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NATO Expert Group on Boat Costing

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  1. NATO Specialist Team on Ship Costing Irv Chewning Chairman, STSC SCEA Conference Los Angeles, CA 17 June 2004 USS Port Royal ITS Maestrale USS John C. Stennis HMS Ocean HMNLS van Amstel FS de Grasse FS Charles de Gaulle USS John F. Kennedy Multi-National Deployment Operation Enduring Freedom (April 2002) FS Sercouf ITS Durand de la Penne

  2. NATO Organization Allied Naval Engineering Publication Development re Specialist Team on Ship Costing STSC Participants, History and Products ANEP-41 - Ship Costing ANEP-49 - Ways to Reduce Costs of Ships Outline

  3. NATO Organization North Atlantic Treaty Organization (NATO) Organizations & Agencies Civilian Structure Military Structure Logistics Public Policy Division Military Committee Standardization Office of Security Allied Command Operations Civil Emergency Planning Division of Defense Policy and Planning Allied Command Transformation Communication and Information Sys. Division of Defense Investment Etc... Division of Operations

  4. Location of STSC within NATO Organization Division of Defense Investment NATO Naval Armaments Group (NNAG) Current Chairman: ITN RADM Dino Nascetti US Rep.: OPNAV (N096) Naval Group 6 on Ship Design (NG/6) Current Chairman:Howard Fireman NAVSEA 05D Current US Rep: Jeff Hough NAVSEA 05D Specialist Team on Ship Costing (STSC) Current Chairman: Irv Chewning NAVSEA 0175 Current US Rep: Bob Ogrodnik NAVSEA 0175

  5. BackgroundPurpose of the STSC • Establish a common framework, definitions and work breakdown structure from which the participating nations can discuss costs in a transparent manner. • Common understanding of approaches to cost analysis in support of national decision-making processes regarding the affordability of warships in an environment of budgetary constraints. • Need for cost reduction in all areas of ship life cycle costs: Design, Acquisition, Operations & Support, and Disposal.

  6. Australia Belgium Canada France Germany Italy Participants in ANEP-41 & ANEP-49 Development Netherlands Norway Portugal Spain United Kingdom United States US Coast Guard

  7. An ANEP is a guidance document for use by NATO Allies in a collaborative program or project An ANEP does not bind any nation to its use Two ANEPs have been created by the STSC: ANEP-41 on Ship Costing ANEP-49 on Ways to Reduce Costs of Ships Process of Creation or Update of an ANEP: Working Group or Specialist Team chartered by NG/6 Nations intending to participate are identified and a Chairman selected Terms of Reference and Program of Work drafted by the Team and approved by NG/6 Working Paper drafted by the Team and presented to NG/6 with recommendations ANEP drafted and presented to NG/6 for approval and subsequently presented to NNAG for final release approval Work of STSC is typically Institutionalized via Creation or Updating of an Allied Naval Engineering Publication (ANEP)

  8. History - Ship Costing ANEP Development NG/6 (formerly IEG/6) ON SHIP DESIGN Ad Hoc Working Group (AHWG) ON SHIP COSTING (Working Paper - 1990) Specialist Team on Ship Costing (Working Paper - 1995) ANEP-41 July 1992 ANEP-49 January 1996 OBJECTIVE Coherent Approach and Guidance for Ship Designers, Cost Estimators, Decision Authorities, and Others involved in ship acquisition AIM Affordable Fleet! 8

  9. History - Ship CostingANEP Updates November 1997 Task as Directed by NG/6: Prepare Working Paper regarding Ship Cost Reduction Trends and Practices National Literature Expertise: Survey: Contributions of >70 Articles & 12 Nations Presentations 3 Focus Areas Commercial Total Manpower Standards Ownership Reduction & Cost Practices “Trends in Manpower Reduction and the Use of Commercial Standards, Practices and Contracting Strategies to Reduce Costs of Naval Ships,” June 1999 “Total Ownership Cost Concept,” December 2002 Two Working Papers ANEP-49 Edition 2 November 2000 ANEP 41 Edition 3 December 2003 9

  10. Provides a framework and overall process for discussing, comparing or developing ship cost estimates consisting of: A comprehensive list of known ship cost elements in terms of a NATO Ship Cost/Work Breakdown Structure; A Hierarchy of Ship Cost Terms extending from the NATO Ship Cost/Work Breakdown Structure up to the total program cost; and Broad guidance on the use of Ship Cost Models Edition 1 March 1991: Contains CWBS, Terms and Definitions and NATO Ship Cost Hierarchy Edition 2 July 1992: Validates process outlined in Edition 1 by costing a common ship design Edition 3 December 2003: Incorporates TOC Concept together with framework and definitions of elements that make up Life Cycle Cost, Total Ownership Cost, and Whole Life Cost. ANEP-41 on Ship Costing

  11. ContentsANEP-41 Edition 3 Foreword Chapter 1 Introduction Chapter 2 Ship Cost Terms and Definitions Chapter 3 NATO Ship Cost/Work Breakdown Structure Chapter 4 Total Ownership Cost Chapter 5 Costing Methodology Chapter 6 Multinational Considerations Chapter 7 Implementation Guidelines List of References, List of Acronyms Annex A NATO Ship Cost-Related Terms and Definitions Annex B Expanded Ship Work Breakdown Structure Title Index Annex C NATO Ship Programmatic Cost Element Index Annex D Allocation of NATO Ship CWBS to LCC Composition Annex E NATO Alternate O&S Cost Categories for Ships Annex F NATO Elements of Manpower Cost for Ships Annex G Cost Models

  12. NATO Ship Costing Components

  13. NATO SHIP CWBS MULTIDIMENSIONAL ASPECT * COST TYPE C UNIQUE W COMMON B S PROGRAM PHASES PROGRAM PHASES * Cost Type can pertain to many categories (e.g., by Recurring & Nonrecurring, by Nation, by Cost-Share, by Work-Share) NATO Ship CWBS Multidimensional Aspect (Top Level) Costs separated by: • Common among nations • Unique to a nation

  14. NATO SHIP CWBS MULTIDIMENSIONAL ASPECT COMMON UNIQUE COST NON-RECURRING TYPE RECURRING HARDWARE GROUP 100 200 300 400 500 600 C 700 W SOFTWARE GROUP 100 B 200 S 300 400 500 600 700 DESIGN & SUPPORT 000 SERVICES 800 900 PROGRAMMATICS 1 2 3 4 5 6 7 1 2 3 4 5 6 7 PROGRAM PHASE PROGRAM PHASE NATO Ship CWBS Multidimensional Aspect (Detailed) • WBS similar to US Expanded Ship Work Breakdown Structure • Program Phases per NATO Phased Armaments Programming System (PAPS)

  15. NATO Ship Cost/Work Breakdown Structure (Level 3 Elements) LEVEL 1 TOTAL PROGRAM LEVEL 2 COMMON ELEMENTS UNIQUE ELEMENTS HARDWARE HARDWARE LEVEL 3 SOFTWARE SOFTWARE DESIGN & SUPPORT DESIGN & SUPPORT SERVICES SERVICES PROGRAMMATIC PROGRAMMATIC

  16. NATO Ship Cost/Work Breakdown Structure (Level 4 Elements) UNIQUE ELEMENTS COMMON / UNIQUE LEVEL 2 LEVEL 3 PROGRAMMATIC DESIGN & SUPPORT HARDWARE HARDWARE SOFTWARE SOFTWARE DESIGN & SUPPORT PROGRAMMATIC GROUP 100 GROUP 100 GROUP 100 GROUP 100 GROUP 000 GROUP 000 BUDGETING BUDGETING HULL HULL HULL HULL GUIDANCE & GUIDANCE & PRACTICES PRACTICES LEVEL 4 STRUCTURE STRUCTURE STRUCTURE STRUCTURE ADMINISTRATION GROUP 800 GROUP 800 GROUP 200 GROUP 200 GROUP 200 GROUP 200 ESCALATION ESCALATION PROPULSION PROPULSION PROPULSION PROPULSION INTEGRATION & INTEGRATION & PLANT PLANT PLANT PLANT ENGINEERING ENGINEERING GROUP 900 GROUP 900 GROUP 300 GROUP 300 GROUP 300 GROUP 300 LAW & LAW & ASSEMBLY & ASSEMBLY & ELECTRIC PLANT ELECTRIC PLANT ELECTRIC PLANT ELECTRIC PLANT GOVERNMENT GOVERNMENT SUPPORT SUPPORT REGULATIONS REGULATIONS SERVICES SERVICES GROUP 400 GROUP 400 GROUP 400 GROUP 400 CONTINGENCIES & RESERVES CONTINGENCIES COMMAND & COMMAND & COMMAND & COMMAND & SURVEILLANCE SURVEILLANCE SURVEILLANCE SURVEILLANCE GROUP 500 GROUP 500 GROUP 500 GROUP 500 GOVERNMENT GOVERNMENT AUXILIARY AUXILIARY AUXILIARY AUXILIARY SUPPORT SUPPORT SYSTEMS SYSTEMS SYSTEMS SYSTEMS ACTIVITIES ACTIVITIES GROUP 600 GROUP 600 GROUP 600 GROUP 600 NATO PROGRAM NATO PROGRAM OUTFITTING & OUTFITTING & OUTFITTING & OUTFITTING & OFFICE OFFICE FURNISHINGS FURNISHINGS FURNISHINGS FURNISHINGS ACTIVITIES ACTIVITIES GROUP 700 GROUP 700 GROUP 700 GROUP 700 SHIPBOARD SHIPBOARD ARMAMENT ARMAMENT ARMAMENT ARMAMENT LOAD LOAD - - OUT OUT ITEMS ITEMS DISPOSAL DISPOSAL

  17. PHASE *CWBS ELEMENTS * ESWBS ELEMENTS MISSION NEED DESIGN & SUPPORT GROUPS 000, 800 EVALUATION PROGRAMMATICS PRE-FEASIBIITY DESIGN & SUPPORT GROUPS 000, 800 PROGRAMMATICS FEASIBILITY DESIGN & SUPPORT GROUPS 000, 800 PROGRAMMATICS PROJECT DEFINITION DESIGN & SUPPORT GROUPS 000, 800 PROGRAMMATICS DESIGN AND SOFTWARE GROUPS 100 – 700 DEVELOPMENT DESIGN & SUPPORT GROUPS 000, 800 PROGRAMMATICS PRODUCTION HARDWARE GROUPS 100 – 700 SOFTWARE GROUPS 100 – 700 DESIGN & SUPPORT GROUPS 000, 800, 900 PROGRAMMATICS “M” (MARGINS) “F” (LOAD-OUT ITEMS) IN-SERVICE HARDWARE GROUPS 100 – 700 SOFTWARE GROUPS 100 – 700 DESIGN & SUPPORT GROUPS 000, 800, 900 PROGRAMMATICS “F” (LOAD-OUT ITEMS) * Denotes phase at which costs are generally incurred NATO Ship Program Phase CWBS Correlation

  18. NATO Ship Life Cycle Cost Hierarchy • OPERATIONS INITIAL CONSTRUCTION COST: PLUS: PLUS: PLUS: PLUS: PLUS: • COMMON • DESIGN • OPERATIONS ITEMS NOT AFFECTED BY THE EXISTENCE OF THE SHIP/WEAPON SYSTEM • PROJECT MANAGEMENT SUPPORT MANPOWER • DEVELOPMENT & SUPPORT • HARDWARE (e.g. Structure, Propulsion, and Electric Plant) ITEMS& SYSTEMS • SOFTWARE (e.g ­ RECRUITING • LOAD- OUT • ITEMS Computer programs, ­ ACQUISITION • START-UP (e.g. Tooling, Jigs, and Fixtures) Coding) ­ TRAINING - MILITARY ACADEMIES INFRASTURE • • DISPOSAL MEDICAL • • TECHNICAL DATA ­ COST FOR ALLOWANCE FOR CHANGES e.g. Design, Schedule) • • PUBLICATIONS SUPPORT - CEREMONIAL UNITS - SHORE-BASED TRAINING - HOSPITALS - NAVY STAFF PLANNING, • SUPPORT EQUIPMENT MANAGING, • TRAINING EQUIPMENT • TEST AND TRIALS OPERATING, • INITIAL SPARES (Shore Based) INITIAL OUTFIT (onboard Spares, Repair Parts, Tools, and Fuel) AND EXECUTING • FACILITY CONSTRUCTION SAIL-AWAY COST • PROJECT LEAD-SHIP OVERCOST • NATO PROJECT MANAGEMENT OFFICES PROGRAM ACQUISITION COST PROGRAM LIFE CYCLE COST (LINKED DIRECT) TOTAL LIFE CYCLE COST ( PLCC+LINKED VARIABLE INDIRECT) TOTAL OWNERSHIP COST ( TLCC + LINKED FIXED INDIRECT) WHOLE LIFE COST (TOC + NON-LINKED)

  19. Total Ownership Cost Concept Total Ownership Cost includes all linked-direct costs associated with the research, development, procurement, operation, logistical support and disposal of an individual weapon system (e.g., ship) plus the linked-indirect costs of: • the total supporting infrastructure that plans, manages and executes that weapon system program over its full life… and • the cost of requirements for common support items and systems that are incurred because of introduction of the weapon system… • but, excluding the “non-linked” Navy infrastructure costs that are not affected by individual weapon systems development, introduction, deployment or operations

  20. Ship TOC Cost Domain • Maps Cost Types to NATO Ship LCC Hierarchy • Linked Direct: Costs specifically associated to the development, procurement, operation and support of the individual ship or ship’s systems • Linked Indirect: Costs related to other programs, ships or weapon systems, in addition to the given ship or ship’s systems • Non-Linked: Costs of Navy operations not associated to individual ship or ship’s systems • Permits flexible approach to selecting desired level of LCC in a given collaborative program

  21. 1. The baseline ship design and technical requirements and configuration must be established.  2. The acquisition strategy must be defined for all phases of the program.  3. Agree to a CWBS and cost element definitions for use as the common basis for costing the proposed ship for comparison to the agreed cost target.  4. All cost elements must be identified at the agreed level of the NATO Ship LCC Hierarchy.  5. Each cost element identified must be assigned to the applicable life-cycle phase(s) of the NATO program. 6. The cost elements identified must be placed within the structure of the CWBS. 7. Each identified element must be designated as either common or unique. 8. Cost models and databases for use in the development of Cost Estimating Relationships must be established and agreed upon. 9. Cost estimates must be developed for each phase of the NATO ship program using the CWBS format and agreed cost model(s). 10. The above process should occur at the beginning of all NATO ship programs in order to provide a frame of reference for all ship design and cost decisions. ANEP-41 Implementation Guidelines

  22. History ANEP 49 Development Literature Survey “Topics” National Expertise of Participating Nations Compilation of 45 Papers or Presentations “Topics” Identification of 28 Topics 28 Point Papers 3 Major Working Papers Literature Synthesis Salient Point Summaries Document Analysis by PAPS Phases ANEP 49 on Ways to Reduce Cost of Ships Executive Summary Introduction 7 Chapters Conclusions & Recommendations 4 Appendixes 22

  23. Provides emphasis and guidance to ship designers, naval staff planners, project managers, decision authorities and others on potential areas for cost reduction in naval ship acquisition, ownership and operation, that they may influence. The document is a guide only and thus should not be interpreted in an absolute fashion. It emphasizes that national cost specialists or experts should be utilized as an inherent part of the decision process. Edition 1 January 1996: Outlines considerations and opportunities for cost reduction by program phase Edition 2 November 2000: Incorporates TOC Concept together with expanded discussion of commercial standards, practices and contracting strategies ANEP-49 on Ways to Reduce Costs of Ships

  24. ContentsANEP-49 Edition 2 Executive Summary Introduction Chapter A Mission Needs and Requirements Chapter B Technologies Chapter C Design Chapter D Acquisition Process Chapter E Production Chapter F Operations and Support Chapter G Cost Management Conclusions and Recommendations Appendix I Chronology of Development Appendix II Glossary of Terms and Definitions Appendix III Selected Information on National Experiences Relevant to Ship Cost Reduction Appendix IV Value Engineering Process Steps

  25. Requirements (Mission) Procedures/Process to Establish Requirements Commercial Vs. Military Standards Design-to-Cost Common Procurement/Purchases Technology Innovations Time and Decisions Contracting Practices Commonality Specifications/Project Definition Operations and Support Considerations Cost Management Value Engineering Eliminate/Reduce Change Total Ownership Cost Crew Reduction Vs. Automation Contractor Data Requirements Design and Production Processes Reliability Analysis Risk Acceptance Level Margin Policy International Cooperation Standardization of Cost Effective Solutions Learning Curve Maximization Industrial Base Productivity, Competitiveness and Reliability Design/Cost Tradeoffs (Affordability Analysis) Use of Competition vice National Concerns Environmental Impacts ANEP 49 Topic Areas 28 Topics and Three Working Papers:

  26. ANEP-49 Ways to Reduce Costs of ShipsDesign Phase Integrated Design Design-for-Production Investment for Life Cycle In-Service Flexibility Process Simplification Design Tradeoffs: Commercial versus Military Standards/Practices Margin Policy Technologies Product-Orientation Modularization Standardization Group Technology Commonality Joint-ness Interoperability International Cooperation Cost-Oriented Design

  27. ANEP-49 Ways to Reduce Costs of ShipsAcquisition Phase • Lead Ship Acquisition Activity Could Involve 10 Years or More • Requirements changes • Technological changes • Acquisition Strategy a Significant Factor: • Contracting practices • Type of contract • Contractor incentives • International cooperation • Political & socioeconomic aspects • Risk mitigation

  28. ANEP-49 Ways to Reduce Costs of ShipsProduction Phase • Production Costs Affected By: • Acquisition strategy • Industrial policy/technology • Scheduling • Design changes • Quantity ordering and learning curve • Technological innovation/requirements • Material changes • Environmental hazards and compliance • Design for Production Critical • Cost savings from 10 to 15% can be realized from product-oriented or integrated design and construction methods.

  29. ANEP-49 Ways to Reduce Costs of ShipsIn-Service Phase • In-Service Phase Costs May Constitute 60 - 80% of LCC • Costs Heavily Dependent On: • Peacetime and Wartime operational scenario and tempo • Mission and Policy requirements • Cost Drivers Connected To: • Personnel Cost (Manning) and Training • Early design stage planning • Up-front investment • Level of automation • Equipment standardization/ Configuration control • Continuous acquisition and life-cycle support • Integrated logistics support • Design flexibility provisions • Ease of maintenance and upgrade • Environmental compliance

  30. ANEP-49 Ways to Reduce Costs of ShipsSummary • Thorough up-front engineering and design work is essential to maximizing cost reductions • Careful consideration and scrutiny should be given the following major areas: • Mission needs and capability requirements • Cost-conscious decision-making process • Technology advances • Commercial standards and practices • Manpower reduction • Design specifications, acquisition practices and construction methods • Cost management techniques • Cooperation and teamwork between government and industry and between governments • Forward-looking program planning and management • An ingrained process that provides transparency of costs and cost driver understanding is essential

  31. Shared View of NATO Allies • Identify Cost Drivers versus mission needs • Aim to make all “affected” costs transparent for decision-making