Engineering Economics of Life Cycle Cost Analysis

Structure of the book

Chapter 1

Overview of Systems Life Cycle Costing

1.1 Overview of Engineering Economic Analysis

1.1.2 Customer Relationships

1.1.3 Engineering Services

1.1.4 Product Realization

1.2 Engineering Challenges for the 21st Century

1.3 Introduction to Systems Life Cycle Costing

1.3.1 Systems Life Cycle Costing

1.4 Cost Analysis, Estimation, and Management

1.4.1 Cost Analysis

1.4.2 Cost Estimation

1.4.3 Cost Management

1.5 Summary

Section 1 - The Mathematics of Engineering Economy

Chapter 2

The Science of Engineering Economics: Understanding the Time Value of Money

2.1 Introduction and the Time Value of Money

2.2 The Capital Budgeting Decision

2.2.1 Basic Concepts in Capital Budgeting

2.2.2 Benefit and Cost Development

2.3 Time Value of Money

2.3.1 Cash Flow Diagram Rules

2.4 Interest

2.4.1 Simple Interest

2.4.2 Compounded Interest

2.4.3 The “Rule of 72”

2.4.4 Compound Interest Notation and Interest Tables

2.4.5 Interest Compounded Other Than Yearly

2.5 Single Period Cash Flow

2.6 Common Cash Flow Series

2.6.1 Uniform Cash Flow Series

2.6.2 Linear Gradient Cash Flow Series

2.6.3 Irregular Cash Flow Series

2.7 Concept of Economic Equivalence

2.8 Amortization Schedules

2.9 Determining Inflation/Deflation

2.10 Summary

Chapter 3

Advanced Economic Analysis of Alternatives

3.1 Introduction

3.2 Net Present Value

3.2.1 NPV in Microsoft Excel

3.3 Annual Equivalent Worth

3.3.1 Introduction

3.3.2 AEW in Microsoft Excel

3.4 Capital Budgeting - Selection of Multiple Projects

3.5 Break-Even Analysis

3.6 After Tax Cash Flow Analysis

3.6.1 Depreciation

3.6.2 Corporate Income Taxes

3.7 Income and Cash Flow Statements

3.8 Expected Value

3.9 Sensitivity Analysis

3.10 Summary

Chapter 4

The Basic Theory of Interest

4.1 Introduction

4.2 Interest as Time Value of Money

4.3 Inflation

4.4 Market Interest Rates

4.4.1 United States Treasury Debt

4.4.2 Debt

4.4.3 Equity

4.4.4 Minimum Attractive Rate of Return

4.5 Summary

Chapter 5

Simulation Based Costing

5.1 Introduction

5.1.1 Ways to Study a System

5.2 Review of Probability and Statistics

5.2.1 Introduction

5.2.2 Random Variables

5.2.3 Probability Density Functions

5.2.4 Cumulative Distribution Functions

5.3 Discrete Process Generators

5.4 Continuous Process Generators

5.5 Probability and Statistics Summary

5.6 Simulation in Practice

5.6.1 Introduction to Simulation in Practice

5.6.2 Building Complex Simulations

5.7 Using Readiness Levels for Model Input

5.8 Simulation Using Spreadsheets

5.8.1 Introduction

5.9 Building Systems Simulations

5.10 Sensitivity Analysis

5.11 Summary

Chapter 6

Life Cycle Framework and Techniques

6.1 Introduction to Developing Life Cycle Models

6.2 Developing LCC Models

6.3 Life Cycle Cost Categories

6.3.1 Industrial Base and Supplier/Vendor Relationships

6.3.2 Research, Development, Testing and Evaluation

6.3.3 Acquisition

6.3.4 Operations and Support

6.3.5 Disposal or Retirement

6.4 Cost Accounting

6.5 Summary

Section 2 - Estimation of Complex Systems

Chapter 7

Costing of Complex Systems

7.1 Introduction

7.2 Issues Surrounding Complex Systems

7.3 Systems Engineering and Management Cost

7.3.1 Hardware Costs

7.3.2 Software

7.3.3 Interfaces/Integration at the Component/System Level

7.3.4 Systems Engineering/Project Management Costs

7.4 From Requirements to Architectures

7.5 Summary

Chapter 8

Software Intensive Systems

8.1 Introduction

8.2 Software Estimating Techniques

8.2.1 Overview

8.2.2 Expertise Based and Hybrid

8.2.3 Algorithmic

8.2.4 Function Points

8.2.5 Mathematical and Statistical

8.3 Costing Labor

8.4 Summary

Chapter 9

Cost Estimating Techniques

9.1 Estimating LCC Throughout the Product Development Cycle

9.2 Analogy

9.3 Parametric Cost Estimating

9.3.1 The Role of Statistics

9.3.2 Some CERs of Interest

9.3.3 Summary and Conclusions

9.4 Detailed Engineering Builds

9.5 Summary of Cost Estimating Techniques

Section 3 - Cost Management

Chapter 10

Costing and Managing Off the Shelf Systems

10.1 Introduction

10.2 Commercial-Off-The Shelf Systems

10.2.1 Hardware Centric COTS

10.2.2 Software Centric COTS

10.2.3 Integration Costs

10.3 GOTS

10.4 Software Reuse

10.4.1 Cost Reductions Achieved with Software Reuse

10.5 Open Source

10.6 Summary

Chapter 11

Project Management’s Role in Life Cycle Costing

11.1 Introduction

11.2 Basics of Networks

11.3 Work Breakdown Structure (WBS)

11.4 Progress Measurement

11.5 Calculating Earned Value

11.6 Monte Carlo Simulation of Networks

11.7 Summary

Chapter 12

Use of Cost Metrics and Ratios

12.1 Introduction

12.2 Benefit-Cost Ratio

12.3 Return on Investment

12.4 Cost Benefit Analysis

12.5 Multi-Objective Decision Analysis Approach for Quantifying Benefits

12.6 Breakeven Analysis

12.6.1 Breakeven Quantity

12.6.2 Conventional Payback Period

12.6.3 Discounted Payback Period

12.6.4 Breakeven Charts

12.7 Internal Rate of Return

12.7.1 The Compounding Equation

12.7.2 The Quadratic Equation

12.7.3 Trial and Error Method

12.7.4 IRR in Microsoft Excel

12.7.5 Incremental IRR

12.8 Summary and Conclusions