Engineering Economics of Life Cycle Cost Analysis Page 1-1

Engineering Economics of Life Cycle Cost Analysis Page 1-1 Chapter one – solutions

Overview of systems life cycle costing

Questions 1-1. Your Subcontractor Company has teamed with Large Defense Contractor (LDC) and been awarded the new Super Fighter – the largest procurement contract in defense history. List three areas for each of the following stakeholders that should be your primary focus when

monitoring/billing/paying the Super Fighter contract:

• Program Manager for LDC, • Program Manager for Your Subcontractor Company, • LDC Corporate Headquarters, • Defense Sponsoring Agency, and • Legislative.

a) The program manager for LDC is both focused on maximizing shareholder profits and in most instances

managing relations with the government and congress (if the program is large enough). Off all these listed it can be the most challenging because of conflicting goals - maximize profit while keeping the customer happy. Off all these listed it can be the most challenging because of conflicting goals - maximize profit while keeping the customer happy.

b) In most instances, the subcontractors to the major defense contractors (Lockheed, Boeing, etc.) are under

the same constraints as the prime contractors. If they increase prices as requirements creep, etc., they ruin the risk of program termination or repeat business. Yet they too must focus on shareholder value.Unfortunately, they must negotiate changes to the prime who then pass those costs along to the government.

c) LDC corporate headquarters primary focus is stock prices and profit. They also must lobby, shape

programs, and ensure that relationships are maintained with services and agencies across multiple programs.

d) The major agency sponsoring the project must budget the program and is ultimately responsible for its

success or failure. Historically, most projects fail if you use cost and time as the metric. Within the Department of Defense, Nunn McCurdy, GAO, inspector general, etc., all serve as watchdogs of the taxpayer’s dollars. Unfortunately, the rapid pace of technology, unstable funding, etc., has all contributed to cost and time overruns that are often attributed to poor management.

e) Congress and the White House must balance job creation, funding unneeded programs, and maintaining

a budget. All too often, programs are funded even after they become obsolete, not able to close a technology gap, etc.

1-2. When we buy cars, homes, major appliances, etc., we are mainly focused on the upfront costs (mainly purchase price) and seldom assess the LCCs of a major investment. Unfortunately, our decisions are mainly driven by performance. From your own buying experience, write down your thought process for buying a new car and weigh the major components of your decision (upfront costs, trade-in, gas millage, looks, accessories, etc.). List and assign the weights (must add to 100%) given to each component of upfront and reoccurring costs?

(Engineering Economics of Life Cycle Cost Analysis, 1e John Vail Farr, Isaac Faber) (Solution Manual, For Complete File, Download link at the end of this File) 1 / 4

Overview of Systems Life Cycle Costing Engineering Economics of Life Cycle Cost Analysis Page 1-2 Few people (except for some engineers) buy a car or other personal item based upon life cycle costs - we usually buy what we like or some other emotion drives the purchase. Yes, we often analyze whether we can afford the item and may look at insurance, etc. Below is an example of an informal thought process when

buying a car:

• Favorite brand (Toyota, Ford, Volvo, etc.) and dealer loyalty= .4 • Needs (4WD, Van, Convertible, etc.) = .20 • Affordability - upfront costs only = .20 • Deal, color, etc. = .1 • Life cycle costs (gas, insurance, maintenance, etc.) = .1

I suspect most go through a similar analysis - yet for government (federal, state, and local) most decisions are driven by economics!

1-3. One of the key challenges is that we fixate on development costs with little or no regard to downstream LCC costs. Briefly explain why you think this occurs? Is this more of a problem for large government programs and then private projects?

It doesn't matter whether it is for federal, state, local, or your dream home we often only focus on the short-

term considerations. This occurs for many reasons to include:

• different funding streams for development versus downstream support costs, • insight into total ownership costs could keep a program from being funded (development costs are often just a fraction of the total ownership costs), and • when trying to sell a program where costs are often shifted downstream in order to sell the program to include product upgrades.

Yes, this is much more of a problem for government than the private sector. In the government sector a contractor might be responsible for development and government employees (i.e., members of the armed forces, highway department, etc.) might be responsible for sustaining the system. Different funding streams are also used for sustainment versus procurement costs. Also, the sustainment costs seldom make the news - but the cost of an airplane, piece of equipment, etc., is often in the news.

1-4. Firm-fixed price (FFP) contracts are defined as providing for a pre-established price and places more risk and responsibility for costs and resulting profit or loss on the contractor and provide more incentive for efficient and economical performance (modified from GAO, 2008).Our everyday life is governed by FFP contracts (home construction, car maintenance, etc.), yet few large contracts are FFP. What cultural obstacles must be overcome to institutionalize FFP contracts for government?

You see more and more FFP in government. Most large DoD contractors now have >50% of their work as FFP efforts. The problem is that most large contracts often have a development component. Until we can clearly articulate our requirements FFP contracts simply are not feasible. Also, huge cultural issues must be overcome in that this is a new way of doing business. Requirements must be fixed and contractors held accountable.

1-5. What are the grand challenges of the next 10 years for engineers? What are the common characteristics of these problems?

There are lots of list of grand challenges listed on the web for engineering, scientists, and in technology.Listed below are 14 taken from http://www.engineeringchallenges.org/challenges.aspx which was accessed

• June 2016

MAKE SOLAR ENERGY ECONOMICAL 2 / 4

Overview of Systems Life Cycle Costing Engineering Economics of Life Cycle Cost Analysis Page 1-3 • Currently, solar energy provides less than 1 percent of the world's total energy, but it has the potential to provide much, much more.

ENHANCE VIRTUAL REALITY

• Within many specialized fields, from psychiatry to education, virtual reality is becoming a powerful new tool for training practitioners and treating patients, in addition to its growing use in various forms of entertainment.

REVERSE-ENGINEER THE BRAIN

• A lot of research has been focused on creating thinking machines—computers capable of emulating human intelligence— however, reverse-engineering the brain could have multiple impacts that go far beyond artificial intelligence and will promise great advances in health care, manufacturing, and communication.

ENGINEER BETTER MEDICINES

• Engineering can enable the development of new systems to use genetic information, sense small changes in the body, assess new drugs, and deliver vaccines to provide health care directly tailored to each person.

ADVANCE HEALTH INFORMAT ICS

• As computers have become available for all aspects of human endeavors, there is now a consensus that a systematic approach to health informatics - the acquisition, management, and use of information in health - can greatly enhance the quality and efficiency of medical care and the response to widespread public health emergencies.

RESTORE AND IMPROVE URBAN INFRASTRUCTURE

• Infrastructure is the combination of fundamental systems that support a community, region, or country. Society faces the formidable challenge of modernizing the fundamental structures that will support our civilization in centuries ahead.

SECURE CYBERSPACE

• Computer systems are involved in the management of almost all areas of our lives; from electronic communications, and data systems, to controlling traffic lights to routing airplanes. It is clear that engineering needs to develop innovations for addressing a long list of cyber security priorities

PROVIDE ACCESS TO CLEAN WATER

• The world's water supplies are facing new threats; affordable, advanced technologies could make a difference for millions of people around the world.

PROVIDE ENERGY FROM FUSION

• Human-engineered fusion has been demonstrated on a small scale. The challenge is to scale up the process to commercial proportions, in an efficient, economical, and environmentally benign way.

PREVENT NUCLEAR TERROR

• The need for technologies to prevent and respond to a nuclear attack is growing.

MANAGE THE NITROGEN CYCLE

• Engineers can help restore balance to the nitrogen cycle with better fertilization technologies and by capturing and recycling waste.

DEVELOP CARBON SEQUESTRATION METHODS

• Engineers are working on ways to capture and store excess carbon dioxide to prevent global warming.

ENGINEER THE TOOLS OF SCIENTIFIC DISCOVERY

• In the century ahead, engineers will continue to be partners with scientists in the great quest for understanding many unanswered questions of nature.

All of these projects are complex requiring interdiscplinary skills and have a major technology/software component. Data science will also play a major role in the design and implementation of solutions.

1-6. What is the difference between interdisciplinary and multidisciplinary problems?

The following definitions were taken from Wikipedia on 1 June 2016: 3 / 4

Overview of Systems Life Cycle Costing Engineering Economics of Life Cycle Cost Analysis Page 1-4

A multidisciplinary approach involves drawing appropriately from multiple disciplines to redefine problems outside normal boundaries and reach solutions based on a new understanding of complex situations.

The adjective interdisciplinary is most often used in educational circles when researchers from two or more disciplines pool their approaches and modify them so that they are better suited to the problem at hand, including the case of the team-taught course where students are required to understand a given subject in terms of multiple traditional disciplines. For example, the subject of land use may appear differently when examined by different disciplines, for instance, biology, chemistry, economics, geography, and politics.

Not sure based upon these formal definitions that there really is a difference?The words interdisciplinary, cross disciplinary, multidisciplinary, and trans disciplinary seem to all have a similar meaning which is involving multiple academic disciplines to solve a complex problem.

1-7. Let’s assume that the role of engineering centric business is to provide customers with a better price/value proposition than competitors while operating the business to attain targeted profits. What are the exceptions? How would you restate this for government?

Obviously when safety, environmental, or quality of life are driving the solution does value/cost is no longer the key business driver. Agencies like NASA, FAA, and to a certain extend the DoD cost is not the keep performance metric.

Provide customers with the best price/value proposition while ensuring that the safety, defense, and quality of life are not compromised.

1-8. Engineers make tradeoffs in design in risk, schedule, cost, and performance. For product realization are these industry specific?

Yes - every industry has a different priority level with regards to risk/schedule & cost/performance. For example, NASA must be careful to make risk concessions to improve schedule.

1-9. What business is Stryker in? What types of engineers do they hire and what are their primary functions? Who are its customers? What is Stryker’s current financial status/performance? Would you buy their stock? Why?

From their website - Stryker is one of the world's leading medical technology companies and, together with our customers, we are driven to make healthcare better. The Company offers a diverse array of innovative products and services in Orthopedics, Medical and Surgical, and Neurotechnology and Spine that help improve patient and hospital outcomes. Stryker Corporation is a Fortune 500 medical technologies firm based in Kalamazoo, Michigan. Stryker's products include implants used in joint replacement and trauma surgeries; surgical equipment and ... Wikipedia

Strykers job placement website is http://careers.stryker.com

They hire every type of engineer. With medical devices being there primary product mechanical, electrical, biomedical, and systems engineering are probably the most prevalent. However, a search of their website reveals that they have openings for many types of engineering.

As of 1 June 2016

Stock price: SYK (NYSE) $111.13 -0.03 (-0.03%)

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