This SAE Aerospace Recommended Practice (ARP) describes the concept of life cycle costing with emphasis on LCC techniques and applications as applied to the phases of the program cycle. These phases are:

a. Conceptual studies, research, development, test, and evaluation (RDTE)

b. Investment, or procurement

c. Operating and support (OS) or in-service

d. Disposal of systems, equipment, and services

Cost elements, estimating techniques and other factors which have a bearing on LCCs are described; including use of cost estimating relationships (CER), simulation techniques, and "top-down"/"bottom-up" approaches. Consideration is also given to:

a. Risk and uncertainty assessments

b. Impact of economic variations including inflation, interest rates, and exchange rate variation

c. Adoption of discounting techniques when undertaking investment appraisals

The use of tailored LCC models is preferred since there is an advantage in adopting a range of approaches particularly for the prediction of the costs of future technology and estimates of uncertainty which are specific to the aerospace industry.

Purpose:

This document supplements the general guidelines contained in AIR1939. The purpose of this document is to present an overview of LCC techniques and applications during the procurement process for defense related equipment. This document provides a typical "global" LCC element breakdown structure which is aircraft systems related; while a companion document, ARP4294 provides a detailed scheme for a cost element breakdown structure specific to propulsion systems.

LCC techniques provide a sound basis for cost benefit analysis. Although specifically aimed at the military procurement process, the recommendations contained in this document can apply to commercial procurement. The use of LCC analysis during the procurement process increases effectiveness of program evaluation by aiding decision making and providing a mechanism for transferring information on a common basis.