Including All Costs in a Life Cycle Cost Estimate

As we described in chapter 2, a life cycle cost estimate provides a structured accounting of all labor, material, and other efforts required to develop, produce, operate and maintain, and dispose of a particular program. A life cycle cost estimate therefore encompasses all past (or sunk), present, and future costs for every aspect of the program, regardless of funding source.

A life cycle cost estimate should include both government and contractor costs of the program over its full life cycle, from inception of the program through design, development, production, operations and maintenance, and disposal. If items are excluded from the estimate, they should be documented and justified. By accounting for all costs, life cycle cost estimates enhance decision making and allow for design trade off studies to be evaluated on the basis of cost as well as on a technical and performance basis. A life cycle cost estimate will help management successfully plan program resource requirements and make wise decisions.

If the life cycle cost estimate does not include all costs, then the estimate most likely cannot fully meet the comprehensive characteristic of a high-quality cost estimate. Additionally, the estimate may not meet the well-documented, accurate, or credible characteristics. (We describe these characteristics in greater detail in chapter 16.) For example, if the cost estimate is missing some cost elements, then the estimate may not be credible because the total cost will be underestimated and risks and uncertainty associated for missing elements will not be accounted for in a quantitative risk and uncertainty analysis.