Ship’s Life Cycle Cost (LCC) is the total cost of ownership of a ship and its equipment including its conception, acquisition, operation, maintenance, upgrade and decommissioning. LCC is normally calculated by summing up the cost estimates from inception to disposal or in other words cost estimates from cradle to grave. While LCC analysis is carried out for commercial ships to estimate the net profit and return of investments, in the case of Naval Ship Building it is mainly used to choose the most cost-effective options from all the options available. LCC is normally used in the corporate world as a management decision tool based on facts, money and time.
To understand and analyze the LCC of a marine platform, it is very important to understand the various stages of its life cycle from different perspectives. The stages of life of a marine platform based on a shipbuilder’s perspective would be Conception, Design, Engineering & Development, Production and Logistics Support. From a customer’s perspective the stages of life of a marine platform are Purchase, Operation, Support, Maintenance and Disposal.
Life Cycle Cost of a ship can be divided in to two parts – the initial cost or the acquisition cost and the future cost or the sustaining cost. The initial cost is the incurred prior to the purchasing of the ship and the future cost is the cost incurred after the commissioning of the ship.
In the case of marine platforms, especially the Naval ships, it is seen that the acquisition cost is approximately about 20% – 40% of LCC whereas the sustaining cost would be about 60% – 80% of LCC.
The LCC of Naval ships are normally reduced by the application of the Integrated Logistics Support (ILS) principles. The costs are normally estimated based on the predictive method where no historic data are available or a method based on statistical data available for the existing systems. In all cases, appropriate discount rate and escalation rates are incorporated in to the calculations to make the future cost comparable with the present cost.
The success of any business depends on the application of a combination of good engineering practices and sound economic decisions. LCC analysis acts as a data based decision-making tool which can potentially provide comprehensive cost information that takes in to consideration a number of factors and brings out the hidden costs, thereby playing a decisive role in capital-intensive programs like ship building. However it should be noted that LCC does not provide an exact value of cost. As it is an estimate, the accuracy of LCC depends up on the correctness of inputs and the method adopted for calculations. Notwithstanding this vital assumption, the LCC definitely provides an insight in to the cost factors and the magnitude of the associated costs which are critical for decision-making.