The Impact of Life Cycle Cost on Procurement Decisions 920969

Historically, major procurement decisions were made solely on the basis of performance and acquisition cost comparisons. Recently, due to budgetary constraints, economic issues and the escalation of acquisition and ownership costs, there has been increasing awareness in the importance of ownership costs and their contribution to overall Life Cycle Costs (LCC). This paper, supporting Air Recommended Practice 4293 Life Cycle Cost - Techniques and Applications (Reference 1), a development of AIR 1939 (Reference 2), examines the various elements of LCC and their respective roles in decision making. It distinguishes between the historical identification of “cost drivers”, budgeting and planning, project selection and investment appraisal. Differences between Commercial and Public Sector practices are discussed, and the implications of these differences on “spend to save” measures such as reliability modifications. Examples are given illustrating the different applications of LCC, the role of prediction techniques, and presentation of uncertainty in cost estimates, designed to postpone the choice between inadequate defence and unacceptable costs.