Lecture10_Nov21_2005 - EMP5100 Introduction to Engineering...

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EMP5100 - Introduction to Engineering Management Lecture 10 9. Product costing (cont.) Life Cycle Costing (LLC) Concept developed in 1965 by the US DoD. Under the present economic item procurement has taken on a different thread. A system which has been fielded must be supported for the total life. Definition : The life cycle cost of a product is the sum of all costs to the government of procurement and ownership of that product over its life span. LLC Model I LLC = α + β Where α = Σ i=1 9 (NC i ) α – equipment non-recurring cost NC i – is the i -th non-recurring cost : [1] training [2] support [3] transportation [4] acquisition [5] test equipment [6] installation [7] R&D [8] LLC management [9] reliability & maintainability improvement and β = Σ i=1 5 (C i ) β – equipment recurring cost C i – is the recurring cost: [1] inventory EMP5100 1 November 21, 2005 1 0.75 0.5 0.25 Labor cost Cost of spares Reliability Cost LCC Acquisition Cost Ownership Cost = Labor + Spares
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EMP5100 - Introduction to Engineering Management Lecture 10 [2] manpower [3] maintenance [4] operating [5] support LLC Model 2 LLC = Σ i=1 4 (C i ) Where: C1 – R&D cost C2 – production and construction C3 – operation and support C4 – Retirement and disposal
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