service ................................................................................................................ 29

2.4.3 Estimating Annual Life Cycle Costs for a Multi-Ship Acquisition Program ................................. 30

2.4.4 Measuring Impact on Cost from Design, Construction and Maintenance Plan Options ........... 32

3.0 Life Cycle Cost (LCC) Parametric Model ................................................................................................ 35

3.1 Conception Stage Cost Estimating .................................................................................................... 35

3.2 Acquisition Stage Cost Estimating ..................................................................................................... 35

3.3 Operations & Support Cost Estimating ............................................................................................. 45

3.3.1 Average Annualized Acquisition Cost ........................................................................................ 46

3.3.2 Annual Manning Cost ................................................................................................................. 46

3.3.3 Annual Fuel Consumption Cost .................................................................................................. 46

3.3.4 Annualized Maintenance & Repairs Cost ................................................................................... 47

3.3.4 Annualized Casualty Repair Cost ................................................................................................ 50

3.3.4 Annualized Modernization Cost ................................................................................................. 52

3.3.5 Miscellaneous Cost Considerations ........................................................................................... 54

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Appendix I: SPAR’s Cost Estimating Models for New Construction ............................................................ 55

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Executive Summary

This document describes SPAR’s life cycle cost (LCC) model, and the benefits it can provide in developing

a ship design that can help minimizes overall cost for the ship from acquisition through to operations,

maintenance, upgrades and disposal. In addition, the model can be used to identify differences in LCC

with alternative ship systems, materials, construction build strategies as well as operations and

maintenance scenarios. Selecting better design choices can produce ships that are less expensive to

operate and maintain and can increase the in service time. Even lengthen its useful life expectancy, in

meeting the ship’s mission requirements.

This LCC cost model piggy-backs on a Design and Construction Cost Model that sets the parameters for

many of the LCC characteristics.

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1.0 Introduction

Over the past number of years, various studies have revealed an unsustainable rise in naval

costs, both acquisition and operation and support. With regard to O&S costs,

“DoD is spending more and more on operating and support costs for its weapons

systems than it planned. [The General Accounting Office] found three primary reasons

for the high cost of operating and supporting DoD’s fielded weapon systems. These

were

(1) Little or no attention to the trade-offs between readiness goals and the cost of

achieving them when setting the key parameters for weapon systems;

(2) The use of immature technologies during product development and delays in

acquiring knowledge about the design and its reliability until late in development, or

in some cases, production; and

(3) Insufficient data on the operations and maintenance costs and actions for fielded

systems that would allow improvements in products currently in development1.”

Figure 1 depicts a typical distribution of total ownership costs of DOD weapon systems over a 30-year life cycle and shows that the greater part of a weapon system’s total ownership cost is made up of its operating and support cost.

Figure 1: Nominal Life-Cycle Cost of Typical DOD Acquisition Program with a 30-Year Service

Life

1 “BEST PRACTICES Setting Requirements Differently Could Reduce Weapon Systems’ Total Ownership Costs,” United States General Accounting Office, February 2003.

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While the greater percent of the life-cycle cost of a weapon system is realized only after it is fielded, the decisions made during its acquisition—when its performance requirements are being established and its design is being matured—will dictate operating and support costs very early:

Studies show that about 85 percent of the operating and support costs of a weapon system will be determined as soon as requirements are set. By that early point in time, less than 10 percent of the life-cycle cost will have been spent.

By the time a product is ready for production, over 90 percent of the operating and support costs have been determined, and about 28 percent of the total life-cycle costs will have been spent.

In 2003, the General Accounting Office summarized these cost problems with an executive

action recommendation:

“DOD should take steps to make the cost to operate and support weapon systems …… when setting weapon system requirements ….. and finalizing the design of the selected system. To do this, its requirements and acquisition communities must collaborate to fully understand and control the costs to operate and support a weapon system prior to and early in product development, when it is possible to have significant impact on those costs.”2

The objective for this LCC Model is to estimate life cycle costs and throughout any stage of a ship

design’s evolution. Early cost estimates have a high degree of variability, i.e., high risk, and these

estimates should identify areas of high variability and risk. The cost and risk estimates should be

updated regularly as the design and construction progress. It also can be used for evaluating ship

upgrades and modernization tradeoff studies.

Every design can benefit from a well reasoned process of analyzing various potential design alternatives

that directly affect the cost and relative success of the final design. Choosing the right alternatives or

solutions will result in a design that maximizes or at least better satisfies critical mission performance

requirements and objectives within limited budget constraints.

2 “BEST PRACTICES Setting Requirements Differently Could Reduce Weapon Systems’ Total

Ownership Costs,” United States General Accounting Office, February 2003.

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2.0 Purpose of Life Cycle Costing

New technology always begins as an idea, an idea that promises something new, something

better, such as better communications; a faster ship; more fuel efficiency; less environmentally

polluting; a more capable weapons systems. etc.

The transformation of the idea into reality typically is an evolutionary process. First, the idea is

tested for its feasibility; can it work and achieve the goals as anticipated, and can it be built.

Second, in this era of limited funds, the idea must be evaluated as to whether or not it is

affordable. This requires a rational estimate of what it would cost to manufacture and build.

And since the initial acquisition cost is more typically a smaller portion of the overall costs over

the course of its expected lifetime, what are the costs to operate and support this technology.

The assessments of these life cycle costs have become ever more critical in austere financial

times. It is essential that future ships emphasize design for maintainability to maximize

material readiness and achieve intended service life.

As the old saying goes, “there is more than one way to skin a cat.” There are almost always

multiple ways to produce a new technology. Some alternatives to the development (design,

engineering, manufacturing, and operation) may be radical, others less so. Having an ability to

examine costs for each alternative can help produce a more satisfactory solution in terms of

both performance and cost.

Life cycle costing is an embedded process for maximizing system performance while minimizing costs, either at acquisition or during operation and support or both. Life cycle costing also helps in the assessment of cost risk. Life cycle costing can be applied to establish improvements at different levels of technology evolution:

1. Ship Design Decisions 2. Ship Alterations/Modifications/Conversions 3. Equipment Selection 4. Plant Configurations 5. Commonality 6. For replacement upgrades versus maintaining older obsolete equipment/systems

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7. For substituting different materials and methods in design, engineering, and

manufacture.

2.1 Life Cycle Cost Estimating

Life cycle costs (LCC) are a most critical consideration for commercial ship owners as they move forward designing and building a new ship to put into service. Commercial ship operators must look at "the bottom line" for profit and a return on their investment. If the cost of design and construction, including the cost of money, cannot be recouped in a reasonable amount of time, the ship will not be built. If the operating and maintenance costs, plus amortized construction costs, exceed operating revenues; the ship will not be built. Naval and USCG ships do not have a bottom line commercial profit consideration. These ships are put into service only to satisfy a national security commitment to its citizens. However, as limited government funds address an ever-widening array of government responsibilities, naval and USCG ship designs now need to be developed with an increasing focus on getting "the biggest bang for the buck". Design and engineering trade-off studies can minimize costs without sacrificing mission capabilities. Often these studies result in increased mission capabilities without an increase in cost. Operations and maintenance costs are as important considerations for these studies as are basic design and construction costs. When viewing the life cycle cost breakdown, less than 50% of the costs typically are directly related to acquisition. That means over 50% of the total cost is operation and support.

2.2 The Life Cycle of a Ship

The life cycle of a ship or a piece of equipment is divided into essentially four stages:

• Conception Stage: All activities necessary to develop and define a means for meeting a stated requirement. For ships and equipment, this normally includes research and development, design, contract specifications, identification of all support necessary for introduction into service, and identification of funding required and managerial structure for the acquisition.

• Acquisition Stage: All activities necessary to acquire the ship and provide support for the ship and equipment identified in the conception stage.

• In-Service Stage: All activities necessary for operation, maintenance, support and modification of the ship or equipment throughout its operational life. The in-service stage is normally the longest stage.

• Disposal Stage: All activities necessary to remove the ship or equipment and its supporting materials from service.

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Estimating LCC should be done at early stages of ship design so that various alternatives to the

design can be evaluated both from a net performance point of view and from their impact upon

cost (acquisition, operations and support).

The Congressional Budget Office (CBO) issued April 28, 2010 the results of their study on life

cycle costs for four selected classes of Navy ships. Figure 2.2-1 illustrates that operations and

support costs have been the greater portion of cost on an annual basis. Figure 2.2-2 breaks out

these percentages by ship class.

Figure 2.2-1: CBO 2010 Analysis of Average LCC per Annum

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Figure 2.2-2: CBO 2010 Analysis of Average LCC per Annumby Ship Class

The CBO further reported that the acquisition costs were actually higher than typically assumed

(estimated) by roughly 40%. Modernization costs were not included in this particular study.

The following was noted by the Joint ASNE/SNAME SD-8 Navy Ships Panel Report, June 15,

2011: “Reducing Life-Cycle Costs for Naval Surface Ships.”

“Because early stage cost estimates are weight based3 [as typically done by the Navy],

arbitrary displacement constraints are often imposed, which leads to dense ships. Our

estimates derived from early studies have not stood up to real world experience. We

3 The LCC Model is not a weight-based system of cost estimating relationship (CERs). Instead, the CERs will be

based on many other metrics, such as power kW, deck area, area volumes, number of crew, etc. that are more directly useful for engineering tradeoff studies. General maintenance and repairs CERs will most likely be based on average cost per cycle time (engine hours, years, etc.). This does not preclude the use of weight-based CERs that are more applicable for estimating structural costs.

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must produce a cost estimate of budget quality by the completion of the preliminary

design; however, the review process…..requires cost estimates earlier for various

studies and tradeoffs. Our experience is that the cost estimates have not been of high

or lasting quality. To effectively manage and reduce LCC, we need to truly understand

the basis of developing accurate cost estimates. Early cost estimates, especially LCC and

developmental systems, have a high degree of variability, i.e., high risk. However, [these

estimates] are typically treated as “point estimates.” Early cost estimates should not be

treated as point estimates. They should identify areas of high variability/high risk and

be included in the program’s budget and risk mitigation plan and be updated as the

design and construction progress.

Operations and Support cost estimates are typically not updated as circumstances

change; the design develops and costs change, often increasing as requirements creep

upwards.”

Therefore, in order to obtain a more complete picture of the overall cost of a ship, its life cycle costs need to be estimated and evaluated. This requirement applies to both commercial (Figure 2.2-3) and government ship programs (Figure 2.2-4). Figure 2.2-5 presents the U.S. Navy’s average percentage allocation of costs for combatants 2000-2004. Another method for determining overall costs is the Navy's Total Ownership Costs (TOC) which is an extension of life cycle costs. It also includes the added costs for the infrastructures required supporting training facilities, logistics infrastructure and other costs normally treated as indirect costs to the ship and its operations.

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Figure 2.2-3: Typical Breakdown of Annual Costs for a Commercial Trailer Ship

Figure 2.2-4: Sample Breakdown of Annual Costs for a Large Offshore Patrol Boat

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Figure 2.2-5: Allocation of VAMOSC Costs for Combatants FY00-04

2.3 Life Cycle Cost Work Breakdown Structure

Before any cost estimating begins, a basic format for categorizing the costs is necessary. The above four stages of life cycle are a good starting point. From there, sub-categories can be developed to further define the cost elements. Figure 2.3-1 illustrates a typical hierarchy of life cycle costs covering the basic four stages described above. Figure 2.3-2 summarizes a typical hierarchy of acquisition costs.

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Figure 2.3-1: Basic Hierarchy of Life Cycle Costs

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Figure 2.3-2: Basic Hierarchy of Acquisition (ESWBS) Costs

Figures 2.3-3 through 2.3-6 provide examples of basic breakdowns of these four stages for a commercial ship. However, these categories can be modified to suit any specific program requirement. SPAR’s PERCEPTION4 system can accommodate almost any hierarchy of LCC configurations. The hierarchy can be developed as extensions to the Acquisition work breakdown structure. This means that the hierarchy can be based upon either ship systems (ESWBS) or ship products (PWBS) or a hybrid of both. The hybrid approach allows a ship systems basis for costs during all stages except acquisition, which is product oriented. However, PERCEPTION allows both ESWBS and PWBS to be accommodated simultaneously during the Acquisition stage of life cycle.

4 PERCEPTION is the name of SPAR’s shipbuilding/repair production planning, estimating and earned value

management system. It includes an integrated approach for addressing and coordinating most shipyard business functions: cost estimating; planning and scheduling; production work orders and time charge management; material requirements planning, purchasing and production control; earned value shipyard cost and schedule performance reporting; with interfaces to financial and accounting systems (payroll, accounts payable/receivable, general ledger, and asset accounting) and various popular CAD/CAE/CAM systems.

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Figure 2.3-3: Sample Hierarchy of Acquisition Design & Engineering Costs

Figure 2.3-4: Basic Hierarchy of Acquisition Construction (ESWBS) Costs

SPAR’s design & construction cost models have an added cost group 10 for added shipyard costs for bonds, insurance, classification fees, etc.

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Figure 2.3-5: Sample Hierarchy of Operations & Support Costs

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Figure 2.3-6 Sample Hierarchy of Decommissioning/Disposal Costs

2.3.1 Hardware Costs

In general, life cycle costs identify ship hardware and ship non-hardware. Figure 2.3-7 provides a simple hierarchy for cataloging hardware, which traditionally is identified by ship system (ESWBS).

Figure 2.3-7: Breakdown of Ship Systems to Equipment

The Navy provides several different equipment and parts management services. The first of these is NAVSEA LOGCEN’s Hull, Mechanical and Electrical Equipment Data Research System (HEDRS) CD-ROM. This is a database of equipment and parts designed to help expedite the equipment selection engineering process. The second service is on-line access to a commercial database, Inventory Locator Services (ILS). This database uses data gleaned from the Defense Logistics Agency (DLA) and contains acquisitions cost history and repair parts listings for equipment purchased by the government. Another service is an Internet-based database

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system called SavePro. SavePro is being developed by Nichols to provide on-line access to vendor catalogs of equipment and parts worldwide.

2.3.2 Manning (Personnel) Costs

Personnel costs can be one of the largest categories of operating expenses. They therefore should be one of the first areas for study to reduce overall costs. There are two basic approaches to reducing manpower requirements. The first is increase to the efficiency of the personnel and the second is to aid the personnel by creating more automation so the same tasks can be done with fewer people. When approaching a totally new design that proposes to reduce the crew requirements by figures of 50-75%, the design strategy might be to incrementally upgrade each successive ship as new approaches and systems prove themselves. The design concept also should have a provision to retrofit previous editions, as these systems become workable. Research needs to be done to ascertain what can be done to reduce manpower requirements with existing systems or with minor upgrades to these systems. Simplistic improvements in management practices, increased personnel training, and efficient system monitoring and reporting procedures can result in reduced manpower requirements. At more of an extreme, overall efficiency must be a prerequisite to the use of increased automation. Some interim systems modifications may be necessary before adopting a fully automated structure. Increased automation can result in sizeable manpower reductions. But, there are two important factors to consider. First, fewer personnel usually mean less crew backup capacity, both in terms of physical presence and probably technical knowledge. This may lead to reduced safety and operational ability. Any new design should consider the potential (and the related costs) to add personnel as a contingency measure. This means a design layout that allows additional living quarters and systems for additional users. Secondly, automation may have an overall effect on maintenance and modernization costs. The goal is to reduce overall costs, not merely transfer the savings in personnel costs to acquisition and maintenance expenses. Some factors to consider when approaching a totally new design concept that proposes to reduce the crew requirements by 50-75% are the following:

• Higher acquisition costs for on board systems • Greater need for redundant and/or backup systems • Higher training costs, for the trainers, trainees and maintenance • Higher repair costs • Higher costs in salary, benefits, and incentives to help reduce turnover of highly skilled

personnel • Recruitment costs for acquiring skilled personnel

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However, an important issue facing the Navy when plans are made to reduce shipboard manning levels is that such manning more typically focus on limiting manning to the higher ratings of crew members. If this change is implemented, additional steps must be taken to provide some program whereby lower ratings eventually can evolve in the skills required for the higher ratings. Without such programs, there will be fewer and fewer higher ratings being developed to crew on the newer ship designs. The Naval Center for Cost Analysis (NCCA) developed a system called COMET for cost of a sailor database. COMET now has been replaced with a web-based system called METEOR. This data is useful for developing CERs for manning costs aboard naval ships. Appendix VII provides a sample manning package that can be replicated for the years that the ship is planned to be in service.

2.3.3 Fuel Costs

Under current economic circumstances, fuel costs have become a significant cost driver in the operations of ships. Fuel costs have weighted so heavily that ship owners are being forced to look for more efficient ship designs and even run their vessels at slower speeds just to reduce fuel consumption.

2.3.4 Maintenance & Repair Costs

Another operation and support expense is maintenance and repair. Therefore, a key consideration is to identify factors that drive these costs. In specifying materials and/or equipment, the first things to consider are initial costs (acquisition and installation), durability, suitability, and long-term maintenance costs. During the early development cycle, design decisions should balance production costs against ownership costs. Maintenance costs must be computed in several different formats, depending upon the type of material and/or maintenance activity. Costs for other maintenance activities (such as dry-docking, cleaning, temporary services hook-up, etc.) can be derived on the basis of ship length, displacement or cubic number in conjunction with a multiplier for the number of maintenance cycles in service. These CERs can be best developed as a "Interim Product Package" which can accommodate any number of individual cost items in its formulation. Maintenance costs for items such as steel and piping must be computed by using a sum of repair CERs such as sandblasting, painting, plate renewal, and pipe renewal. The CERs for such items can be detailed and specific, but they also can be derived on the basis of the ship's general characteristics such as light ship weight or other general design parameter. Some maintenance items will have no LCC’s but will have functions and performance characteristics similar to existing items that do. Data can be gathered from these existing items

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and modified as necessary account for differences in configurations. For totally new products and designs the LCC’s will have to be based on parametric analysis and best guess approaches. Cost data derived from existing parts and systems must be carefully analyzed before being used to develop LCC’s. Unlike construction return costs that can be used to fine tune CERs by comparing actual construction costs directly with estimated costs, operations and support costs are very much subjected the management’s operational and maintenance policies. The level at which repairs and maintenance are performed also has a large impact on costs. Factors like these make it difficult to determine the value of existing data if such policies are expected to change. The Navy collects maintenance costs from its fleet in a number of different reporting systems. One is an on-line database system managed by the Navy's NAVSEA LOGCEN and is called "Open Architecture Retrieval System" (OARS). OARS provides cost data regarding annual maintenance and repair. The data comes from both the Ship’s 3M and PDEP system. Another Navy database system is called "Visibility and Management of Operating and Support Cost" (VAMOSC). Maintenance can be broken down into expected frequency intervals and by various designated responsibilities:

• Daily - performed by ship master and designated crew persons • Daily - performed by deck and engine mechanics • Daily - performed during evening lay-up • Weekly - performed by ship master and designated crew persons • Weekly - performed by deck and engine mechanics • Monthly - performed by ship master and designated crew persons • Monthly - performed by deck and engine mechanics • Yearly - performed by ship master and designated crew persons • Yearly - performed by deck and engine mechanics

• Bi-annual dry-dockings • Machinery maintenance - specified by equipment manufacturer • Mid-life modernization and upgrades • Expected unscheduled maintenance

2.3.5 Environmental Impact Costs

With the increase in environmental impact concerns, the world has been focusing on methods to conserve energy and to reduce air and water pollution. Many technologies that were once acceptable and are no longer allowed and laws are being implemented to restrict and/or eliminate technologies that do not measure up to evolving standards. This means that existing ships will be required to be retrofitted or modified at some stage in their life cycle to comply with the new laws coming into force.

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2.3.6 Modernization & Equipment Upgrade Costs

These costs initially can be estimated at the acquisition stage of the ship design development

process. To estimate these costs as a separate category after in-service such as mid-life,

additional LCC Model features will need to be addressed at a later stage in the development of

the LCC Model.

2.4 Total Life Cycle Costs

Figure 2.4-1 provides a cost model estimate of average annual life cycle cost breakdown for a

sample 150 meter offshore patrol vessel with a 45 year planned life.

Figure 2.4-1: Estimated Average Annual Life Cycle Costs

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Figure 2.4-2 provides a breakdown of estimated average annual costs for maintenance, repairs

and upgrades.

Figure 2.4-2: Estimated Average Annual Life Cycle Costs per Maintenance, Repairs &

Upgrades

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Figure 2.4-3 provides estimated annual funding levels over the life of the ship.

Figure 2.4-3: Estimated Annual Funding Levels over the Life of the Ship

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Figure 2.4-4 provides estimated cumulative costs of funding over the life of the ship.

Figure 2.4-4: Estimated Cumulative Costs of Funding over the Life of the Ship

2.4-1 Life Cycle Costs per Planned Ship Operational Hour

Figure 2.4-5 provides the estimate for the life cycle cost per operational hours (2,000

operational hours per year)

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Figure 2.4-5: Estimated Average Annual Life Cycle Costs per Operational Hour

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2.4.2 Cost of Out-of-Service

One of the primary objectives for measuring ship design and other engineered systems by life

cycle cost analysis is to increase/improve maintainability. This objective can produce a ship and

its engineered systems that can better meet its intended in-service usefulness throughout its

intended life. The LCC model should be able to provide some measure of asset usefulness or

efficiency by estimating the number of operational hours lost to maintenance, casualty repairs

and expected modernization activities.

One approach for measuring the cost of lost operational hours is to divide the total investment

cost of the ship, its capital cost, by the total number of lifetime operational hours (operational

hours per year x years of life). The cost of the lost hours would then be simply multiplying the

lost hours by this investment cost per hour. The average operation hours lost per day out of

service can be computed as the number of days out of service divided by 365 days per year.

SPAR’s prototype LCC Model provides a sample of this measure of estimated asset efficiency.

Figure 2.4-6 illustrates a breakdown of the cost of lost operations hours per lifetime annum.

Figure 2.4-7 illustrates the estimated lost operational hours per lifetime annum.

Figure 2.4-6: Annualized Cost of Lost Operations Service Hours

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Figure 2.4-7: Annualized Lost Operations Service Hours

2.4.3 Estimating Annual Life Cycle Costs for a Multi-Ship Acquisition Program

The cost model further estimates total life cycle costs for an entire fleet, including acquisition

design and construction. The model works off the multi-ship new construction cost and

schedule data. Figure 2.4-8 presents estimates for annual funding for the fleet, and Figure 2.4-9

presents the accumulative costs for this level of fleet funding.

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Figure 2.4-8: Estimated Annual Funding Requirements for a Multi-Ship Acquisition Program

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Figure 2.4-9: Estimated Accumulative Funding Requirements for a Multi-Ship Acquisition

Program

2.4.4 Measuring Impact on Cost from Design, Construction and Maintenance Plan Options

The life cycle modeling provides many ways to vary not only the impact of changes in elements

of design and construction, but also the many variations of maintenance and upgrade plans.

Such changes are immediately reflected by the cost model in its various reports and charts.

Feedback of estimated lost operation hours can offer opportunities to focus on those areas that

degrade those hours the most. It also can indicate where the greater life cycle maintenance

and repair costs are likely to occur.

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An approach for helping to minimize lost operation hours and maintenance and repair costs is

by promoting expanded modularization of shipboard components and outfit systems. This

approach, which is being heavily introduced in European ship design activities, can produce the

following maintenance benefits5:

1. Modules can be easily removed from onboard and repaired in shop 2. Maintenance of modules on-shore less costly than on-board 3. Faster turn-around time to repair/replace modules 4. Even faster turn-around with Swap-out/Swap-in scenario of selected modules 5. Navy maintenance types: “O”=on board; “I”=intermediate on-board & shore side;

“D”=depot maintenance 6. Increase fleet operation time 7. Decrease time in shipyard

Figure 2.4-10 provides samples of equipment and outfit modules that can reduce both construction and maintenance and repair costs as well as shorten out-of-service time.

Figure 2.4-10: Sample Selection of Equipment & Outfit Modules

This approach further can provide ship operations benefits:

5 “Benefits of Expanded Modularization for Ship Design & Construction,” SPAR Associates, Inc., January 2009/

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1. Mission modules provide more flexibility for a standard ship platform 2. Mission modules allow more focus of purpose for specific mission requirements, less

need for incorporating unneeded mission systems. 3. Modules may minimize need for incorporating unnecessary systems.

Other industries have long exploited the benefits of modular construction:

1. Aircraft – F4 began modularization; F35 extensive use of modules 2. Cars – parts and components, often interchangeable between different models 3. Home appliances – parts and components

There are precautions that must be taken in order to minimize failures in applying modular

construction techniques:

1. Requires better than normal engineering 2. Requires better than normal quality assurance 3. Requires higher level of design standards to minimize interferences and disconnects.

SPAR has studies these cost savings benefits to considerable extent and has developed

estimating methods for them.

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3.0 Life Cycle Cost (LCC) Parametric Model The following describes in general SPAR’s LCC Model. It is mostly parametric in nature; so that cost estimates for a given ship design can be more easily developed. A “bottoms up” approach to cost estimating may produce more accurate estimates, but there is a much greater burden in specifying the necessary details (labor and materials) of a design as well as a considerably larger, more detailed library of component costs that necessarily must be maintained and kept current. It is important to note that the LCC Model must be flexible enough to permit rational cost estimates to be developed throughout the evolutionary development of a given ship design: from concept through preliminary design to contract design and production engineering. This means that the model must be capable of providing default design/build input values early in the design process yet later permit over-riding these default values as the details of a design become more defined. For purposes of producing a system that can offer a useful capability as quickly as realistically possible, the LCC Model focuses on only the limited aspects of life cycle costs: design, construction followed by operations (fuel and manning) and support (primarily maintenance, repairs, refits and modernization). Other LCC elements, such as training, technical services, decommissioning and disposal also are addressed herein. The LCC Model is an extension to SPAR’s existing cost model for estimating costs for ship design and new construction (see Appendix I). This model may now include estimating the costs of ship operations and other life cycle activities. While the cost model offers cost data extracted from SPAR’s wide ranging libraries, other sources of cost data can be added.

3.1 Conception Stage Cost Estimating

Cost estimating the design development stage is not quite so easy to do especially when mission requirements and other related concerns are an evolving process. One approach that has been taken is to estimate these costs as a percentage of lead ship production costs. Even then the percentage can vary considerably from 0% to well over 100% for a military combatant. Here, some personal experience is often needed in order to bracket a realistic cost.

3.2 Acquisition Stage Cost Estimating

Cost estimating the lead ship of a given design is an important feature for the LCC model. The model should provide a simple means for defining the hull, powering and outfit characteristics as illustrated in Figure 3.2-1. Many of the ship characteristics directly impact the scope, size and cost for various ship systems, and the model should be capable of producing the impact of these characteristics on the construction costs.

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Figure 3.2-1: Example of a Basic Hull Characteristics Data Entry

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Figure 3.2-1: Example of a Basic Hull Characteristics Data Entry (Continued)

The effort to define the hull structures also should be straight forward and allow some variations in the structural components (Figure 3.2-2)

Figure 3.2-2: Defining the Hull Structure with Options for Some Detailing of the Structural

Components

Note that the structural components listed in the above figure should provide a means to specify different materials, a sample list of which are provided in Figure 3.2-3.

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Figure 3.2-3: Sample List of Structural Materials

From the user’s specifications of the structural components, the model should generate both labor and material costs. Each component requires different fabrication and assembly processes and hence their costs. Each type material carries its own unit costs that affect the ultimate costs of construction. The model should provide a variety of equipment and ship system options, such as powering options as illustrated in Figure 3.2-4. For each selection, the model should produce both labor and material costs.

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Figure 3.2-4: A Selection of Ship Powering Options

Figure 3.2-5 Provides entries for defining the electrical power generating system.

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Figure 3.2-5: Selections for Electrical Power Generating Systems

The cost model should address all other ship systems (machinery, electrical, electronic, piping

(Figure 3.2-6), HVAC, hull outfit, accommodations outfit, paint, etc. as well as estimates of

shipyard support services).

Figure 3.2-6: Sample Cost Model Listing of Selected Auxiliary Piping Systems

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The cost model must pull all aspects of the ship cost elements together and generate a total

lead ship cost as illustrated in Figure 3.2-7. Figure 3.2-8 presents a sample of cost estimates for

a series ship construction program using the model’s user-defined learning curve.

The cost model develops a “should cost” for the lead ship as well as estimates of cost risk.

Details of the design and construction costs are provided in the Design and Construction Cost

Model user manual that can be downloaded from SPAR’s web site.

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Figure 3.2-7: Lead Ship Non-Recurring Design, Engineering and Construction Cost Estimate

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Figure 3.2-8: Cost Estimates for a Series Ship Construction Program

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The model automatically manages its cost libraries to minimize the burden upon users to keep

costs current. The model links all material costs by date to escalation tables that are

commodity-based oriented as illustrated in Figure 3.2-9. Not all costs follow the same rate of

escalation. Costs are changing very differently between commodities like steel versus

aluminum, versus copper, versus European machinery, etc.

Figure 3.2-9: Sample Commodity-Base Escalation

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3.3 Operations & Support Cost Estimating

Figure 3.3-1 provides a sample input/report scenario for estimating annual life cycle costs. The

following generally describes an approach for estimating these costs. The prototype cost model

provides a basic estimating capability as described below.

Input that is required is for the user to identify the expected life of the ship in years and an

estimate of the annual operating hours.

Figure 3.3-1: Sample Life Cycle Estimate Report

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3.3.1 Average Annualized Acquisition Cost

The acquisition estimate as described earlier provides the total acquisition costs, which divided

by the life years produces the average annual acquisition cost. Divide that cost again by the

estimated number of operational hours produces an average acquisition cost per operational

hour; that may or may not be of significance.

Another element of the acquisition cost is the estimated cost risk. The acquisition estimate

includes an approach for estimating cost risk that is fully described in the following publication

ESTI-MATE Cost Models - Design & Construction Manual.

3.3.2 Annual Manning Cost

The annual manning cost is produced from a breakdown in the ranks and rates of the crew. The

acquisition cost section of the model identifies this breakdown in order to estimate the

construction cost for accommodations. The user, however, may use a different head count.

The annual average cost per rank and rate is provided by the Government. In order to project

these costs for an out year for which Government data is not yet available, the cost model

should provide an appropriate escalation table for which a manual estimate for the escalation

must be provided.

3.3.3 Annual Fuel Consumption Cost

Annual fuel consumption cost depends on the specific fuel consumption (SFC) rate for the

specific type(s) of propulsion machinery, the estimated average power consumption (kW), and

the average annual operating hours.

The estimated average power consumption (kW) will depend on the speed power relationship

of the ship design and the average ship speed over the course of a year. This speed power

relationship will need to accommodate power plants of multiple and/or different types of

machinery: for example, combination of high speed diesels and gas turbines. The prototype

model offers a selection of propulsion machinery types with different SFCs for which the model

will estimate the fuel consumption per hour at the design maximum speed and power

(determined for the acquisition cost estimate). The user, however, will need to provide an

estimate of the power requirements at less than full speed for an average annual cost. The

prototype model does provide a rough-order estimate that may be useful.

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The prototype also provides estimated prices of different types of fuels. The user, however,

needs to determine an appropriate fuel cost per metric ton for the estimate. Also, the SFC will

be different for a given piece of machinery depending on the type of fuel to be used. For

example, the SFC can be 213 g/kW-Hr for using bunker, while the SFC can be 203 for using

marine gas oil (MGO). At times the savings in fuel burnt (203/213 = 95%) can be lost by use of a

higher grade fuel ($847/$549 = 154%).

The model should be capable of providing a selection of machinery components that can be

added to a propulsion plant whether to reduce fuel consumption or perhaps increase

consumption in order to serve other purposes such as reducing emissions. These incremental

changes in fuel consumption should be a particular feature of the cost model. This penalty may

be ameliorated by a sizeable reduction in emissions.

3.3.4 Annualized Maintenance & Repairs Cost

The annual maintenance and repair cost estimating relationships will need to be developed

further from actual cost data from the Navy and USCG. These costs should be made available

by type and size of machinery, by general structural, electrical, electronic, piping, and outfit

systems. These costs can be broken out by labor and material, or lumped together for a total

cost. All costs must be identified by year as well, so that appropriate escalation factors can be

applied to adjust these costs to a common year for an estimate.

Figure 3.3.4-1 illustrates a fairly simplistic approach to determining life cycle costs for

maintenance and repair (Figures 3.3.4-1A through 3.3.4-1B provide sample details). Since

maintenance and repairs vary depending on the type of ship systems, this worksheet breaks out

these costs by major ESWBS group (structure, propulsion, electrical, etc.). These costs are

further broken down into two stages of maintenance and repair: short term “regular”

maintenance and longer term refit. All stages require an estimate (or actual values

developed/predicted from historical statistics)) of the cycle times and the average cost per

cycle. In this particular sample, the average cost is developed as an estimate percentage of the

original construction cost; these values should be replaced/updated/corrected from

assessments/predictions of actual cycle costs as they become available.

Other methods for estimating maintenance may also be accommodated.

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Figure 3.3.4-1A: Sample Estimating Format for LCC Maintenance & Repairs

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Figure 3.3.4-1B: Sample Estimating Format for LCC for Coating Preservation & Maintenance

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In addition to the actual maintenance and repair costs, there will be additional costs for

services provided when shipyards are required for drydocking/hauling and related work. Figure

3.3.4-2 provides a sample.

Figure 3.3.4-2 Sample Commercial Drydocking Charges

3.3.4 Annualized Casualty Repair Cost

Where casualty repairs cannot or are not included in the general maintenance and repair worksheet

(Figure 3.3.4-1 above), specific estimated casualty repairs can be entered in a detailed worksheet for

these costs (Figure 3.3.4-3).

The costs entered must identify the base year for the cost and it must also include any fully burdened

labor cost. This worksheet could also be modified to display the labor hours.

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Figure 3.3.4-3: Casualty Repair Worksheet

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3.3.4 Annualized Modernization Cost

A separate worksheet is available for entering detail estimated costs for modernization programs (Figure

3.3.4-4). The costs entered must identify the base year for the cost and it must also include any fully

burdened labor cost. This worksheet could also be modified to display the labor hours.

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Figure 3.3.4-4: Modernization Cost Worksheet

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3.3.5 Miscellaneous Cost Considerations

When a trade off study requires installation of new systems or equipments to an existing ship, the LCC

Model should eventually be capable of providing estimates of work required to pull out existing systems.

Installation of the new systems may very well require a premium cost factor to be applied as this new

installation work probably will not reflect the same level of productivity as expected during when the

ship was first built. Figure 3.3.4-5 offers typical productivity of pipe renewal work done on board at

various locations of the ship. These differences are due to variations of problems accessing and doing

the work in these areas.

Figure 3.3.4-5: Typical Ship Zone Productivities

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Appendix I: SPAR’s Cost Estimating Models for New Construction SPAR’s cost estimating models are designed to provide fast, easy, and accurate estimates of

new ship designs and manufacturing and assembly processes. The models have been used to

estimate the costs of commercial and naval vessels, both foreign and domestic. They are the

products of over 40 years of experience in the ship building industry and dealing with actual

shipbuilding costs.

Three models accommodate different hull forms:

1. Mono-hulls, 2. Catamarans, and 3. Trimarans.

A number of models focus on specific ship types: military combatants and patrol boats; auxiliary

oilers; commercial product tankers, containerships, RO-ROs, tugs and tug barges, bulker

carriers, and research/fisheries vessels.

Estimating Ship Design, Engineering and Construction Costs

Estimates reflect differences in modern production methods

Estimate savings from multi-ship procurement programs

Estimate impact of inflation upon ship systems by material commodity

Estimate and compare manpower requirements by SWBS group.

Estimating Alternate Design Options

Estimate alternative physical ship dimensions

Estimate alternative structural materials & configurations

Estimate alternative propulsion systems

Estimate alternative outfit equipment & systems

Estimate alternative electrical generation and distribution systems

Estimate alternative piping systems

Estimating Impact of Alternate Build Strategies

Traditional shipbuilding versus virtual shipbuilding

Impact of make or buy

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Estimate savings from application of extended equipment and outfit component modules

Estimating Cost Risk

Estimate technical cost risk

Estimate production cost risk

Estimating material & equipment cost risk

Estimating Commercial Life Cycle Costs

Estimate annual financing costs and return on equity

Estimate annual operating, maintenance & administrative costs

Estimate impact of changes in fuel costs and trade/mission requirements upon operating costs

Estimate impact of crew size upon operating costs

Estimate life cycle costs (LCC)

Estimate return on investment (ROI)

Estimates are generated at approximately the three digits SWBS level of detail. Some areas

even more detailed. A very wide range of graphical charts and graphs are generated by the

cost models. Detailed tabular reports also are available.

The following is a list of worksheets included in the cost models modified for life cycle cost

estimating:

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