Decision Making in Systems Engineering and Management, 3rd Edition

Chapter 8Costing Systems

Creativity is great, but not in accounting.

—Charles Scott, American Football Player

8.1 INTRODUCTION

System elements include products (hardware, software, firmware), processes, people, information, techniques, facilities, services, and other support elements. As part of a system, these integrated elements have a system life cycle consisting of seven stages: establish system need, develop system concept, design and develop system, produce the system, deploy the system, operate the system, and retire the system. Throughout each of these seven stages various life cycle costs occur. Early stage costs involve a good deal of contracting, design activities, system demonstrations, laboratory and field‐based prototype assessments, production costs, and other costs incurred getting the system ready to transition into deployment and use. Past that point, transportation, installation, field certification, operation and maintenance, security, repair, replacement, design modification, storage, shipping, disposal costs, and others dominate a system's cost profile.

Life cycle costing (LCC) is the best practice approach supporting all phases of system development. It is required for systems decision making. LCC is used by a systems engineering team to estimate whether a new system or a proposed system modifications will meet functional requirements at a reasonable total cost over the duration of its anticipated life. When successfully employed and managed, LCC ...