Financial Management

Life-Cycle Cost Estimate (LCCE)

A Life-Cycle Cost (LCC) is the total cost of a program from cradle to grave. (also referred to as Total Ownership Cost (TOC)) LCC consists of Research and Development (R&D) Costs, Investment Costs, Operating and Support Costs, and Disposal Costs over the entire life cycle. These costs include not only the direct costs of the acquisition program but also include indirect costs that would be logically attributed to the program. In this way, all costs that are logically attributed to the program are included, regardless of funding source or management control. [1]

DoD Definition: Total Ownership Cost (TOC) includes the elements of a program’s life-cycle cost, as well as other related infrastructure or business processes cost not necessarily attributed to the program in the context of the defense acquisition system.

Life-Cycle Cost (LCC) Estimate

A Life-Cycle Cost (LCC) Estimate (See Cost Estimating) is the estimated cost of developing, producing, deploying, maintaining, operating and disposing of a system over its entire lifespan. The estimate is prepared for major program reviews to include Milestone A, B, and C.  It’s used to acquire funding for a system throughout its lifespan.  The LCC is scoped around three (3) topics:

  1. Work Breakdown Structure (WBS)
  2. Cost Estimating Categories
  3. Cost Element Structures

1. Work Breakdown Structure (WBS): A program WBS provides a framework for program and technical planning, cost estimating, resource allocations, performance measurements, and status reporting. The WBS should define the total system to be developed or produced; display the total system as a product-oriented family tree composed of hardware, software, services, data, and facilities; and relate the elements of work to each other and to the end product.

2. Cost Estimating Categories: There are 4 cost categories for LCC defined in DoD 5000.4-M “Cost Analysis Guidance and Procedures”. These categories are:

  1. Research and Development
  2. Investment
  3. Operating and Support
  4. Disposal

3. Cost Element Structures: LLC is divided into the five major Appropriations Categories.  These categories are:

  1. Research, Development Test and Evaluation (RDT&E)
  2. Procurement;
  3. Operations and Maintenance (O&M)
  4. Military Construction (MILCON)
  5. Military Personnel (MILPERS)

Costs Estimating Techniques

There are a number of costs estimating techniques that can be used to develop a LLC. The main techniques are:

Cost Analysis Requirements Description (CARD)

The Cost Analysis Requirements Description (CARD) documents the ground rules and assumptions, the description of the system and operating concepts, cost estimating methods, data sources and other topics for developing the LCC.

AcqTips:

AcqLinks and References:

Updated: 7/21/2021

Rank: G1.1

Leave a Reply