Systems life-cycle cost effectiveness
Traditional costing models for new systems and new buildings in industry, defence or government, have tended to focus on the costs of acquisition and implementation, with scant regard for the costs of running the system or decommissioning after use.
The pressure to minimise expenditure and provide value for money from reduced resources means that complex projects have to encompass a wide range of often conflicting issues and interests. Systems life cycle cost-effectiveness is designed to manage the difficulties that can arise.
Optimising the system life cycle cost-effectiveness is complex and influenced by many factors – including the human factors associated with a system’s design and consequent value, which are as important as the technical costs associated with its construction or creation.
For an improvement to take place, people have to change the way they make decisions, or different choices. However, as the 16th century theologian Richard Hooker wrote, ‘change is not made without inconvenience, even from worse to better.’
A helpful tool in this respect is life cycle cost (LCC) analysis which provides comprehensive and organised accounting of all resources and associated cost elements required to design, develop, produce, deploy and sustain a particular system.
Unlike other models LCC analysis is oriented towards long term economic factors in the life cycle of a generic system, rather than trying to save money in the short term by simply purchasing systems with lower initial acquisition costs.
It also assesses programme affordability by identifying relevant cost drivers as connected with specific elements of operational need (key performance indicators/parameters, key user requirements).
In major projects, the devil is in the cost detail. This is certainly the case for projects delivered globally by practitioners who commit to the herculean task of procuring, deploying and maintaining systems, equipment and material in a reliable condition.
By adopting a systems lifecycle cost-effectiveness approach to the running of a project – encompassing the whole acquisition, ownership, and retirement costs – it is possible to avoid unnecessary slippages and cost overruns even for the most complex engineering projects.
Massimo Pica is the author of Systems Lifecycle Cost-Effectiveness, published by Gower.