book

Engineering Economics of Life Cycle Cost Analysis, 2nd Edition

by John Vail Farr, Isaac J. Faber

June 2023

Intermediate to advanced

411 pages

11h 38m

English

CRC Press

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1.1 Overview of Engineering Economic Analysis1.1.1 Business Operations1.1.2 Customer Relationships1.1.3 Engineering Services1.1.4 Product and Process Realization1.2 Engineering Challenges for the 21st Century1.3 Introduction to Systems Life Cycle Costing1.3.1 Systems Life Cycle Costing1.4 Cost Analysis, Estimation, and Management1.4.1 Cost Analysis1.4.2 Cost Estimation1.4.2.1 Parametric Cost Estimation1.4.2.2 Analogy Cost Estimating Methodology1.4.2.3 Engineering Build-Up Methodology1.4.3 Cost Management1.5 SummaryReferences
2.1 Introduction and the Time Value of Money2.2 The Capital Budgeting Decision2.2.1 Basic Concepts in Capital Budgeting2.2.2 Benefit and Cost Development2.3 Time Value of Money2.3.1 Cash Flow Diagram Rules2.4 Interest2.4.1 Simple Interest2.4.2 Compounded Interest2.4.3 The “Rule of 72”2.4.4 Compound Interest Notation and Interest Tables2.4.5 Interest Compounded Other Than Yearly2.5 Common Cash Flow Series2.5.1 Single Period Cash Flow2.5.2 Uniform Cash Flow Series2.5.3 Linear Gradient Cash Flow Series2.5.4 Irregular Cash Flow Series2.6 Concept of Economic Equivalence2.7 Amortization Schedules2.8 SummaryBibliographyReferences
3.1 Introduction3.2 Net Present Value3.2.1 NPV in Excel3.3 Annual Equivalent Worth3.3.1 Introduction3.3.2 Unequal Service Lives Using AEW3.4 Capital Budgeting: Selection of Multiple Projects3.5 After-Tax Cash Flow Analysis3.5.1 Depreciation3.5.2 Corporate Income Taxes3.6 Income and Cash Flow Statements3.7 SummaryBibliographyReferences
4.1 Introduction4.2 Interest as Time Value of Money4.3 Inflation4.3.1 Determining Inflation and Deflation4.4 Disinflation, Deflation, and Stagflation4.5 Market Interest Rates4.5.1 United States Treasury Debt4.5.2 Debt4.5.3 Equity4.5.4 Minimum Attractive Rate of Return4.6 SummaryBibliographyReferences
5.1 Introduction5.1.1 Ways to Study a System5.1.2 Advantages and Disadvantages of Simulations5.2 Review of Probability and Statistics5.2.1 Introduction5.2.2 Random Variables5.2.3 Probability Density Functions5.2.4 Cumulative Distribution Functions5.3 Discrete Process Generators5.4 Continuous Process Generators5.5 Probability and Statistics Summary5.6 Simulation in Practice5.6.1 Introduction to Simulation in Practice5.6.2 Building Complex Simulations5.7 Using Readiness Levels for Model Input5.8 Simulation Using Spreadsheets5.8.1 Introduction5.9 Building Systems Simulations5.9.1 Introduction5.9.2 Using Expert Elicitation for Data Development5.9.3 Adjusting for Bias5.10 Sensitivity Analysis5.11 SummaryReferences
6.1 Introduction to Developing Life Cycle Models6.2 Developing LCC Models6.3 Life Cycle Costs Categories6.3.1 Industrial Base and Supplier/Vendor Relationships6.3.2 Research, Development, Testing, and Evaluation6.3.3 Acquisition6.3.4 Operations and Support6.3.5 Disposal or Retirement6.3.6 Summary of Life Cycle Categories6.4 Billable Rates6.5 Costing Labor6.6 SummaryBibliographyReferences
7.1 Introduction7.2 Issues Surrounding Complex Systems7.3 Systems Engineering and Management Costs7.3.1 Hardware7.3.2 Software7.3.3 Interfaces and Integration at the Component and System Level7.3.4 Systems Engineering and Project Management Costs7.4 From Requirements to Architectures to Costs7.5 SummaryReferences
8.1 Introduction8.2 Software Estimating Techniques8.2.1 Overview8.2.2 Expertise-Based and Hybrid Models8.2.3 Algorithmic Models8.2.3.1 Original or Basic COCOMO Model8.2.3.2 Phase Distribution of Effort and Schedule for Organic Mode8.2.3.3 Intermediate COCOMO8.2.3.4 Advanced COCOMO8.2.4 Function Points8.2.5 Costing Software with Agile Development8.3 SummaryBibliographyReferencesAppendix 8.A Effort Multiplier for the Intermediate COCOMO Model (from Boehm et al., 2000)
9.1 Estimating Life Cycle Costs Throughout the Product Development Cycle9.2 Analogy9.3 Parametric Cost Estimating9.3.1 The Role of Statistics9.3.2 Some CERs of Interest9.3.2.1 Wright's Method9.3.3 Summary and Conclusions9.4 Detailed Engineering Builds9.5 SummaryReferences
10.1 Introduction10.2 Common Decision Analysis Tools10.2.1 Decision Trees10.2.2 Decision-Making Based upon Value Analysis10.2.3 Pugh Matrix10.2.4 Summary10.3 Risk10.3.1 Overview10.3.2 Risk Buffers10.4 Integrating Risk, Value, and Costs for Decision Analysis10.5 Making Defensible and Transparent Decisions10.5.1 Bias10.6 SummaryBibliographyReferences
11.1 Introduction11.2 The Role of the Cloud11.3 Costing Data11.4 Cost Considerations for Artificial Intelligence and Machine Learning11.5 ConclusionBibliographyReferences
12.1 Introduction12.2 Commercial Off-the-Shelf Systems12.2.1 Hardware-centric COTS12.2.2 Software-centric COTS12.2.3 Integration Costs12.3 Gots12.4 Software Reuse12.4.1 Cost Reductions Achieved with Software Reuse12.5 Open Source12.6 SummaryBibliographyReferences
13.1 Introduction13.2 Basics of Networks13.3 Work Breakdown Structure13.4 Progress Measurement13.5 Calculating Earned Value13.6 Monte Carlo Simulation of Networks13.7 SummaryBibliographyReferences
14.1 Introduction14.2 Benefit-Cost Ratio14.3 Return on Investment14.4 Cost-Benefit Analysis14.5 Expected Value14.6 Sensitivity Analysis14.7 Breakeven Analysis14.7.1 Breakeven Quantity14.7.2 Conventional Payback Period14.7.3 Discounted Payback Period14.7.4 Breakeven Charts14.8 Internal Rate of Return14.8.1 The Compounding Equation14.8.2 The Quadratic Equation14.8.3 Trial-and-Error Method14.8.4 IRR in Excel14.8.5 Incremental IRR14.9 SummaryReferences

Overview

This book offers a systems and life cycle or total ownership cost perspective. It presents advanced costing techniques such as simulation-based costing, decision analysis, complex systems costing, software, big data, and cloud computing estimation. Examples and problems demonstrate these techniques with real-world applications.