Life Cycle Cost (LCC) or Whole-life cost (WLC) refers to the total cost of ownership over the life of an asset. Typical areas of expenditure which are included in calculating the whole-life cost are:

• Planning
• Design
• Construction / acquisition
• Operations
• Upgrades
• Maintenance
• Financial (e.g. depreciation and cost of finance)
• Replacement or disposal

Many of the above cost elements are very hard to predict over the multi-decadal life cycle of most Defence platforms.  Traditionally, LCC analyses have been mainly executed within complex spreadsheets and include some form of sensitivity analysis.  Whilst often sufficient for a given decision, sometimes these models may well be difficult for decision makers to follow and trust, difficult to change important inputs like the procurement and upgrade schedules over time and generally suffer many other limitations.     

Our first line of LCC analysis capability enhances the spreadsheet approach through implementation of Monte Carlo simulation within the spreadsheet model to ensure errors and variability are properly accounted for.  This approach dynamically incorporates risk and uncertainty into the model and yields distributions of LCC metrics for more robust and informed decision making.  This approach is a very large step towards more informed decision making versus the traditional spreadsheet.  As good a step as it is, we believe there is an even better method.

We believe going beyond the spreadsheet and adopting discrete event simulation techniques is an even more robust approach to LCC analysis which offers significant advantages in supporting better decision making.  Analytical simulations are put together a bit like Lego.  Blocks from libraries carry out certain functions, and these are connected in sequences to represent the flows of real world systems.  These simulations pick up the advanced features that spreadsheets miss.  Our simulations represent more of the detail inherent in the capability life cycle and provide easy to change schedules of platforms and events.  They can also include additional attributes like capability scores over time and can account for wider systems (like first order supply chains) that can unexpectedly impact the costs of the fleet in question.  This permits a “from first principles” approach to generating LCC estimates, with the same model being used to test multiple capability strategies.  These models look more like a flow chart than a spreadsheet, meaning they are generally easier to explain and understand.  They can also animate, so decision makers can follow moving symbols through the simulation to ensure the model reflects the real world.